SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2
AMENDMENT #2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
THE TRACKER CORPORATION OF AMERICA
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(Name of Small Business Issuer in Its Charter)
DELAWARE 7299 86-0767918
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(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation Classification Identification
or Organization) Code Number) Number)
1120 FINCH AVE. WEST, SUITE 303, NORTH YORK, ONTARIO CANADA M3J 3H8;800-822-8757
- --------------------------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)
ARKIN MEROLLA LLP, ONE SECURITIES CENTRE, SUITE 302,
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3490 PIEDMONT ROAD, ATLANTA GEORGIA 30305; 404-467-5244
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(Name, Address and Telephone Number of Agent For Service)
Approximate Date of Commencement of Proposed Sale to the Public: from time
to time after this registration statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
Under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
Check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================================================================================
| Title of Each Class | | Estimated | | Amount of |
| Of Securities To | Amount to | Conversion or | Estimated | Registration |
| Be Registered | Be Registered |Exercise Value(1)| Aggregate Value | Fee |
|-----------------------------------|---------------|-----------------|------------------|---------------|
<S> <C> <C> <C> <C>
| Resale of common stock underlying:| | | | |
| Conversion notes | 11,000,000 | .385 | $ 4,235,000.00 | $ 1,118.04 |
| Repricing warrants | 2,000,000 | .385 | $ 770,000.00 | $ 203.28 |
| Purchase warrants | 115,000 | .385 | $ 44,275.00 | $ 11.69 |
| Sovereign warrants | 85,000 | .385 | $ 32,725.00 | $ 8.64 |
| Callable warrants | 6,800,000 | .385 | $ 2,618,000.00 | $ 691.15 |
| | ------------- | | ---------------- | ------------- |
| | 20,000,000 | | $ 7,700,000.00 | $ 2,032.80 |
| | | | | ------------- |
========================================================================================================
<FN>
(1) Computed pursuant to Rule 457(c) for the purpose of calculation of the registration fee on
the basis of the bid and asked price of our common stock on March 29, 2000 as reported
by the National Quotation Bureau, Inc.
</TABLE>
<PAGE>
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine
<PAGE>
APRIL 3, 2000 AMENDED PRELIMINARY PROSPECTUS
THE TRACKER CORPORATION
OF AMERICA
Up to 20,000,000 Shares of Common Stock
The selling stockholders of The Tracker Corporation of America may offer up
to 20,000,000 shares of our common stock upon conversion of the notes and the
exercise of the warrants.
The security holders may sell their shares of common stock after delivery
of this prospectus to purchasers, from time to time, through broker-dealers or
underwriters at the prevailing market price as listed on the OTC Bulletin Board
under the symbol "TRKR." We will not receive any of the proceeds from the
secondary offering and sale of the common stock by the security holders.
See, RISK FACTORS on page 1.
Our principal offices are located at 1120 Finch Avenue West, Suite 303,
North York, Ontario, Canada M3J 3H7. For more information, contact Bruce Lewis
at 1-800-822-8757.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . 1
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . 7
DETERMINATION OF CONVERSION AND EXERCISE PRICES. . . . . . . . 8
SELLING SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . 14
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . 16
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS . 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 19
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . 20
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES . . . . . . . . . . . . . 21
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . 29
DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 35
MARKET FOR COMMON EQUITY . . . . . . . . . . . . . . . . . . . 36
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 37
CHANES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . 45
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE>
RISK FACTORS
The securities offered in this prospectus involve a high degree of risk.
In addition to the other information contained in this prospectus, you should
consider the following risk factors before making an investment. The
occurrence of any the following risks could materially adversely affect our
business, financial condition and results of operations. Additional risks and
uncertainties not presently known to us or that we currently view as immaterial
might also materially adversely affect our business, financial condition or
results of operations. In such a case, the value of your investment could
decline and you may lose all or part of your investment.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in such forward-looking statements as a result of a variety of
factors, including those set forth in the following risk factors and elsewhere
in this prospectus.
THE CONVERSION OF THE BRIDGE FINANCING NOTES AND THE EXERCISE OF THE WARRANTS
MAY CREATE IMMEDIATE AND SUBSTANTIAL DILUTION TO THE EXISTING SHAREHOLDERS.
As of December 31, 1999, we had 53,988,579 shares of common stock
outstanding, with a book value of $-0.04 per share. We have reserved 20,000,000
shares of common stock for future issuance pursuant to the conversion of notes
and the exercise of certain warrants. We cannot assure that the issuance of the
common stock reserved for future issuance will not materially adversely affect
the prevailing market price of the common stock. Furthermore, issuance of the
shares of common stock as described below could result in significant dilution
to our stockholders.
We issued $1,700,000 in principal amount of bridge financing notes. The
notes are convertible into shares of common stock by the holders at a conversion
price dependent on the market price as of the date of issue and the date of
redemption. The notes also carry an attached repricing warrant that entitle the
holder to additional shares of common stock if the price drops below certain
levels. The conversion of the notes and the exercise of the repricing warrants
will not result in the receipt of any additional funds, but will eliminate
approximately $1,700,000 in debt. We estimate the dilution to the book value of
our common stock, which may actually have an accretive effect, resulting from
the conversion of the notes and attached repricing warrants as follows:
Low conversion price High conversion price
(.15/share) (.40/share)
---------------------------------------------------------
Book value before $-0.04 $-0.04
Shares converted/exercised 15,000,000 8,500,000
Book value after $-0.00 $-0.00
We also reserved additional shares of common stock for issuance pursuant to
the callable warrants, purchase warrants, and warrants issued to Sovereign
Capital Advisors, LLC as our placement agent, in the amount and up to the
following expirations from the original issue date, should we choose to call the
warrants:
Warrant Amount Expiration Date
--------------------------------------------------------------------------
Callable up to 6,800,000 shares ($1,700,000 worth) 1 year
Purchase 115,000 shares 5 years
Sovereign 85,000 shares 3 years
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<PAGE>
Any proceeds we may receive upon the exercise of these warrants will be
used for general corporate purposes and for working capital, which may include
payment of salaries, research and development, and marketing expenses. Assuming
the conversion of the notes and exercise of the repricing warrants results in
65,000,000 shares of common stock issued and outstanding, we estimate the
dilution to the book value of our common stock, which may again have an
accretive effect, resulting from the exercise of the remaining warrants as
follows:
Low conversion price High conversion price
(.15/share) (.40/share)
---------------------------------------------------------
Book value before $-0.00 $-0.00
Additional shares, if exercised 11,750,000 4,650,000
Total receipts $ 1,400,000 $ 1,550,000
Book value after $ 0.01 $ 0.02
Should we convert the notes and the warrants be exercised, the number of
shares of common stock will substantially increase. This could adversely affect
our stock price and other shareholders' ownership interests. Should the
exercise and/or call price be even lower than $0.15 per share, or if we issue
additional shares in the future, the book value of our common stock may
experience further dilution.
BECAUSE THE CONVERSION AND/OR EXERCISE PRICE IS TIED TO THE MARKET PRICE, THE
NUMBER OF SHARES THAT MAY BE ISSUED WILL INCREASE AS OUR STOCK PRICE DECREASES.
A potentially unlimited number of shares can be issued under the conversion
terms of the notes and related warrants since the exercise price of the warrants
is tied to the market price of our common stock. As such, the number of shares
that can be issued will increase as the price decreases. The 20,000,000 shares
we are registering should be sufficient to cover the conversion of the notes and
exercise of the warrants down to a low price of $.25 per share. Should the
conversion and/or exercise price drop below $.25 per share, we may need to
register additional shares to complete the transaction.
BECAUSE NO CLEARLY IDENTIFIED MARKET EXISTS FOR OUR PRODUCTS AND SERVICES, WE
MAY LACK THE FINANCIAL RESOURCES TO DEVELOP ANY MARKET ACCEPTANCE.
Our future success entirely depends on the successful development,
commercialization and market acceptance of our personal property marking and
monitoring system. Our initial marketing efforts, which focused primarily on
consumer applications of our technology, were not successful. Identifying
markets that will respond favorably to our products and services will present
marketing and financial challenges to us. We are experimenting with new
business models that are speculative and untested to date. We cannot assure
that we will gain a significant level of commercial acceptance for our products
and services in any commercial market.
We have a large number of competitors across a variety of industries that
have substantially greater financial, technical, marketing, and management
resources. For example, we currently offer a pet registration service using our
technology. However, Pets.com and Petopia.com have recently launched web pages
as a lead in to the sale of pet related products. These marketing efforts may
hinder our success in the pet registration market. Similarly, we recently
launched a business asset management system in certain niche markets. One of
our competitors, Tangram Enterprise Solutions, has over twenty times greater
assets than us and ten times the work force. Should we compete directly with
them, their financial and personnel strength could prevent us from capturing
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<PAGE>
those markets. As a result, demand and market acceptance for our products and
services are subject to a high level of uncertainty.
OUR FUTURE SUCCESS DEPENDS ON THE EXPERIENCE AND RETENTION OF KEY PERSONNEL.
Our success is largely dependent on our ability to attract and retain key
management and operating personnel. We particularly depend on the efforts and
skills of Bruce I. Lewis, Jay S. Stulberg, Christopher Creed, and Tizio Panara.
We have entered into employment agreements with Mr. Lewis and Mr. Stulberg and
are planning to enter into agreements with Mr. Creed and Mr. Panara. The loss,
incapacity, or unavailability of any of these individuals could materially
adversely affect our business, financial condition or results of operation.
It may also be necessary for us to attract and retain additional
individuals to support our growth or to replace key personnel in the event of
their termination of employment. Because qualified individuals are in high
demand and are often subject to competing offers, we cannot assure that we can
attract and retain qualified personnel needed for our business.
BECAUSE OF OUR HISTORY OF OPERATING LOSSES AND EXPECTATION OF FUTURE LOSSES, OUR
INDEPENDENT AUDITORS EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR FUTURE VIABILITY AS A
GOING CONCERN IN THEIR MOST RECENT AUDIT REPORT.
We have generated only modest revenue and have sustained significant
operating losses each year since our inception. In fact, we have not generated
any significant revenue since September 1997. We have accumulated a deficit of
$18,383,541 as of December 31, 1999. Our ability to generate revenue from
operations and achieve profitability is largely dependent upon a successful
transition from a development stage company to a fully operating company. In
order to achieve that, we will require significant additional financing to
penetrate new markets for our products and services. If we are unable to
attract such financing or achieve profitable operations, we may be forced to
cease or significantly limit our operations. As a result of the foregoing
conditions, our independent public accountants expressed doubt about our future
viability as a going concern in their audit report dated July 8, 1999.
OUR STOCK MAY EXPERIENCE SEVERE VOLATILITY BECAUSE OF THE LIMITED TRADING MARKET
AVAILABLE.
Our common stock is traded in the over-the-counter market and is quoted on
the OTC Bulletin Board. The market for the common stock must be characterized
as extremely limited due to the low trading volume and the small number of
brokerage firms acting as market makers. Because stocks traded on the OTC
Bulletin Board generally have limited brokerage and news coverage, the market
price of our common stock may not reflect our true value. As a result, you may
find it difficult to dispose of our common stock or to obtain accurate
quotations as to our value. Over the past eighteen months our stock has traded
at a price as low as $.05 per share and as high as $.87 per share. We cannot
assure that the over-the-counter market for our securities will continue, that a
more active market will develop, or that the prices in any such market will be
maintained at their current levels or otherwise. Furthermore, technological
innovations, new product developments, general trends in our industry and
quarterly variations in our results of operations may cause the market price of
the common stock to fluctuate significantly.
PENNY STOCK RULES
Our common stock is subject to the penny stock rules promulgated under the
Exchange Act of 1934. The penny stock rules regulate broker-dealer practices in
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<PAGE>
connection with transactions in equity securities with a price of less than
$5.00. This does not include securities registered on certain national
securities exchanges or quoted on the NASDAQ system as long as the exchange or
system provides current price and volume information with respect to
transactions in such securities. The penny stock rules require a broker-dealer
to deliver a standardized risk disclosure document prepared by the SEC that
provides information about penny stocks and the nature and level of risks in the
penny stock market. This must occur prior to a transaction involving a penny
stock not otherwise exempt from the rules. The broker-dealer must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid/offer quotations and the broker-dealer and
salesperson compensation information must be given to the customer orally or in
writing prior to effectuating the transaction. It also must be given to the
customer in writing before or with the customer's confirmation. In addition,
the penny stock rules require that the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for our common stock. As such, you may find it
more difficult to sell our common stock in the over-the-counter market.
OUR CURRENT OWNERSHIP STRUCTURE AND THE PROVISIONS OF OUR ARTICLES OF
INCORPORATION AND BYLAWS MAY HINDER ANY MATERIAL CHANGE IN CONTROL.
Our directors, officers, principal stockholders and their affiliates will
continue to beneficially own approximately 9% of the common stock immediately
following this registration. This assumes the full exercise of currently
exercisable options and warrants and the conversion of outstanding convertible
debentures. As a result of such ownership, our directors, officers, principal
stockholders and their affiliates will effectively have the ability to maintain,
control and direct our business and affairs. Such concentration of ownership
may have the effect of delaying, deferring or preventing a change in control.
In addition, our articles of incorporation and bylaws contain provisions that
have the effect of retaining the control of current management and may
discourage any acquisition bids. Such provisions could limit the price that
investors might be willing to pay in the future for shares of the common stock.
It may also impede the ability of stockholders to replace management should
factors warrant such a change.
OUR FUTURE SUCCESS DEPENDS ON THE ACCEPTANCE OF OUR TECHNOLOGY IN THE
MARKETPLACE AND OUR FINANCIAL ABILITY TO KEEP UP WITH THE TECHNOLOGY CHANGES IN
OUR INDUSTRY.
We cannot assure that our competitors and potential competitors will not
succeed in developing or marketing technologies and products that will be more
accepted in the marketplace or render our technology obsolete or noncompetitive.
Most of our competitors and potential competitors have substantially greater
capital resources, research and development staffs and facilities than us.
Products based on new technologies such as radio frequency or new industry
standards may render our existing products obsolete and unmarketable. Over the
past two years we have invested minimal capital to maintain and update our
technology. Any delay in developing, testing and releasing enhanced or new
products could materially adversely affect our business, operating results and
financial condition.
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<PAGE>
OUR LACK OF SIGNED AGREEMENTS WITH SUPPLIERS MAY PREVENT US FROM EFFECTIVELY
DISTRIBUTING OUR PRODUCTS AND SERVICES TO THE MARKET.
The ability to market, sell and operate our products and services depends
on the procurement of necessary goods and services. Although we have
preliminary understandings with suppliers, these may be difficult to enforce.
We cannot assure that we will achieve and maintain product quality and
reliability in the quantities required for commercial operations or within a
period that will permit us to introduce our products in a timely fashion. We
also cannot assure that we will be able to assemble and manufacture our products
at an acceptable cost.
OUR FUTURE RELATIONSHIP WITH SYMBOL TECHNOLOGIES IS DEPENDENT ON OUR SALE OF A
MINIMUM NUMBER OF THEIR SCANNERS, WHICH WE PRESENTLY CANNOT FULFILL.
We procure scanning equipment from Symbol Technologies, particularly the
PDF 1000 laser scanner. This is the first laser scanner to read two-dimensional
bar code. On May 18, 1999 we entered into an agreement with Symbol whereby we
were granted the exclusive right to use the PDF 1000 laser scanners in the
United States, Canada, and Europe for personal property identification and
recovery purposes. This contract is subject to a minimum annual purchase
requirement of 5000 laser scanner units having a purchasing effect of at least
$10,000,000. We will likely not meet this requirement and Symbol will be
permitted to terminate the contract should it so choose. Should Symbol
terminate the agreement, our business may be harmed in two ways:
(1) we may no longer be capable of securing future orders due to a lack of
supply; and
(2) we may not be able to honor existing service agreements with current
customers using the Symbol scanners
Consequently, the termination of the Symbol contract would directly affect the
general viability of us as a going concern.
BECAUSE OUR PRODUCTS AND SERVICES ARE SUBJECT TO LENGTHY SALES CYCLES, WE MAY
LACK THE FINANCIAL RESOURCES TO MAINTAIN OPERATIONS.
We typically experience long sales cycles that generally vary from three to
six months. Because the implementation of our products and services involves
significant capital expenditures by the customer, our sales are subject to
lengthy approval processes and delays. We often devote significant time and
resources to a prospective customer, including costs associated with multiple
site visits, product demonstrations, and feasibility studies without any
assurance that the prospective customer will decide to purchase our products.
OUR FUTURE SUCCESS IS DEPENDANT ON PATENTS AND PROPRIETARY TECHNOLOGY. WE
CURRENTLY DO NOT HAVE ANY PATENTS, REGISTERED TRADEMARKS OR SERVICE MARKS.
Our success partly depends on our ability to obtain patent protection for
our proposed products and processes, to preserve our trade secrets and to
operate without infringing the proprietary rights of third parties. We rely on
a combination of trade secret, nondisclosure and other contractual agreements,
and technical measures to protect the confidential information, know-how and
proprietary rights relating to our personal property identification and recovery
system. In addition, we have an exclusive license with Global Tracker to use
the technology associated with an international patent application filed
pursuant to the Patent Cooperation Treaty for our personal property
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identification and recovery system. We cannot assure, however, that this will
mature into an issued patent or that any patent, trademark or service mark
obtained or licensed by us will be held valid and enforceable if asserted by us
against another party. In addition, these protections may not preclude third
parties from asserting infringement claims against us. The successful assertion
of such claims could materially adversely affect our business, operating results
and financial condition.
We do not have any registered trademarks or service marks. Furthermore, we
do not have any active trademark or service mark applications pending before the
U.S. Patent and Trademark Office or with any other regulatory authorities.
Even if our pending patent is ultimately issued, other parties may hold or
receive patents that contain claims covering our technology. Should this occur,
it may delay or prevent the sale of our products and services. It may also
require licenses resulting in the payment of fees or royalties by us in order to
continue operations. We cannot assure that needed or potentially useful
licenses will be available to us in the future on acceptable terms. An adverse
determination in any litigation with respect to proprietary infringement could
subject us to significant liabilities to third parties. In such a case, we may
be required to seek licenses from, or pay royalties to, third parties. We could
also be prevented from manufacturing, selling or using our proposed products.
WE WILL REQUIRE SIGNIFICANT FUTURE CAPITAL IN ORDER TO CONTINUE OPERATIONS. WE
CANNOT ASSURE THAT FUTURE CAPITAL WILL BE AVAILABLE.
We will require additional funds in the amount of $1,000,000 over the next
six months to successfully market and operate our business. We estimate
needing an additional $700,000 over the following twelve months. Our inability
to obtain financing or to raise additional capital when needed on favorable
terms could prevent or delay the marketing, sale and operation of our products
and services. Insufficient funds may require us to delay, scale back or
eliminate some or all of our programs designed to facilitate the commercial
introduction of our products and services or prevent such commercial
introduction altogether.
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USE OF PROCEEDS
We will not receive any part of the proceeds from the sale of the shares of
common stock underlying the bridge financing notes, should they be converted, or
the attached repricing warrants, should they be exercised.
The net proceeds from the exercise of the remaining warrants, if called and
exercised, are estimated at $1,425,000. We cannot assure that we will call any
of these warrants. Further, even if we do call these warrants, we cannot assure
that the holders will choose to exercise them. We presently plan on using these
funds, if any, for the development, sales and marketing of new products and
services and for working capital.
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DETERMINATION OF CONVERSION AND EXERCISE PRICES
We have issued, sold, and delivered $1,700,000 in original principal amount
of the bridge financing notes, which occurred through three closings. Net
proceeds from the offering totaled approximately $1,436,000, which we deposited
directly into our operating account.
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. Finally, we issued a warrant to Sovereign Capital
Advisors, LLC, who acted as our exclusive agent in connection with the issuance
and sale of the notes. The sovereign warrants were issued at a rate of 5% of
the principal amount of the notes issued at each closing.
Each warrant has its own formula to determine the number of common shares
into which it is exercisable. A summary of the principal amount of notes and
warrants issued from the three closings and an explanation as to the basic
returns on these instruments is given below:
FIRST CLOSING:
Original issue date: August 18, 1999
Average market price five days prior to closing: $0.294
PRINCIPAL TYPE OF WARRANT
---------------
PURCHASER OF NOTE CALLABLE PURCHASE SOVEREIGN
- -------------------------------------------------------------------------------
SovCap Equity Partners, Ltd $1,000,000 $1,000,000 worth 200,000 50,000
Cumberland House
#27 Cumberland Street
P.O. Box CB-13016
Nassau, New Providence
The Bahamas
SECOND CLOSING:
Original issue date: October 15, 1999
Average market price five days prior to closing: $0.195
PRINCIPAL TYPE OF WARRANT
---------------
PURCHASER OF NOTE CALLABLE PURCHASE SOVEREIGN
- -------------------------------------------------------------------------------
Correllus International, Ltd $ 150,000 $150,000 worth 30,000 7,500
Edificio Marina Marbella 6B
Avenida Severo Ochoa 28
29600 Marbella, Spain
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Arab Commerce Bank, Ltd $ 150,000 $150,000 worth 30,000 7,500
P.O. Box 309
Grand Cayman
Cayman Islands
Enrico Bonetti $ 50,000 $ 50,000 worth 10,000 2,500
C/o Cross Finanz
Via S. Tecla, No. 4
20122 Milan, Italy
THIRD CLOSING:
Original issue date: December 7, 1999
Average market price five days prior to closing: $0.140
PRINCIPAL TYPE OF WARRANT
---------------
PURCHASER OF NOTE CALLABLE PURCHASE SOVEREIGN
- -------------------------------------------------------------------------------
SovCap Equity Partners, Ltd $ 200,000 $200,000 worth 40,000 10,000
Cumberland House
#27 Cumberland Street
P.O. Box CB-13016
Nassau, New Providence
The Bahamas
Correllus International, Ltd $ 50,000 $50,000 worth 10,000 2,500
Edificio Marina Marbella 6B
Avenida Severo Ochoa 28
29600 Marbella, Spain
Frutose - Marketing & Investors $ 100,000 $100,000 worth 10,000 5,000
Internacionais LDA
C/o Cross Finanz
Via S. Tecla, No. 4
20122 Milan, Italy
CONVERSION OF BRIDGE FINANCING NOTES
The bridge financing notes can be converted into our common stock.
Interest on the bridge financing notes is payable at a rate of 8% per annum from
the original issue date until the maturity date. The maturity date is one
hundred twenty days after the original issue date, at which time interest is
payable at the rate of 11% per annum. The notes can be converted at our option
up to 180 days after the original issue date. The redemption price of the notes
shall be equal to the outstanding principal amount of the note plus accrued and
unpaid interest and then increased by the following applicable rates:
Days After Redemption
Original Issue Date Price
-------------------------- -------
Day 0-Day 90 110.0%
Day 91-Day 120 112.5%
Day 121- 115.0%
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Assuming a date of redemption of May 1, 2000 for all three closings, we
estimate the security holders would be entitled to the following redemption
prices:
<TABLE>
<CAPTION>
Principal Interest Earned Redemption Price
Security Holder of Note Through 5/1/00 (@ 115%)
- -------------------------- ---------- ---------------- ------------------
<S> <C> <C> <C>
1ST CLOSING
SovCap Equity Partners $1,000,000 $ 66,750 $1,226,763
2ND CLOSING
Correllus International $ 150,000 $ 7,400 $ 181,000
Arab Commerce Bank $ 150,000 $ 7,400 $ 181,000
Bonetti $ 50,000 $ 2,475 $ 60,350
3RD CLOSING
SovCap Equity Partners $ 200,000 $ 6,700 $ 237,700
Correllus International $ 50,000 $ 1,675 $ 59,500
Frutose $ 100,000 $ 3,350 $ 118,850
</TABLE>
The number of shares of common stock issuable in payment of the redemption
price on the date of conversion for each closing is equal to the following
formula:
CONVERSION SHARES = redemption price
------------------------------------------------------------
average market price 5 days prior to the original issue date
Assuming the conversion occurs on May 1, 2000 for all three closings, the
following table shows the estimated number of conversion shares for the
respective security holders:
<TABLE>
<CAPTION>
Security Holder Redemption Price Original Issue Date Price Conversion Shares
- -------------- ---------------- ------------------------- -----------------
<S> <C> <C> <C>
SOVCAP EQUITY PARTNERS
1st Closing $1,226,763 $0.294 4,172,663
3rd Closing $ 237,700 $0.140 1,697,857
CORRELLUS INTERNATIONAL
2nd Closing $ 181,000 $0.195 928,205
3rd Closing $ 59,500 $0.140 425,000
ARAB COMMERCE BANK
2nd Closing $ 181,000 $0.195 928,205
BONETTI
2nd Closing $ 60,350 $0.195 309,487
FRUTOSE
3rd Closing $ 118,850 $0.140 848,929
TOTAL CONVERSION SHARES: 9,310,346
</TABLE>
We reserved 11,000,000 shares of common stock for conversion pursuant to the
notes. Should the conversion occur at a date later than May 1, 2000, more
shares may be issued than the above example since interest on the notes
continues to accrue through the date of conversion.
REPRICING WARRANTS
Each note carries a repricing warrant, which may be exercised after the
twenty-first trading day after the date of conversion of the note. The
noteholder's ability to exercise the repricing warrant expires ninety days later
at a price of $.001 per share. The number of shares of common stock to which
10
<PAGE>
the repricing warrant is exercisable for each closing is equal to the following
formula:
REPRICING SHARES = number of conversion shares * (x)
---
(y)
where:
(x) = (125% of the average market price 5 days prior to the original issue date)
(average market price 5 days prior to the date of conversion)
(y) = average market price 5 days prior to the date of conversion
Given this formula, the repricing warrants will only be exercisable if the
stock price on the date of conversion falls below 125% of the stock price on the
date of each closing. In terms of the formula, if (x) is negative, no repricing
warrants are exercisable. As such, if the conversion occurs on a date when our
stock is traded as greater than $0.37 per share, no repricing warrants will
become exercisable under this offering. As of March 21, 2000 our stock traded
at $0.49 per share. However, to show an example of how the repricing warrants
may work, assume that we convert the notes on May 1, 2000 at a price of $0.30
per share. The following table describes how the above formula computes the
repricing shares for each security holder:
<TABLE>
<CAPTION>
125% of
Original Issue Repricing
Security Holder Conversion Shares Date Price (x) (y) (x)/(y) Shares
- --------------- ----------------- ----------- ------ ----- --------- ------
<S> <C> <C> <C> <C> <C> <C>
SOVCAP EQUITY PARTNERS
1st Closing 4,172,663 $ 0.368 0.068 0.30 .227 945,804
3rd Closing 1,697,857 $ 0.175 -0.125 0.30 negative 0
CORRELLUS INTERNATIONAL
2nd Closing 928,205 $ 0.244 -0.056 0.30 negative 0
3rd Closing 425,000 $ 0.175 -0.125 0.30 negative 0
ARAB COMMERCE BANK
2nd Closing 928,205 $ 0.244 -0.056 0.30 negative 0
BONETTI
2nd Closing 309,487 $ 0.244 -0.056 0.30 negative 0
FRUTOSE
3rd Closing 848,929 $ 0.175 -0.125 0.30 negative 0
TOTAL REPRICING SHARES: 945,804
Should the security holders eligible to exercise the repricing warrants
choose to do so, then the number of shares of common stock issuable pursuant to
the repricing warrant for each closing is equal to the following formula:
= number of repricing shares * (average market price 5 days prior to the dateof conversion - .001)
------------------------------------------------------------------------------------------------
average market price 5 days prior to the date of conversion
</TABLE>
The difference between this formula and the previous one is that the
security holder must pay a price of $0.001 for each exercised share. In the
previous example, only SovCap Equity Partners was eligible to exercise the
repricing warrants assuming a conversion price of $0.30 per share. Thus, the
number of shares of common stock issuable upon their exercise is equal to:
945,804 * (0.30-.001) = 942,652 shares of common stock
-----------
0.30
11
<PAGE>
Given the price of our stock since March 7, 2000, we reserved 2,000,000
shares of common stock to be issued according to the repricing warrants.
Obviously, the number of shares to be issued under the repricing warrants is
directly linked to our stock price on the conversion date of the notes. As the
conversion price decreases, the number of shares to be issued pursuant to the
repricing warrants increases. In fact, a potentially unlimited number of shares
may be issued under the repricing warrants should our stock near a price of
$0.00 per share. Given the current reserve of 2,000,000 shares, only if the
notes are converted at a price below $0.25 will we need to register additional
shares in order to satisfy our obligation under the repricing warrants.
PURCHASE WARRANTS
Each investor received an exercisable purchase warrant at the rate of
20,000 warrants for each $100,000 in principal amount of notes purchased and
issued. The expiration date for the purchase warrants is five years following
the original issue date for each closing. The exercise price of the purchase
warrants for each closing is equal to the greater of: (i) 120% of the closing
bid price on the original issue date; or (ii) 75% of the average closing bid
price for the 5 trading days immediately prior to the date the purchase warrant
is exercised.
As of March 21, 2000, our stock price traded at $0.49 per share. Assuming
this is the price on the date the purchase warrant is called, the exercise price
is then the greater of:
(i) 120% of the closing bid price on the original issue date
- 1st closing = 120% * $0.294 = $0.353
- 2nd closing = 120% * $0.195 = $0.234
- 3rd closing = 120% * $0.140 = $0.168
or (ii) 75% of the closing bid price on the exercise date
- 75% * $0.49 = .3675
Consequently, in this example the exercise price of the purchase warrants is
$0.3675 for all security holders regardless of when the original closing
occurred. The number of shares of common stock then issuable upon conversion of
the purchase warrants for each closing is equal to the following formula:
= number of purchase warrants * (x)
---
(y)
where:
(x) = (average market price 5 days prior to the date the warrant is
exercised) - (exercise price)
(y) = average market price 5 days prior to the date the warrant is
exercised
Given the assumed price on the date the purchase warrant is exercised is
$0.49 per share and the exercise price is $0.3675, the formula above results in:
(x) = ($0.49 - $0.3675) = $0.1225
(y) = $0.49
and
(x)/(y) = $0.1225 = .25
-------
$0.49
12
<PAGE>
Consequently, the number of shares of common stock issuable according to the
purchase warrants and our proceeds would be as follows:
<TABLE>
<CAPTION>
Purchase Issued
Security Holder Warrant Shares (x)/(y) Common Shares Exercise Price OurProceeds
- ---------------------- -------------- ------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
SovCap Equity Partners 240,000 0.25 60,000 $ 0.3675 $ 22,050
Correllus 40,000 0.25 10,000 $ 0.3675 $ 3,675
Arab Commerce Bank 30,000 0.25 7,500 $ 0.3675 $ 2,756
Bonetti 10,000 0.25 2,500 $ 0.3675 $ 919
Frutose 0,000 0.25 5,000 $ 0.3675 $ 1,838
TOTAL SHARES ISSUED: 85,000 TOTAL PROCEEDS $ 31,238
</TABLE>
Should the call and exercise occur at a lower price than $0.49 on the date
of the exercise, our proceeds would decrease. We reserved 115,000 shares of
common stock to be issued according to the purchase warrants.
CALLABLE WARRANTS
Each investor received an exercisable 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. The expiration date for the callable warrants is
one year following the original issue date for each closing. The exercise price
of the callable warrant shares is equal to 80% of the average closing bid price
for the five (5) trading days immediately prior to the date the warrant is
exercised. We may redeem the callable warrants at the rate of $.001 for each
callable warrant share.
For example, assuming a call and exercise price of $0.49 per share, the
resulting exercise price is $0.392 per share. The following table described the
amounts of common stock received by the security holders and the proceeds we
will receive from such a sale:
<TABLE>
<CAPTION>
Issued
Security Holder Principal in Notes Common Shares Exercise Price Our Proceeds
- -------------- ------------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
SovCap Equity Partners $1,200,000 2,448,980 $ 0.392 $ 960,000
Correllus $ 200,000 408,163 $ 0.392 $ 160,000
Arab Commerce Bank $ 150,000 306,122 $ 0.392 $ 120,000
Bonetti $ 50,000 102,040 $ 0.392 $ 40,000
Frutose $ 100,000 204,082 $ 0.392 $ 80,000
TOTAL SHARES ISSUED: 3,509,387 TOTAL PROCEEDS: $1,360,000
</TABLE>
We reserved 6,800,000 shares of common stock pursuant to the callable
warrants. Should the call and exercise occur at a lower price than $0.28, we
would need to register more shares in order to complete the transaction. Our
proceeds would remain the same.
SOVEREIGN WARRANTS
Sovereign Capital Advisors, LLC served as our exclusive agent in connection
with the issuance and sale of the notes. It received a warrant at each closing
to purchase a number of shares of common stock equal to 5% of the principal
amount of the notes issued at each closing. The expiration date for the
13
<PAGE>
Sovereign warrants is three years following the original issue date for each
closing. The exercise price of each warrant is equal to the greater of the
following:
(i) 120% of the closing bid price on the date of each closing; or
(ii) 75% of the average closing bid price for the 5 trading days
immediately prior to the date the Sovereign warrant is exercised
As of March 21, 2000, our stock price traded at $0.49 per share. Assuming
this is the price on the date the Sovereign warrants are called, the exercise
price is then the greater of:
(ii) 120% of the closing bid price on the original issue date
- 1st closing = 120% * $0.294 = $0.353
- 2nd closing = 120% * $0.195 = $0.234
- 3rd closing = 120% * $0.140 = $0.168
or (ii) 75% of the closing bid price on the exercise date
- 75% * $0.49 = .3675
Consequently, in this example the exercise price of the Sovereign warrant
shares is $0.3675 for all three closings. Should the warrants be exercised at
$0.49 per share, Sovereign would receive 85,000 shares and we would receive
$31,238 in proceeds. We reserved 85,000 shares of common stock pursuant to the
Sovereign warrants. Should the call and exercise occur at a lower price than
$0.49 per share, our proceeds would decrease.
SELLING SECURITY HOLDERS
This prospectus registers the offer and sale of up to 20,000,000 shares of
our common stock by SovCap Equity Partners, Ltd., Correllus International, Ltd.,
Arab Commerce Bank, Ltd., Enrico Bonetti, Frutose - Marketing & Investors
Internacionais LDA, and Sovereign Capital Advisors, LLC. SovCap Equity
Partners, Ltd. is affiliated with Sovereign Capital Advisors, LLC, who acted as
our exclusive placement agent for the issuance of the bridge financing notes and
associated warrants. The following table describes the number of securities
presently owned by each selling security holder prior to this registration
statement:
SOVCAP EQUITY PARTNERS, LTD
- $1,200,000 in convertible bridge notes with attached repricing warrant
- $1,200,000 worth of shares in callable warrants
- 240,000 in purchase warrants
CORRELLUS INTERNATIONAL, LTD
- $200,000 in convertible bridge notes with attached repricing warrant
- $200,000 worth of shares in callable warrants
- 40,000 purchase warrants
ARAB COMMERCE BANK, LTD
- $150,000 in convertible bridge notes with attached repricing warrant
- $150,000 worth of shares in callable warrants
- 30,000 purchase warrants
FRUTOSE - MARKETING & INVESTORS INTERNACIONAIS LDA
- $100,000 in convertible bridge notes with attached repricing warrant
- $100,000 worth of shares in callable warrants
- 20,000 purchase warrants
14
<PAGE>
ENRICO BONNETTI
- $50,000 in convertible bridge notes with attached repricing warrant
- $50,000 worth of shares in callable warrants
- 10,000 purchase warrants
SOVEREIGN CAPITAL ADVISORS, LLC
- 85,000 Sovereign warrants
As of March 21, 2000, our stock traded at $0.49 per share. For purposes of
the below table, we assume this is the conversion price of the notes and the
exercise price of the warrants. Note, no repricing warrants will be exercised
at this price. The following table describes the number of securities issued
under this registration statement and the maximum total number of securities
available to be sold after the offering.
As of March 14, 2000, there were approximately 352 record holders of common
stock. Percentage of ownership is based upon 56,109,109 issued and outstanding
shares of common stock beneficially owned on March 14, 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 2,498,578 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 the
12,949,733 shares issued under the conversion of the notes and exercise of the
warrants at $0.49 per share.
<TABLE>
<CAPTION>
Total Shares Owned
Security Holder/Relationship After Conversion/Exercise Percentage
- -----------------------------------------------------------------------------------------
<S> <C> <C>
SOVCAP EQUITY PARTNERS, LTD. 8,379,500 11.47
Institutional Investor
CORRLLUS INTERNATIONAL, LTD. 1,771,368 2.42
Institutional Investor
ARAB COMMERCE BANK, LTD. 1,241,827 1.70
Institutiional Investor
FRUTOSE - MARKETING & INVESTORS INTERNACIONAIS LDA 1,058,011 1.45
Institutional Investor
ENRICO BONETTI 414,027 0.57
Institutional Investor
SOVEREIGN CAPITAL ADVISORS, LLC 85,000 0.11
Institutional Investor
</TABLE>
Should the conversion/exercise price drop below $0.49 per share, each
security holder will receive more shares and thereby attain a greater percentage
ownership. Moreover, if the conversion/exercise price drops below $0.37 per
share, the repricing warrants will result in an even greater issuance of stock.
15
<PAGE>
PLAN OF DISTRIBUTION
We will not receive any of the proceeds from the sale of the common stock
by the selling security holders. We anticipate the selling security holders
will offer the shares of common stock for sale either directly or through
broker-dealers or underwriters. The broker-dealers or underwriters may act
solely as agents or may acquire the shares of common stock as principals. They
may receive compensation in the form of usual and customary or specifically
negotiated underwriting discounts, concessions or commissions from the selling
security holders or the secondary purchasers of the shares of common stock
registered in this prospectus for whom they may act as agent.
The net proceeds to the selling security holders from the sale of common
stock will be the purchase price of the common stock sold less the aggregate
agents' commissions and underwriters' discounts, if any. The selling security
holders and any dealers or agents that participate in the distribution of the
common stock may be deemed to be an underwriter within the meaning of the
Securities Act of 1933.
The shares of common stock being offered by the selling security holders
will be sold in one or more transactions on the OTC Bulletin Board or on any
other market on which our common stock may be trading. The sale price to the
public may be the market price prevailing at the time of sale, or a different
price negotiated by the selling security holders. The selling security holders
shall have the sole and absolute discretion not to accept any purchase offer or
make any sale of shares of common stock if they deem the purchase price to be
unsatisfactory.
The selling security holders participating in the sale or distribution of
the shares of common stock will be subject to applicable provisions of the
Securities Exchange Act of 1934 and the rules and regulations passed by the SEC.
This may limit the timing of purchases and sales of any of the shares of the
common stock by the selling security holders. It may also affect the
marketability of the shares of common stock.
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.
16
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information with respect to our
executive officers and directors as of September 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bruce I. Lewis 59 Chief Executive Officer and Chairman of the Board of Directors
Jay S. Stulberg 49 President, Chief Operating Officer, Chief Financial Officer and Director
Dr. H. Joseph Greenberg 77 Director
Carl J. Corcoran 62 Director
David G.R. Butler 63 Director
</TABLE>
- ------------------------
BRUCE I. LEWIS has been our Chairman of the Board of Directors and Chief
Executive Officer since June 30, 1994, and our President from August 12, 1995 to
December 22, 1998. For the period from 1980 through May 1990, Mr. Lewis was
President and a director of Albert Berg Limited and its subsidiaries. Its
creditors petitioned Albert Berg into bankruptcy in May 1990. From June 1988 to
August 1990, he served as the Chief Executive Officer of Cape Breton Chemical
Corporation, a start-up PVC flexible stretch wrap manufacturer. From May 1990
through May 1993, Mr. Lewis was also a consultant to various companies in the
areas of management and acquisition financing. From May 1993 until its
dissolution in February 1998, Mr. Lewis served as the Chief Executive Officer
and Chairman of the Board of Directors of Tracker Canada. From November 1997 to
December 22, 1998, Mr. Lewis served as interim Chief Financial Officer.
JAY S. STULBERG has been our President, Chief Operating Officer and Chief
Financial Officer, and a director, since December 22, 1998 for the term expiring
at the 2001 annual meeting of stockholders. Since February 1998, Mr. Stulberg
has been the sole shareholder, director and officer of Global Tracker Corp.
Since approximately 1984, Mr. Stulberg has served on the board of directors of
two privately held family holding companies. From 1992 to 1994, Mr. Stulberg
served as the Controller of Enershare Technology Corp. From 1994 to mid-1996,
Mr. Stulberg served as the Group Controller of Algorithmics, Inc.
H. JOSEPH GREENBERG has been a Director since December 22, 1998 for a term
expiring at the 2002 annual meeting of stockholders. Dr. Greenberg has engaged
in the practice of medicine since his graduation from medical school in 1952.
He has been a director of Genevest, Inc. since 1993.
CARL J. CORCORAN has been a director since December 22, 1998 for a term
expiring at the 2000 annual meeting of stockholders. IBM Corporation employed
Mr. Corcoran in various capacities from 1951 to 1988, including General Manager
of Operations of IBM Japan and President of IBM Canada. Mr. Corcoran is
currently an officer and director of several family-held businesses, including
Corcair Farms, Ltd., CorProperties, Inc., Cor Source Water Corporation,
Corcorvest Corporation and CJC Bottling, Ltd. He is also a director of the
Accessible Software Corporation, a publicly traded corporation, and A.A.B.
Building Systems, Inc., a private company.
17
<PAGE>
DAVID G. R. BUTLER has been a director since December 22, 1998 for a term
expiring at the 2001 annual meeting of stockholders. Mr. Butler is the chief
executive officer and sole shareholder of Holiday Breaks International, Inc.,
which offers stay-free hotel accommodations to companies as sales and marketing
incentives; MF Incentives, Inc., which offers travel coupons as sales incentives
for manufacturers' products; and Newfound Communications, Inc., which offers
premium incentive promotions. From 1978 until its sale in 1994, Mr. Butler was
the sole shareholder and chief executive officer of Marshall Fenn Limited, a
public relations and advertising agency. At Marshall Fenn, Mr. Butler
established several affiliated enterprises referred to as the Marshall Fenn
Group of Companies, including Holiday Breaks International, Inc., MF Incentives,
Inc., and Newfound Communications, Inc.
CLASSIFICATION OF BOARD OF DIRECTORS
Our certificate of incorporation and bylaws provide that the board of
directors 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.
The Audit Committee is comprised 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 is comprised 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 is comprised 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
18
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of March 14, 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 March 14, 2000, there were approximately 352 record holders
of common stock. Percentage of ownership is based upon 56,109,109 issued and
outstanding shares of common stock beneficially owned on March 14, 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 2,498,578 shares of common stock, and
currently exercisable options to purchase 200,000 shares reserved under an
option issued to Toda Corporation Limited for financial consulting services.
Total Shares Owned
Beneficial Owner and Address As of March 14, 2000 Percentage
- --------------------------------------------------------------------------------
Bruce I. Lewis 3,944,289(1) 6.56%
Chief Executive Officer
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
Jay S. Stulberg 1,494,289(2) 2.49%
Chief Financial Officer
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
H. Joseph Greenberg, M.D. 210,455(3) 0.35%
Director
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
David G. R. Butler 3,333(3) 0.01%
Director
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
H. Joseph Greenberg, M.D. 3,333(3) 0.01%
Director
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
19
<PAGE>
Executive Officers and Directors as a group, 5,655,700(3) 9.41%
Including those named above (five persons)
(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.
Upon registration of the common stock described in this prospectus, SovCap
Equity Partners, Ltd. will likely become a greater than 5% shareholder in our
company. SovCap presently has a principal balance of $1,200,000 in our
convertible bridge notes. Assuming we convert these notes into common stock at
a conversion price of $0.49 per share, after conversion of the notes SovCap
would own approximately 5,870,520 shares of our common stock. Estimating the
total issued and outstanding shares of common stock to be 65,500,000 at that
point, SovCap would be a 8.96% shareholder. Under this scenario, our current
management would beneficially own approximately 8.63% of the issued and
outstanding common stock. Should this occur, SovCap may be in a position to
effect a material change in our management. Furthermore, if we decide to call
the remaining warrants, SovCap would be an even greater security owner if it
decides to exercise them.
DESCRIPTION OF SECURITIES
We are authorized to issue 100,000,000 shares of capital stock, of which
93,400,000 shares are common stock, par value $.001 per share, 100,000 shares
are Class B common stock, par value $.00000007 per share, and 6,500,000 shares
are undesignated shares of preferred stock, par value $.001 per share. No Class
B common stock or preferred stock is issued and outstanding as of March 14,
2000.
COMMON STOCK
As of March 14, 2000, there were 56,109,109 shares of common stock
outstanding, held of record by approximately 352 stockholders.
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. They are entitled to
receive such dividends, if any, as may be declared from time to time by the
board of directors, subject to any dividend preferences of the preferred stock.
Upon our liquidation, dissolution, or winding up, the holders of common stock
are entitled to share ratably in all of our assets available for distribution
after payment of all liabilities and any liquidation preferences of the
preferred stock. Holders of common stock have no preemptive rights, no
cumulative voting rights and no rights to convert their common stock into any
other securities.
PREFERRED STOCK
The board of directors is authorized to issue shares of preferred stock and
establish the number of shares to be included in one or more classes or series.
It may fix or alter the designations, preferences, or other special rights and
qualifications or restrictions of the shares of each class or series. This
includes the dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, liquidation preferences and the designations of each class
or series. The issuance of preferred stock could adversely affect the rights of
existing stockholders or could delay or prevent a change in our control without
further action by the stockholders. The issuance of preferred stock could
20
<PAGE>
decrease the amount of earnings and assets available for distribution to holders
of common stock and could make the removal of our present management more
difficult.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
We shall indemnify to the fullest extent permitted by the laws of Delaware
any person made or threatened to be made, a party to any legal action or
proceeding by reason of the fact the individual is or was our director, officer
or employee, or served as an agent for any other enterprise at our request. The
board of directors shall have the power to indemnify any person, other than a
director or officer, made a party to any legal action, suit or proceeding by
reason of the fact the individual was our employee.
Pursuant to our bylaws, we may indemnify and/or purchase indemnity
insurance for our directors, officers or other employees. We may also pay
and/or advance expenses to our directors, officers and other employees who are
eligible for or entitled to such payments or advances. The extent of any such
indemnification, payment or advance shall be expressly authorized by the board
of directors. Our right to indemnify such persons shall include, but not be
limited to, our authority to enter into written agreements for indemnification.
Subject to the laws of Delaware, our directors shall not be liable to the
company or our shareholders for monetary damages for an act or omission in the
director's capacity of a director, as long as the director acted in good faith.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act of 1933 and is therefore unenforceable. In the
event that a claim for indemnification against such is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final adjudication of
such issue. This excludes any payment of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any action,
suit or proceeding.
Indemnification of officers or persons controlling us for liabilities arising
under the Securities Act of 1933 is held to be against public policy by the SEC,
and is therefore unenforceable.
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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.
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.
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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 upon 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.
Scanning Network
-----------------
We have developed a network consisting of a series of PDF 417-capable
scanners. The laser scanner reads the serial number displayed on the
identification device and transmits that information to our relational database.
Scanners are also utilized with our inventory control and asset management
systems. As of September 30, 1999, our scanners were located in 35 police
stations and other sites in Canada and 22 sites in the United States, as
compared to 39 scanners in Canada and 25 in the United States as of September
30, 1998.
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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 September 30, 1999, utilization of our
technology has resulted in over 1000 successful recoveries. While these
recoveries demonstrate the effectiveness of the system, to date the system has
not generated sufficient sales volume.
STRATEGIC FOCUS
Prior to Tracker Canada's bankruptcy, our marketing efforts focused
primarily on the consumer market for personal property identification and
recovery. Although we believe the system has significant commercial potential,
the marketing efforts undertaken to date have 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.
In May 1997, we entered into an agreement with Schwinn Cycling & Fitness, a
United States manufacturer of quality bicycles and accessories. In February
1999, Schwinn placed an additional order for 50,000 Tracker labels to be
combined with bicycle locks Schwinn manufactures in Taiwan. Furthermore, in
September 1999 we initiated a discussion with Schwinn on an OEM application of
identifying bicycle ownership in addition to continuing label sales in bicycle
accessory packs.
On July 1, 1998, we signed a two-year agreement with Warrantech Additive, a
wholly-owned subsidiary of Warrantech Automotive, to provide personal property
identification labels and global recovery services to automobile dealers
participating in Warrantech's vehicle service contract business. Through the
labels, we provide immediate access to vehicle service information contained in
our relational database. Because sales have thus far not met expectations,
Warrantech is reviewing and exploring enhancements to the program.
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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
February 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 have incurred approximately $125,000 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
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
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. We plan to institute a pilot program with
the Florida Police Chiefs Foundation to collaborate on a statewide 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.
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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.
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 rastering 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 will likely not meet 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
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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, we
have filed an international patent application pursuant to the Patent
Cooperation Treaty for our personal property identification and recovery system.
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 December 31, 1999, through contractual arrangements with Global
Tracker, we employ a total of 14 persons, including two in management, two in
administration and accounting, five in operations, 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.
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.
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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.
------------------
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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 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. We are currently upgrading our
website to enable e-commerce applications for the sale of our products and
services. The website will also enable existing customers to upgrade our
applications. We expect to complete the new website by May 2000. We have spent
$40,000 to date and expect to spend an additional $125,000 before completion.
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
$1,269,631 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, Warrantech 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
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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.
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
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998
REVENUES. Revenues from our personal property registration kits decreased
by 52% to $55,061 for the nine months ended December 31, 1999 compared to
$113,630 for the nine months ended December 31, 1998. The decrease in
revenues was primarily due to our shift in emphasis from sales of personal
property registration kits to the development of new products and services. We
expect revenues to continue to decrease through June 2000.
COSTS OF SALES. Costs of sales decreased by 91% to $5,563 for the nine
months ended December 31, 1999 compared to $59,222 for the nine months ended
December 31, 1998. The decrease occurred because the majority of our sales for
the 1999 period primarily related to software for business information
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solutions. The construction and packaging costs for software sales are
significantly less than the personal property registration kits. We expect the
declining trend to continue as long as we do not experience any significant
revenue.
OPERATIONAL. Operational costs increased by 29% to $197,833 for the nine
months ended December 31, 1999 compared to $153,455 for the nine months ended
December 31, 1998. This slight increase reflects our efforts to build an
infrastructure to support our development and roll out of new products and
services. This includes the hiring and training of additional staff. We expect
operational costs to level off pending the implementation of our new products
and services in June 2000.
INFORMATION SYSTEMS. Information systems costs increased by 417% to
$66,027 for the nine months ended December 31, 1999 compared to $12,765 for the
nine months ended December 31, 1998. The increase resulted from the continuing
necessity to have our computer systems year 2000 compliant. We also hired a
chief information officer to explore and develop e-commerce applications for our
products and services. We expect this cost to continue to increase in order to
support our e-commerce development.
SALES AND MARKETING. Sales and marketing expenses increased by 79% to $180,774
for the nine months ended December 31, 1999 compared to $100,777 for the nine
months ended December 31, 1998. 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.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 64% to $293,320 for the nine months ended December 31, 1999 compared to
$179,241 for the nine months ended December 31, 1998. 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. We do
not expect this cost to continue to grow until we achieve a substantial increase
in or revenue.
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
REVENUES. Revenues from our personal property registration kits increased
by 246% to $126,875 for the year ended March 31, 1999 compared to $51,551 for
the year ended March 31, 1998. The increase in revenues was primarily due to
our exclusive reliance on the sales of personal property registration kits for
income after we discontinued the credit card registration program in September
1997. We expect revenues for fiscal year end March 31, 2000 to decrease due to
our shift in emphasis from sales to the development of new products and
services.
COSTS OF SALES. Costs of sales increased by 347% to $71,630 for the year
ended March 31, 1999 compared to $20,660 for the year ended March 31, 1998.
This increase is commensurate with the increase in revenues between the two
years from the sale of personal property registration kits. We expect costs of
sales to decrease in accordance with the continued decline in revenue for fiscal
year end March 31, 2000.
OPERATIONAL. Operational costs increased by 603% to $323,560 for the year
ended March 31, 1999 compared to $53,647 for the year ended March 31, 1998.
This increase reflects our efforts to build an infrastructure to support our
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development and roll out of new products and services. This includes the hiring
and training of additional staff. We do not expect this trend to continue for
fiscal year end March 31, 2000.
INFORMATION SYSTEMS. Informational systems costs increased by 70% to
$45,181 for the year ended March 31, 1999 compared to $26,613 for the year ended
March 31, 1998. This increase primarily resulted from our efforts to have our
computer systems year 2000 compliant. We expect a substantial increase for
fiscal year end March 31, 2000 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 1,597% to
$126,601 for the year ended March 31, 1999 compared to $7,928 for the year ended
March 31, 1998. This increase in sales and marketing expenses reflects the
increase in costs associated with the refocus of our business plan to the
development of new marketing ideas to roll out new products and services. We
expect a continued increase in these costs for fiscal year end March 31, 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 621% to $590,881 for the year ended March 31, 1999 compared to $95,221 for
the year ended March 31, 1998. The increase in general and administrative
expenses primarily resulted from our efforts to rebuild our core staff and focus
on the development of new products and services. These costs are expected to
slightly increase for fiscal year end March 31, 2000.
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 $18,383,541 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 March 31, 1999, 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. Because the
landlord retained all of our office equipment after we vacated the premises, we
believe that any possible remaining indebtedness is not material.
Our operating activities have used cash in each of the last two fiscal
years. Cash used in operating activities totaled $569,348 and $502,682 for the
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nine months ended December 31, 1999 and 1998, respectively. Net losses were
$630,504 and $18,036 for the nine months ended December 31, 1999 and 1998,
respectively. Similarly, cash used in operating activities totaled $795,745 and
$505,244 for the years ended March 31, 1999 and 1998, respectively. This
resulted from net losses of $751,754 and $90,467 for the years ended March 31,
1999 and 1998, respectively.
Cash used in investing activities was $NIL and $285,588 for the nine months
ended December 31, 1999 and 1998, respectively. Similarly, cash used in
investing activities was $NIL and $838,076 for the years ended March 31, 1999
and 1998, respectively. The cash used in investing activities for these periods
was primarily used to purchase computer systems and software for internal
development used to support our credit card registration program. It was also
used to purchase furniture and equipment to accommodate our sales force.
Cash provided by financing activities amounted to $1,452,318 and $(45,282)
for the nine months ended December 31, 1999 and 1998, respectively. During the
nine months ended December 31, 1999, we received $1,452,318 from the sale and
issuance of $1,700,000 in convertible bridge notes and related warrants.
During the nine months ended December 31, 1998, we received $45,282 from the
sale of common stock. Cash provided by financing activities amounted to
$795,745 and $(137,138) for the year ended March 31, 1999 and 1998,
respectively. During the year ended March 31, 1999, we received $795,745 from
the sale of common stock. During the year ended March 31, 1998, we received
$30,000 from the sale of common stock. During that year, we also repaid
$167,138 to our outstanding debenture holders and convertible subordinated
debenture holders.
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.
33
<PAGE>
We did not experience any disruptions due to year 2000 problems.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This 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 since our policies
are substantially in compliance with this pronouncement.
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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<PAGE>
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 $5,000
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.
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 $110,000 to support our business operations. Furthermore, Mr.
Stulberg has personally loaned Global Tracker approximately $50,000 (USD) in
operating capital. Under a license agreement with Global Tracker, we will pay
Global Tracker a 12% gross royalty on our sales.
35
<PAGE>
MARKET FOR COMMON EQUITY
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>
September 30, 1997 $0.3700 $0.1300
December 31, 1997 $0.2100 $0.0450
March 31, 1998 $0.0725 $0.0130
June 30, 1998 $0.1150 $0.0150
September 30, 1998 $0.09 $0.075
December 31, 1998 $0.11 $0.05
March 31, 1999 $0.1775 $0.0725
June 30, 1999 $0.35 $0.10
September 30, 1999 $0.40 $0.18
December 31, 1999 $0.210 $0.1025
</TABLE>
On December 31, 1999, the high and low bid quotations for our common stock
on the OTC Bulletin Board were $0.125 and $0.111, respectively. As of March 14,
2000, there were 56,109,109 shares of common stock outstanding held by
approximately 352 holders of record, including broker-dealers and clearing
corporations holding common shares on behalf of their customers.
We have never paid any cash dividends on our common stock and do not intend
to pay any cash dividends in the foreseeable future. Future earnings, if any,
will be retained to fund the development and growth of our business.
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<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table provides certain information concerning the
compensation earned by our Chief Executive Officer and other then-executive
officers who received compensation in excess of $100,000 for services rendered
in all capacities to us for the most recent three fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------------------------
| | | | Long-Term Compensation |
| | | |----------------------------------------------------|
| | | Annual Compensation | Awards | | Payouts |
| | |---------------------------|---------------------------|---------|--------------|
| | | | | | Restricted | Securities | | |
| | | | | | Stock | Under-Lying | LTIP | All Other |
| Name and then- |Fiscal | Salary | Bonus | Other | Award(s) | Options/SARs | Payouts | Compensation |
| Principal Position | Year | ($) | ($) | ($)(1) | ($) | (#) | ($) | ($) |
|-----------------------|-------|----------|-------|--------|------------|--------------|---------|--------------|
<S> <C> <C> <C> <C> <C> <C> <C> <C>
|BRUCE I. LEWIS, CEO |1999(2)| 0 | | 0 | 175,000 | 2,488,578 | | |
|-----------------------|-------|----------|-------|--------|------------|--------------|---------|--------------|
| | 1998 | 43,750 | | 10,000 | 131,250 | | | |
|-----------------------|-------|----------|-------|--------|------------|--------------|---------|--------------|
| | 1997 | 175,000 | | 10,000 | | | | |
|-----------------------|-------|----------|-------|--------|------------|--------------|---------|--------------|
|JAY S. STULBERG, | | | | | | | | |
|President, COO & CFO |1999(2)| 40,000 | | | 85,000 | 2,488,578 | | |
|-----------------------|-------|----------|-------|--------|------------|--------------|---------|--------------|
|MARK J. GERTZBEIN, CFO | | | | | | | | |
|& Executive VP | 1998 | 175,000 | | 10,000 | | | | |
----------------------------------------------------------------------------------------------------------------
<FN>
(1)Automobile allowance
(2)Estimated
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------
| Potential Realizable Value At | Alternative to
| Assumed Annual Rates of Stock | (f) and (g)
| Price Appreciation For Option | Grant Date
INDIVIDUAL GRANTS | Term | Value
- --------------------------------------------------|----------------------------------------------|----------------
| | Percent Of | | | | |
| Number of | Total | | | | |
| Securities | Options/ | | | | |
| Underlying | SARs Granted | Exercise of | | | | Grant Date
| Option/SARs | To Employees | Base Price | Expiration | | | Present Value
Name | Granted(#) |In Fiscal Year | ($/Sh) | Date | 5%($) | 10% ($) | $
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h)
- ----------------------------------|---------------|--------------------------|---------|---------|----------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------|--------------|---------------|-------------|------------|---------|---------|----------------
Bruce I. Lewis(1) | 2,488,578(3) | 46.3%| .075 | 2003 | 51,566 | 62,909 |
- -------------------|--------------|---------------|-------------|------------|---------|---------|----------------
Jay S. Stulberg(2) | 2,488,578(3) | 46.3%| .075 | 2008 | 117,379 | 131,856 |
- ------------------------------------------------------------------------------------------------------------------
<FN>
(1) Incentive stock option granted for a five-year term exercisable sequentially in two annual installments
beginning January 2000, and fully vesting beginning January 2001.
(2) Incentive stock option granted for a ten-year term exercisable sequentially in two annual installments
beginning January 2000, and fully vesting beginning January 2001.
(3) Mr. Lewis and Mr. Stulberg have each pledged their option rights to purchase an additional 1,244,289
shares of Common Stock as security to the Series 1 Bridge Notes.
</TABLE>
COMPENSATION OF DIRECTORS
Non-employee directors are paid $500 for attendance at each meeting of the
board of directors or a committee meeting and an annual retainer of $10,000. In
addition, non-employee directors are eligible to receive options to purchase
shares of our common stock.
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<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
BRUCE LEWIS
On December 18, 1998, we entered into an employment agreement with Mr.
Lewis, pursuant to which Mr. Lewis serves as our Chief Executive Officer. The
agreement provides for an annual base salary of $175,000, with increases of
$37,500 each year based upon certain performance criteria beginning April 1,
2000, a maximum automobile allowance of $10,000 and eligibility for
discretionary bonuses.
The initial term for Mr. Lewis' agreement is three years with one-year
renewal terms thereafter, and provides for the payment of a relocation allowance
equal to the lesser of the actual relocation expenses or $25,000 per each
occurrence. The agreement provides that Mr. Lewis is entitled to participate in
any stock option, stock purchase, annual bonus, pension, profit sharing, life
insurance and medical benefit plans and such other fringe benefits that may be
applicable to our senior executive employees.
If Mr. Lewis' employment is terminated 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.
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<PAGE>
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.
STOCK INCENTIVE PLAN
GENERAL. On June 30, 1994, the shareholders approved the 1994 Stock
Incentive Plan and on November 1, 1995, August 22, 1997, and August 27, 1999 the
shareholders approved certain amendments. The stock incentive plan is intended
to attract, retain and motivate officers and other key employees. It is also
intended to provide people with incentives and rewards for superior performance
more directly linked to our profitability and increases in stockholder value.
Individuals are selected for participation in the stock incentive plan by the
compensation committee within the board of directors. An aggregate of
10,000,000 shares of common stock are reserved for issuance under the plan. It
is subject to adjustment in the event of a stock split, stock dividend or other
change in the common stock or capital structure. We anticipate no more than
twelve people may receive grants under the plan, with no more than three
non-employee directors involved. Unexercised options that expire may again be
issued under the plan subject to limitations. The committee administers the
plan and has the exclusive power to determine whether to grant an award. It
also determines the terms and conditions of any grant of stock options, stock
appreciation rights, performance shares, performance units, restricted shares or
deferred shares to participants. It resolves all questions relating to the
administration of the plan. Members of the committee are not eligible to
receive grants or awards under the plan other than the automatic grants to
non-employee directors.
STOCK OPTIONS. Under the stock incentive plan, the committee may grant
options to purchase shares of common stock. This includes options qualifying as
incentive stock options under the Internal Revenue Code to employees as
additional compensation. Options may be granted prior to termination of the
plan. This will occur on the earlier of June 29, 2004 or the date on which all
awards available for issuance in the last year of the plan have been issued or
canceled. Options granted are subject to adjustment in the event of a stock
split, stock dividend or other change in the common stock or our capital
structure.
Options are exercisable over such period as determined by the committee.
However, no incentive stock option may be exercised after ten years from the
date of grant. The term of options granted to holders of ten percent or more of
our combined voting power shall not exceed five years from the date of grant.
Options may be exercisable in installments as determined by the committee and
are evidenced by option agreements. No option may be transferred other than by
will or by the laws of descent and distribution. Options generally cannot be
exercised after the termination of service. However, under certain
circumstances the committee may consent to such termination of service or due to
39
<PAGE>
retirement, disability or death. In this event, the committee may take any
action it deems equitable or in our best interests. The purchase price of
common stock subject to an incentive stock option cannot be less than 100% of
the fair market value of such common stock on the date of grant. The purchase
price of common stock subject to a nonqualified option may be less than, equal
to or greater than the fair market value of such common stock on the date of
grant. However, if any individual to whom an incentive stock option is granted
is the owner of stock possessing 10% or more of the total combined voting power
of all classes of our stock, then the purchase price per share shall not be less
than 110% of the fair market value of such common stock on the date of grant.
The option price may be due upon exercise of the option. It may be paid in
cash, check, shares of common stock or other consideration acceptable to the
committee. It may also be deferred through a sale and remittance procedure with
a brokerage firm designated by us. Grants can provide for reload option rights
upon the exercise of options. However, the term of any such reload option will
not extend beyond the term of the option originally exercised. During the
fiscal year ended March 31, 1999, options for 5,377,157 shares, vesting over a
three-year period, were granted at fair market value.
APPRECIATION RIGHTS. The committee may also grant appreciation rights in
tandem with an option or freestanding and unrelated to an option. An
appreciation right entitles the participant to receive an amount payable in cash
and/or shares of common stock equal to the positive difference between the fair
market value of a share of common stock on the date of exercise and the
appreciation right grant price. This is subject to any ceiling that may be
imposed by the committee. The committee may specify that a grant of an
appreciation right:
(1) is subject to a waiting period before becoming exercisable;
(2) may be exercised within specified periods of time; or
(3) may be exercised only upon the occurrence of certain events
Additionally, with respect to a tandem appreciation right, the committee may
provide that such right may be exercised only when the related option is
exercisable and the per share market value of our common stock on the date of
exercise exceeds the exercise price of the related option.
PERFORMANCE SHARES AND PERFORMANCE UNITS. Performance shares and
performance units entitle the participant to receive cash and/or shares of
common stock based upon the degree of achievement of pre-established management
objectives over a performance period determined by the committee. The committee
may adjust the management objectives and the related minimum acceptable level of
achievement after the date of grant. This may be necessary to avoid distortion
that would otherwise result from events not related to performance occurring
after the date of grant. The committee may fix management objectives on the
basis of any criteria it so chooses. The committee has sole discretion to
determine the following:
- the participants eligible for performance shares or performance units;
- the duration of each performance period;
- the value of each performance unit; and
- the number of shares or units earned on the basis of our performance
relative to the established objectives
At the end of the performance period, the committee will determine the number of
performance shares and the number of performance units that have been earned on
the basis of performance in relation to the objectives. Generally, a
participant must be an employee at the end of the performance period to receive
40
<PAGE>
the performance shares or units. However, if the participant dies, retires,
becomes disabled or ceases to be an employee prior to the end of the period with
the committee's consent, the committee may take any action it deems equitable or
in our best interests.
RESTRICTED STOCK. A grant of restricted stock consists of a specified
number of shares of common stock that is awarded in amounts determined by the
committee and subject to forfeiture under such conditions and at such times as
the committee may determine. An employee who has been awarded restricted shares
may vote and receive dividends on restricted shares. However, he may not sell,
assign, transfer, pledge or otherwise encumber restricted shares during the
restricted period. If a participant's employment ceases prior to the end of the
restricted period either with our consent or upon the occurrence of his death,
disability or retirement, the restrictions may lapse with respect to some
portion or all of the restricted stock. If a participant's employment
terminates prior to the end of the restricted period for any other reason, the
participant's entire restricted shares and restricted units are forfeited.
Grants may be without additional consideration or in consideration of a payment
by the participant that is less than the fair market value of the restricted
stock on the grant date.
DEFERRED SHARES. The committee may grant deferred shares to participants
under the stock incentive plan. Each grant or sale of deferred shares will be
subject to the fulfillment of conditions and a deferral period specified by the
committee. During the deferral period, the participant will have no right to
transfer the award, no right of ownership in the deferred shares, and no right
to vote the deferred shares. However, the committee may authorize payment of
dividend equivalents on the deferred shares in cash or our shares of common
stock on a current, deferred or contingent basis. The participant may make
without additional consideration or in consideration of payment grants that are
less than the fair market value on the grant date.
STOCK OPTIONS FOR NON-EMPLOYEE DIRECTORS. Under the stock incentive plan
as originally adopted, each non-employee director elected or appointed on or
after the effective date of the plan was automatically granted an option to
purchase 10,000 shares of common stock upon election. The price per share to be
paid at the time such option is exercised by a non-employee director is 100% of
the fair market value of the common stock on the date of the grant of the
option. The plan provides that options granted to non-employee directors have a
maximum term of ten years. They are exercisable ratably in annual installments
over three years. The option price is due upon exercise of the option. It may
be paid in cash, check, shares of common stock or other consideration acceptable
to the committee. It may also be deferred through a sale and remittance
procedure with a brokerage firm designated by us. All options granted to a
non-employee director who die or becomes disabled while serving as a director
will become immediately and fully exercisable at the time of such termination of
service as a director. Furthermore, all of his options may be exercised within
twelve months after such cessation of service. If a former non-employee
director should die within six months after cessation of board service, the
personal representative of such former director's estate may exercise those
vested options at the time of death for a twelve-month period following his
death. If a non-employee director's service terminates for any reason other
than those stated above, the options that are not then exercisable will be
canceled. Any options that are then exercisable may be exercised at any time
within six months after the date of such termination. All options granted to
non-employee directors vest immediately upon a change of control. The portion
of the plan applicable to non-employee directors is designed to be
self-executing.
The amendments to the stock incentive plan approved by the stockholders on
November 1, 1995 provide for automatic stock option grants for 10,000 shares
each year to eligible directors. This automatic option grant program would be
limited to those persons who serve as non-employee members of the board and who
41
<PAGE>
do not beneficially own, directly or indirectly, or represent any stockholder
that beneficially owns, directly or indirectly, more than 5% of our outstanding
common stock. Each individual who first becomes an eligible director after the
date of approval of the amendment to the plan by the stockholders would
automatically be granted a nonqualified option to purchase 10,000 shares of
common stock. On every anniversary of initial election or appointment, each
person who is at that time serving as an eligible director would automatically
be granted a nonqualified option to purchase 10,000 shares of common stock.
There would be no limit on the number of automatic option grants that any one
eligible director may receive. In addition to the amendment to the automatic
grant provisions, the amendments to the plan provide that the exercise price of
options granted pursuant to such automatic grants would be reduced to a price
25% below the average trading price of our common stock for the 30 days
immediately prior to the grant date. On December 22, 1998, options were granted
to our three outside directors.
CHANGE OF CONTROL; CORPORATE TRANSACTIONS. The committee has the discretion
to accelerate benefits under the stock incentive plan in the event of a change
of control or a corporate transaction.
Under the stock incentive plan, a change of control is a change in
ownership or control of us effected through either of the following
transactions:
(1) the direct or indirect acquisition by any person or related group of
persons, other than by us or a person that directly or indirectly controls,
is controlled by, or is under common control with, us, of the beneficial
ownership of securities possessing more than 50% of the total combined
voting power of our outstanding securities pursuant to a tender or exchange
offer made directly to our shareholders or other transaction, in each case
which the board does not recommend that our shareholders accept; or
(2) a change in the composition of the board over a period of 36 consecutive
months or less such that a majority of the board members ceases, by reason
of one or more contested elections for board membership, to be comprised of
individuals who either have been (1) Board members continuously since the
beginning of such period or (2) elected or nominated for election as board
members during such period by at least a majority of the board members
describedin clause (1) who were still in office at the time such election
or nomination was approved by the board.
Under the stock incentive plan, corporate transaction means any of the
following shareholder-approved transactions to which we are a party:
(1) a merger or consolidation in which we are not the surviving entity, except
for a transaction the principal purpose of which is to change the state in
which we are incorporated;
(2) the sale, transfer or other disposition of all or substantially all our
assets in our complete liquidation or dissolution; or
(3) any reverse merger in which we are the surviving entity but in which
securities possessing more than 50% of the total combined voting power of
our outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such merger.
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<PAGE>
TERMINATION, AMENDMENT AND ACCELERATION. The board of directors may amend,
suspend or terminate the stock incentive plan at any time, but no such action
may in any way impair the rights of recipients under any options or shares of
restricted stock previously granted or any agreement executed under the stock
incentive plan. Furthermore, without the approval of a majority of shareholders
of common stock at a duly called special meeting, the board many not make a
material amendment to the plan that:
(1) increases the total number of shares, appreciation rights or performance
units which may be issued under the plan;
(2) reduces the minimum purchase price for shares subject to options;
(3) extends the maximum period during which options may be exercised; or
(4) changes the employees eligible to participate in the plan
LOAN PROGRAM. The committee may,permit us to finance the exercise of our
options and the payment of related taxes by means of loans to the participants.
The committee may also allow participants to pay the exercise price or purchase
price in installments or may authorize the payment of a cash bonus to allow
participants to exercise options and rights under the stock incentive plan.
Each loan will be evidenced by a promissory note to be entered into by the
participant in our favor. Each loan, including extensions, will be on such
terms as determined by the committee. Loans or installment payments may be
authorized with or without security or collateral. The maximum credit available
will be the exercise or purchase price of the acquired shares plus any related
federal, state and local income and employment tax liability, subject to any
applicable margin borrowing limitation. The committee also has the authority to
forgive all or a portion of the borrower's indebtedness in circumstances it
deems appropriate. However, the Committee may not forgive that portion of a
loan owed to cover par value.
RESTRICTIONS ON GRANTS OF OPTIONS. We will not grant options in excess of
20% of the outstanding shares to directors, officers or employees unless
ratified or approved by a majority of the shareholders, excluding directors,
officers, employees and their spouses. Further, we will not grant options to
directors, officers or employees with an exercise price less than 85% of fair
market value on the date of grant unless ratified or approved by a majority of
the shareholders, excluding directors, officers, employees and their spouses.
REGISTRATION. We plan to file a registration statement to register the
shares of common stock reserved for issuance under the stock incentive plan.
Shares issued upon exercise of outstanding stock options and sold after the
effective date of any such registration statement generally will be available
for resale in the public market.
CASH BONUS ARRANGEMENT
Our discretionary cash bonus arrangement is designed to provide a mechanism
to allow specified employees to share in our profits. Our employees who
customarily work at least 35 hours per week and have been employed for at least
12 consecutive months, and have been designated for participation by the
committee are eligible to receive cash bonuses under this arrangement. We
estimate that approximately six employees are eligible to participate. Bonuses
may be based on merit, production or other individualized criteria, or may be
paid based on each eligible employee's assigned portion of a bonus pool
established in the discretion of the committee. If bonuses are to be paid based
on a bonus pool, the committee will determine the criteria upon which the amount
of each year's bonus pool will be based prior to the beginning of any such year.
The committee may also divide eligible employees into classes and may designate
the portion of any bonus pool to be assigned to each such class. Any bonuses
43
<PAGE>
will be paid no later than 45 days after the end of the fiscal year for which
the bonus is awarded. No bonuses have been paid yet under this arrangement.
1999 STOCK WAGE AND FEE PAYMENT PLAN
Our board of directors adopted a 1999 Stock Wage and Fee Payment Plan on
December 22, 1998. The purpose of this plan is to retain and motivate
participants and to provide them with incentives and rewards more directly
linked to our profitability and increases in stockholder value.
Nine of our employees and three consultants were eligible and elected to
participate in this plan. The participants agreed to receive an aggregate of
13,175,996 shares of our common stock in lieu of certain wage payments or fees.
The number of shares granted to the participants was based upon a price per
share of common stock of $.06. We registered the shares issued under this plan
under the Securities Act of 1933.
2000 STOCK WAGE AND FEE PAYMENT PLAN
Our board of directors adopted a 2000 Stock Wage and Fee Payment Plan on
January 1, 2000. The purpose of this plan is to retain and motivate
participants and to provide them with incentives and rewards more directly
linked to our profitability and increases in stockholder value.
Four of our employees and three consultants were eligible and elected to
participate in this plan. The participants agreed to receive an aggregate of
2,359,530 shares of our common stock in lieu of certain wage payments or fees.
The number of shares granted to the participants was based on a price per share
of common stock of $0.12 as of January 1, 2000 and $0.20 as of January 28, 2000.
We registered 3,500,000 shares under this plan under the Securities Act of 1933.
44
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On June 15, 1999, PricewaterhouseCoopers LLP, our then-independent
accountant, declined to stand for re-election as our independent accountant for
the fiscal year ended March 31, 1998. During the previous year,
PricewaterhouseCoopers LLP did not issue on our behalf any financial statement
that contained an adverse opinion or a disclaimer of opinion, or was qualified
or modified as to uncertainty, audit scope, or accounting principles, except
that their report on the financial statements as of and for the year ended March
31, 1997 included an explanatory paragraph expressing doubt as to our ability to
continue as a going concern. The decision to change accountants was not
recommended or approved by any committee of the board of directors, or by the
board of directors. Additionally, there were no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
On August 18, 1998, we retained Hirsch Silberstein & Subelsky, P.C. as our
independent accountants to audit our financial statements as of, and for the
years ended, March 31, 1998 and March 31, 1999.
On August 27, 1999, our Board of Directors decided to retain the certified
public accounting firm of J.L. Stephan Co., P.C. to replace Hirsch Silberstein &
Subelsky, P.C. as our independent accountants. Hirsch Silberstein & Subelsky,
P.C. has discontinued its audit practice concerning compliance with the
regulations of the 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.
45
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders of
The Tracker Corporation of America
We have audited the accompanying consolidated balance sheet of The Tracker
Corporation of America and Subsidiary as of March 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the years then ended and the periods from inception at May 6, 1993
through March 31, 1999. 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.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Tracker Corporation of America and Subsidiary as of March 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for the years
then ended and the periods from inception at May 6, 1993 through March 31, 1999
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 1 and
2 to the consolidated financial statements, the Company is in the development
stage and has suffered significant losses since inception. Additionally, the
Company discontinued its telemarketing program for its credit card registration
business. The Company is relying upon affiliated and outside parties to fund
its cash flow deficiencies through debt and equity infusions. Those conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Notes 1 and 2. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
- ------------------------------
Hirsch Silberstein & Subelsky, P.C.
Farmington Hills, Michigan
July 8, 1999
<PAGE>
THE TRACKER CORPORATION
OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1999 and 1998
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-------------------------------------
CONSOLIDATED BALANCE SHEET
-------------------------------------
ASSETS
MARCH 31, MARCH 31,
1999 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS
ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,843 $ -
PREPAID EXPENSES AND DEPOSITS . . . . . . . . . . . . . . . . . . . . . . 120,000 -
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,405 1,187,699
------------- -------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 332,248 1,187,699
DUE FROM SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,072 14,072
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,600 275,043
PROPERTY AND EQUIPMENT (NET). . . . . . . . . . . . . . . . . . . . . . . . - -
------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 487,920 $ 1,476,814
============= =============
LIABILITIES & SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
ACCOUNTS PAYABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 458,352 $ 440,835
ACCRUED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 584,823 528,399
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,602 1,798,727
DEBENTURE PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,809 31,809
CONVERTIBLE DEBENTURES. . . . . . . . . . . . . . . . . . . . . . . . . . 475,790 475,790
------------- -------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . 1,748,376 3,275,560
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215,244 412,846
COMMITMENTS (NOTE 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
SHAREHOLDERS' DEFICIENCY
COMMON STOCK, $.001PAR VALUE, 50,000,000 SHARES AUTHORIZED,
50,388,579 (26,705,053 - MARCH 31, 1998) SHARES ISSUED AND OUTSTANDING. 50,389 19,718
CONVERTIBLE SENIOR PREFERRED STOCK, $.001 PAR VALUE, 6,500,000 SHARES
AUTHORIZED, NIL ISSUED AND OUTSTANDING. . . . . . . . . . . . . . . . . - -
CLASS B VOTING COMMON STOCK, $0.00000007 PAR VALUE, 20,000,000
SHARES AUTHORIZED, NIL (2,622,484 - MARCH 31, 1998) ISSUED
AND OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
PAID-IN CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,777,482 15,371,641
OTHER CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (424,267) (356,002)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE. . . . . . . . . . . . . (17,753,037) (17,001,283)
COMPREHENSIVE INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . (126,263) (245,665)
------------- -------------
TOTAL SHAREHOLDERS' DEFICIT . . . . . . . . . . . . . . . . . . . . . . (1,475,700) (2,211,591)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT . . . . . . . . . . . . . . $ 487,920 $ 1,476,814
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-1
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
( A DEVELOPMENT STAGE COMPANY)
-------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
FROM INCEPTION
(MAY 6, 1993) FOR THE
THROUGH MARCH 31, YEAR ENDED MARCH 31,
1999 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
REVENUE . . . . . . . . . . . . . . . . . $ 433,596 $ 126,875 $ 51,551
COST OF SALES . . . . . . . . . . . . . . 171,924 71,630 20,660
------------- ------------ ------------
GROSS PROFIT. . . . . . . . . . . . . . . 261,672 55,245 30,891
------------- ------------ ------------
DEVELOPMENT COSTS
OPERATIONAL . . . . . . . . . . . . . . 1,845,420 323,560 53,647
INFORMATION SYSTEMS . . . . . . . . . . 975,212 45,181 26,613
SALES AND MARKETING . . . . . . . . . . 3,563,645 126,601 7,928
GENERAL AND ADMINISTRATIVE. . . . . . . 8,739,876 903,646 95,221
------------- ------------ ------------
TOTAL DEVELOPMENT COSTS . . . . . . . . . $ 15,124,154 $ 1,398,989 $ 183,408
LOSS FROM CONTINUING OPERATIONS . . . . . (14,862,482) (1,343,744) (152,517)
GAIN (LOSS) FROM DISCONTINUED OPERATION . (2,890,555) 591,990 62,050
------------- ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK . . . $(17,753,037) $ (751,754) $ (90,467)
============= ============ ============
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE OF COMMON STOCK
LOSS FROM CONTINUING OPERATIONS . . . . . $ (1.15) $ (0.03) $ (0.00)
GAIN (LOSS) FROM DISCONTINUED OPERATION . (0.22) 0.01 0.00
------------- ------------ ------------
NET LOSS. . . . . . . . . . . . . . . . . $ (1.37) $ (0.02) $ (0.00)
============= ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING. . . . . . . . . . . . . . 12,979,364 39,929,638 21,480,767
============= ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
<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
1999 1999 1998
------------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (17,753,037) $ (751,754) ($90,467)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM
OPERATING ACTIVITIES:
DEPRECIATION. . . . . . . . . . . . . . . . . . . . . . . . . 380,019 - 12,893
LOSS ON SALE OF LONG-TERM INVESTMENT. . . . . . . . . . . . . 13,414 - -
RENT, CONSULTING AND MARKETING SERVICES, EMPLOYEE . . . . . . 691,901 691,901
COMPENSATION SETTLED VIA THE ISSUANCE OF COMPANY
SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,284,144 - 165,870
CHANGES IN ASSETS AND LIABILITIES:
PREPAID EXPENSES AND DEPOSITS . . . . . . . . . . . . . . (137,273) (120,000) 359,526
ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . (97,843) (97,843) 133,613
SHORT-TERM INVESTMENT . . . . . . . . . . . . . . . . . . - - -
INVENTORY . . . . . . . . . . . . . . . . . . . . . . . . - - 24,338
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . (256,005) 1,206,737 1,673,159
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . 412,846 (1,798,727) (2,910,959)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES. . . . . . . . . 1,057,820 73,941 126,783
------------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES . . . . . . . . . . . . . (10,404,014) (795,745) (505,244)
------------------ ------------ ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
ACQUISITION OF FIXED ASSETS . . . . . . . . . . . . . . . . . . 6,028 - 790,661
LOAN TO SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . (370,484) - 47,415
REPAYMENT OF LOANS TO SHAREHOLDERS. . . . . . . . . . . . . . . 356,412 - -
NOTE RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . (200,317) - -
REPAYMENT OF NOTE RECEIVABLE. . . . . . . . . . . . . . . . . . 200,317 - -
LONG-TERM INVESTMENT. . . . . . . . . . . . . . . . . . . . . . (2,301,372) - -
UNWIND OF LONG-TERM INVESTMENT. . . . . . . . . . . . . . . . . 2,287,958 - -
------------------ ------------ ------------
NET CASH FROM (USED IN) INVESTING ACTIVITIES. . . . . . . . . . (21,458) - 838,076
------------------ ------------ ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
ISSUANCE OF COMMON SHARES . . . . . . . . . . . . . . . . . . . 9,748,275 795,745 30,000
ISSUANCE OF PREFERRED SHARES. . . . . . . . . . . . . . . . . . 1,050,000 - -
ISSUANCE OF CONVERTIBLE SUBORDINATED DEBENTURES . . . . . . . . 2,189,529 - -
REPAYMENT OF DEBENTURES AND CONVERTIBLE SUBORDINATED DEBENTURES (297,401) - (167,138)
SHARE ISSUE COSTS . . . . . . . . . . . . . . . . . . . . . . . (1,684,735) - -
------------------ ------------ ------------
NET CASH FROM (USED IN) FINANCING ACTIVITIES. . . . . . . . . . 11,005,668 795,745 (137,138)
------------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES . . . . . . . . . . . . . . . . . (580,196) 0 (300,907)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING . . . . . 1 1 (105,213)
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . . . . . . . - - 105,213
------------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . . . . . . . 1 $ 1 $ 0
================== ============ ============
<FN>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
THE COMPANY ISSUED CERTAIN SHARES OF ITS CLASS B VOTING COMMON STOCK FOR
SERVICE AND FOR NOMINAL VALUES.
SEE CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
-----------------------------------------------
SHARES AMOUNTS
-------------------------------- ----------------------------------
PAID-IN
CLASS B CAPITAL IN
PREFERRED COMMON COMMON PREFERRED COMMON EXCESS
STOCK STOCK STOCK STOCK STOCK OF PAR
--------- ---------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
SHARES ISSUED TO OFFICERS AT INCEPTION (CASH - $NIL) 5,089,286 $ - $ - $ -
SHARES ISSUED FOR CASH (CASH - $4,714,188) 884,729 4,714,188
SHARES ISSUED IN LIEU OF RENT (NOTE 9-X) (CASH - $NIL) 60,871 324,344
SHARE ISSUE COSTS (466,142)
TRANSLATION ADJUSTMENT
NET LOSS
BALANCE AT MARCH 31, 1994 6,034,886 - - 4,572,390
--------- ---------- -------- ------------
SHARES ISSUED FOR CASH (CASH - $1,175,797) 234,517 1,175,797
SHARES ISSUED IN LIEU OF RENT (NOTE 9-X) (CASH - $NIL) 5,777 30,121
REVERSE MERGER WITH THE TRACKER CORPORATION
ON JULY 12, 1994 (CASH - $100) 739,219 739 (639)
SHARES ISSUED FROM REGULATION S OFFERING (INCLUDING
79,658 SHARES AT $7 PER SHARE FOR CONSULTING
SERVICES AND 3,571 SHARES AT $5.50 PER SHARE
FOR THE PURCHASE OF FIXED ASSETS) (CASH -$1,505,000) 860,000 860 2,900,840
SHARE PROCEEDS TO BE RECEIVED SUBSEQUENT TO MARCH 31, 1995 (819,459)
SHARES ISSUED FOR CONSULTING AND
MARKETING SERVICES (CASH-$NIL) 825,000 78,005 825 2,204,153
LESS: CONSULTING AND MARKETING SERVICES NOT YET RECEIVED (814,583)* (815)
SHARES PROCEEDS RECEIVED FROM PRIVATE PLACEMENT
ON MARCH 15, 1995 (CASH - $350,000) 500,000 500 349,500
SHARES ISSUED TO EMPLOYEES FOR
EMPLOYMENT SERVICES (NOTE 9-X) (CASH-$NIL) 25,063 74,409
SHARE ISSUE COSTS (779,495)
TRANSLATION ADJUSTMENT
NET LOSS
BALANCE AT MARCH 31, 1995 - 2,109,636 6,378,248 - 2,109 9,707,617
--------- ---------- --------- ---------- -------- ------------
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
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 (NOTE 9-X) (CASH - $NIL) 324,344
SHARE ISSUE COSTS (466,142)
TRANSLATION ADJUSTMENT (129,098) (129,098)
NET LOSS (2,043,425) (2,043,425)
BALANCE AT MARCH 31, 1994 - (129,098) (2,043,425) 2,399,867
------------ ------------- --------------------- ------------
SHARES ISSUED FOR CASH (CASH - $1,175,797) 1,175,797
SHARES ISSUED IN LIEU OF RENT (NOTE 9-X) (CASH - $NIL) 30,121
REVERSE MERGER WITH THE TRACKER CORPORATION
ON JULY 12, 1994 (CASH - $100) 100
SHARES ISSUED FROM REGULATION S OFFERING (INCLUDING
79,658 SHARES AT $7 PER SHARE FOR CONSULTING
SERVICES AND 3,571 SHARES AT $5.50 PER SHARE
FOR THE PURCHASE OF FIXED ASSETS) (CASH -$1,505,000) 2,901,700
SHARE PROCEEDS TO BE RECEIVED SUBSEQUENT TO MARCH 31, 1995 (819,459)
SHARES ISSUED FOR CONSULTING AND
MARKETING SERVICES (CASH-$NIL) 2,204,978
LESS: CONSULTING AND MARKETING SERVICES NOT YET RECEIVED (2,086,685) (2,087,500)
SHARES PROCEEDS RECEIVED FROM PRIVATE PLACEMENT
ON MARCH 15, 1995 (CASH - $350,000) 350,000
SHARES ISSUED TO EMPLOYEES FOR
EMPLOYMENT SERVICES (NOTE 9-X) (CASH-$NIL) 74,409
SHARE ISSUE COSTS (779,495)
TRANSLATION ADJUSTMENT (159,026) (159,026)
NET LOSS (5,068,583) (5,068,583)
BALANCE AT MARCH 31, 1995 (2,086,685) (288,124) (7,112,008) 222,909
------------ ------------- --------------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
SHARES AMOUNTS
---------------------------------- ----------------------------------
PAID IN
CLASS B CAPITAL IN
PREFERRED COMMON COMMON PREFERRED COMMON EXCESS
STOCK STOCK STOCK STOCK STOCK OF PAR
--------- ---------- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
SHARE PROCEEDS RECEIVED RE REGULATION S OFFERING $ - $ - $ 819,459
MADE BEFORE MARCH 31, 1995 (CASH - $225,280)
CONSULTING SERVICES RECEIVED RE SHARES ISSUED
BEFORE MARCH 31, 1995 (NOTE 9-X) (CASH - $NIL) 14,582 * 14
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (CASH - $NIL) 266,664 * 265
SHARES ISSUED TO DIRECTORS AS
COMPENSATION (NOTE 9-X) (CASH - $NIL) 98,858 99 86,402
SHARES ISSUED TO AMERASIA FOR MARKETING
SERVICES (NOTE 9-X) (CASH - $NIL) 30,000 44,496
LESS: SERVICES NOT YET RECEIVED (12,500)*
SHARES CANCELLED (CASH - $NIL) (171) 1 (1)
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES,
CONSULTANTS AND A DIRECTOR (CASH - $NIL) 770,000 770 769,230
LESS: EMPLOYMENT AND CONSULTING
SERVICES NOT YET RECEIVED (340,939)* (341)
SHARES ISSUED TO R. ZUK (CASH - $83,000) 200,000 200 199,800
LESS: SHARES PROCEEDS TO BE RECEIVED (117,000)
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENT (CASH - $250,000) 250,000 250 249,750
SHARES ISSUED UPON EXERCISE OF
WARRANTS AT CANADIAN $1 PER SHARE
(CASH - $619,166) 849,803 619,166
SHARES ISSUED TO OFFICERS (NOTE 9-IIII(A)) (CASH - $NIL) 630,000 630 826,245
SHARES ISSUED TO A CONSULTANT (NOTE 9-X) (CASH - $NIL) 7,500 8 9,836
SHARES ISSUED FOR INVESTOR RELATION
SERVICES (NOTE 9-V) (CASH - $NIL) 200,000 200 262,300
LESS: SERVICES NOT YET RECEIVED (200,000)* (200)
SHARES ISSUED TO EMPLOYEES FOR
EMPLOYMENT SERVICES (NOTE 9-X)
(CASH - $NIL) 14,176 22,716
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) 1,133,365 (1,133,365) 1,134 (1,134)
SHARES ISSUED FOR CONVERSION FROM
DEBENTURE HOLDERS (CASH -$NIL) 991,434 992 728,537
SHARE ISSUE COST FROM APRIL 1, 1995 TO MARCH 31, 1996 (214,357)
COMPREHENSIVE INCOME (LOSS)
TRANSLATION ADJUSTMENT
NET LOSS FROM APRIL 1, 1995 TO MARCH 31, 1996
BALANCE AS AT MARCH 31, 1996 - 6,130,929 6,126,362 $ - $ 6,131 $14,013,062
--------- ---------- ----------- ---------- -------- ------------
AMOUNTS
----------------------------------------------------------------
DEFICIT ACCUMULATED
OTHER DURING
OTHER COMPREHENSIVE DEVELOPMENT
CAPITAL INCOME STAGE TOTAL
------------ ------------- --------------------- ------------
<S> <C> <C> <C> <C>
SHARE PROCEEDS RECEIVED RE REGULATION S OFFERING
MADE BEFORE MARCH 31, 1995 (CASH - $225,280) $ - $ - $ - $ 819,459
CONSULTING SERVICES RECEIVED RE SHARES ISSUED
BEFORE MARCH 31, 1995 (NOTE 9-X) (CASH - $NIL) 87,486 87,500
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (CASH - $NIL) 666,400 666,665
SHARES ISSUED TO DIRECTORS AS
COMPENSATION (NOTE 9-X) (CASH - $NIL) 86,501
SHARES ISSUED TO AMERASIA FOR MARKETING
SERVICES (NOTE 9-X) (CASH - $NIL) 44,496
LESS: SERVICES NOT YET RECEIVED (18,630) (18,630)
SHARES CANCELLED (CASH - $NIL) -
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES,
CONSULTANTS AND A DIRECTOR (CASH - $NIL) 770,000
LESS: EMPLOYMENT AND CONSULTING
SERVICES NOT YET RECEIVED (340,598) (340,939)
SHARES ISSUED TO R. ZUK (CASH - $83,000) 200,000
LESS: SHARES PROCEEDS TO BE RECEIVED (117,000)
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENT (CASH - $250,000) 250,000
SHARES ISSUED UPON EXERCISE OF
WARRANTS AT CANADIAN $1 PER SHARE
(CASH - $619,166) 619,166
SHARES ISSUED TO OFFICERS (NOTE 9-IIII(A)) (CASH - $NIL) 826,875
SHARES ISSUED TO A CONSULTANT (NOTE 9-X) (CASH - $NIL) 9,844
SHARES ISSUED FOR INVESTOR RELATION
SERVICES (NOTE 9-V) (CASH - $NIL) 262,500
LESS: SERVICES NOT YET RECEIVED (262,300) (262,500)
SHARES ISSUED TO EMPLOYEES FOR
EMPLOYMENT SERVICES (NOTE 9-X)
(CASH - $NIL) 22,716
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) -
SHARES ISSUED FOR CONVERSION FROM
DEBENTURE HOLDERS (CASH -$NIL) 729,529
SHARE ISSUE COST FROM APRIL 1, 1995 TO MARCH 31, 1996 (214,357)
COMPREHENSIVE INCOME (LOSS)
TRANSLATION ADJUSTMENT 47,224 47,224
NET LOSS FROM APRIL 1, 1995 TO MARCH 31, 1996 (6,090,730) (6,090,730)
--------------------- ------------
BALANCE AS AT MARCH 31, 1996 $(1,954,327) $ (240,900) $ (13,202,738) $(1,378,772)
------------ ------------- --------------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
SHARES AMOUNTS
----------------------------------- ------------------------------------
PAID IN
CLASS B CAPITAL IN
PREFERRED COMMON COMMON PREFERRED COMMON EXCESS
STOCK STOCK STOCK STOCK STOCK OF PAR
---------- ----------- ----------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
MARKETING SERVICES RECEIVED RE SHARES ISSUED
TO LL KNICKERBOCKER CO. (CASH - $NIL) 133,336 * $ - $ 135 $ (999,600)
SHARES ISSUED TO DIRECTORS AS
COMPENSATION (NOTE 9-X) (CASH - $NIL) 34,445 34 15,466
MARKETING SERVICES RECEIVED FROM
AMERASIA (NOTE 9-X) (CASH - $NIL) 5,000 (11,124)
EMPLOYMENT AND CONSULTING SERVICES
AND DIRECTORS' FEES RECEIVED RE S-8
(CASH - $NIL) 1,740,938 * 1,741 316,054
SHARES ISSUED FOR CONVERSION FROM
DEBENTURE HOLDERS (NOTE 9-IX) (CASH -$NIL) 1,433,443 1,434 653,566
PREFERRED SHARES ISSUED FROM
PRIVATE PLACEMENT (CASH - $1,050,000) 1,050 1 1,049,999
COMMON SHARES ISSUED FOR
CONVERSION FROM PREFERRED STOCKHOLDER
(CASH - $NIL) (1,050) 4,365,136 (1) 4,364 (4,363)
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) 1,268,825 (1,268,825) 1,269 (1,269)
SHARES ISSUED TO EMPLOYEES FOR
EMPLOYMENT SERVICES (NOTE 9-X) (CASH-$NIL) 26,000 26 12,474
SHARES ISSUED FOR CONSULTING
SERVICES (NOTE 9-X) (CASH-$NIL) 208,250 208 49,634
SHARES ISSUED IN LIEU OF FINDER FEE FOR
DEBENTURE HOLDERS (NOTE 9-X) (CASH -$NIL) 52,906 53 52,853
SHARES ISSUED IN LIEU OF FINDER FEE FOR
PREFERRED STOCKHOLDERS (NOTE 9-X) (CASH -$NIL) 112,500 113 44,887
SHARES ISSUED PURSUANT TO W.MARCHES
S-8 STOCK PAYMENT PLAN (NOTE 9-XII) 333,272 332 87,668
SHARES ISSUED FOR OFFICE RENTAL EXPENSE (CASH $NIL) 615,780 616 153,329
LESS: RENTAL EXPENSE NOT YET AMORTIZED (530,255)* (531)
SHARE ISSUE COST FROM
APRIL 1, 1996 TO MARCH 31, 1997 (224,741)
TRANSLATION ADJUSTMENT
NET LOSS FROM APRIL 1, 1996 TO MARCH 31, 1997
BALANCE AS AT MARCH 31, 1997 - 15,925,505 4,862,537 $ - $15,925 $15,207,895
---------- ----------- ----------- ----------- -------- ------------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
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 (NOTE 9-X) (CASH - $NIL) 15,500
MARKETING SERVICES RECEIVED FROM
AMERASIA (NOTE 9-X) (CASH - $NIL) 18,630 7,506
EMPLOYMENT AND CONSULTING SERVICES
AND DIRECTORS' FEES RECEIVED RE S-8
(CASH - $NIL) 340,598 658,393
SHARES ISSUED FOR CONVERSION FROM
DEBENTURE HOLDERS (NOTE 9-IX) (CASH -$NIL) 655,000
PREFERRED SHARES ISSUED FROM
PRIVATE PLACEMENT (CASH - $1,050,000) 1,050,000
COMMON SHARES ISSUED FOR
CONVERSION FROM PREFERRED STOCKHOLDER -
(CASH - $NIL)
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) -
SHARES ISSUED TO EMPLOYEES FOR
EMPLOYMENT SERVICES (NOTE 9-X) (CASH-$NIL) 12,500
SHARES ISSUED FOR CONSULTING
SERVICES (NOTE 9-X) (CASH-$NIL) 49,842
SHARES ISSUED IN LIEU OF FINDER FEE FOR
DEBENTURE HOLDERS (NOTE 9-X) (CASH -$NIL) 52,906
SHARES ISSUED IN LIEU OF FINDER FEE FOR
PREFERRED STOCKHOLDERS (NOTE 9-X) (CASH -$NIL) 45,000
SHARES ISSUED PURSUANT TO W.MARCHES
S-8 STOCK PAYMENT PLAN (NOTE 9-XII) 88,000
SHARES ISSUED FOR OFFICE RENTAL EXPENSE (CASH $NIL) 153,945
LESS: RENTAL EXPENSE NOT YET AMORTIZED (132,034) (132,565)
SHARE ISSUE COST FROM
APRIL 1, 1996 TO MARCH 31, 1997 (224,741)
TRANSLATION ADJUSTMENT (79,146) (79,146)
NET LOSS FROM APRIL 1, 1996 TO MARCH 31, 1997 (3,708,078) (3,708,078)
--------------------- ------------
BALANCE AS AT MARCH 31, 1997 $ (394,333) $ (320,046) $ (16,910,816) $(2,401,375)
----------- ------------- --------------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-8
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
SHARES AMOUNTS
----------------------------------- -----------------------------------
PAID IN
CLASS B CAPITAL IN
PREFERRED COMMON COMMON PREFERRED COMMON EXCESS
STOCK STOCK STOCK STOCK STOCK OF PAR
--------- ----------- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
SHARES ISSUED PURSUANT TO W.MARCHES
S-8 STOCK PAYMENT PLAN (NOTE 9-XII) 339,755 $ 341 $ 69,659
SHARES ISSUED FOR OFFICE RENTAL
EXPENSE ( NOTE 9-X) (CASH $NIL) 153,945 $ 153
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) 2,240,053 (2,240,053) $ 2,240 $ (2,240)
SHARES ISSUED TO EMPLOYEE
FOR EMPLOYMENT SERVICES 19,303 $ 19 $ 2,617
SHARES ISSUED FOR CONSULTING SERVICES 539,583 $ 540 $ 64,210
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENT (CASH - $30,000) 500,000 $ 500 $ 29,500
NET PROFIT (LOSS) FROM
APRIL 1, 1997 TO MARCH 31, 1998
BALANCE AS AT MARCH 31, 1998 - 19,718,144 2,622,484 $ - $19,718 $15,371,641
--------- ----------- ----------- ---------- -------- ------------
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
AMOUNTS
--------------------------------------------------------------
DEFICIT ACCUMULATED
OTHER DURING
OTHER COMPREHENSIVE DEVELOPMENT
CAPITAL INCOME STAGE TOTAL
---------- ------------- --------------------- ------------
<S> <C> <C> <C> <C>
SHARES ISSUED PURSUANT TO W.MARCHES
S-8 STOCK PAYMENT PLAN (NOTE 9-XII) $ 70,000
SHARES ISSUED FOR OFFICE RENTAL
EXPENSE ( NOTE 9-X) (CASH $NIL) $ 38,331 $ 38,484
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) $ 0
SHARES ISSUED TO EMPLOYEE
FOR EMPLOYMENT SERVICES $ 2,636
SHARES ISSUED FOR CONSULTING SERVICES $ 64,750
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENT (CASH - $30,000) $ 30,000
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 $(356,002) $ (245,665) $ (17,001,283) $(2,211,591)
---------- ------------- --------------------- ------------
</TABLE>
F-10
<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 (CASH - $NIL) 1,549,490 (2,622,484) $ 1,549 $ (1,549)
SHARES ISSUED FOR OFFICE RENTAL
EXPENSE ( NOTE 9-X) ( CASH $NIL) 672,096 $ 672
SHARES ISSUED FOR CONSULTING SERVICES 2,427,478 $ 2,428 $ 72,257
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENTS (CASH - $867,215) 14,244,063 $14,244 $ 781,501
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES 13,175,996 $13,176 553,633
AND CONSULTANTS (CASH - $NIL)
LESS: EMPLOYMENT AND CONSULTING
SERVICES NOT YET RECEIVED (2,000,000) $(2,000)
SHARES ISSUED IN PRIOR YEARS AS PREPAYMENT
OF RENT AND CONSULTING SERVICES,
WRITTEN-OFF IN YEAR ENDED MARCH 31, 1998 601,312 $ 601
TRANSLATION ADJUSTMENT
NET PROFIT (LOSS) FROM APRIL 1, 1998 TO MARCH 31, 1999
BALANCE AS AT MARCH 31, 1999 - 50,388,579 0 $ - $50,389 $16,777,482
========= =========== =========== ========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
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)
SHARES ISSUED FOR OFFICE RENTAL
EXPENSE ( NOTE 9-X) ( CASH $NIL) $ 49,735 $ 50,407
SHARES ISSUED FOR CONSULTING SERVICES $ 74,685
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENTS (CASH - $867,215) $ 795,745
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES 566,809
AND CONSULTANTS (CASH - $NIL)
LESS: EMPLOYMENT AND CONSULTING
SERVICES NOT YET RECEIVED (118,000) (120,000)
SHARES ISSUED IN PRIOR YEARS AS PREPAYMENT
OF RENT AND CONSULTING SERVICES,
WRITTEN-OFF IN YEAR ENDED MARCH 31, 1998 601
TRANSLATION ADJUSTMENT 119,398 119,398
NET PROFIT (LOSS) FROM APRIL 1, 1998 TO MARCH 31, 1999 (751,754) (751,754)
--------------------- ------------
BALANCE AS AT MARCH 31, 1999 $(424,267) $ (126,267) $ (17,753,037) $(1,475,700)
========== ============= ===================== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-11
<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.
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.
On July 28, 1998, we settled a lawsuit initiated by the Federal Trade
Commission alleging our violation of Section 5 of the Federal Trade Commission
Act and the FTC Trade Regulator Telemarketing Sales Rule. Following initiation
of the lawsuit, four of our five board members and our Chief Financial Officer
resigned. The settlement, among other things, permanently barred us, and our
Chief Executive Officer from engaging directly or indirectly, in the business of
credit card registration or promotion.
The FTC lawsuit and the cessation of the credit card registration service
resulted in the insolvency and dissolution of Tracker Canada. The liquidation
and dissolution occurred in February 1998.
On February 10, 1998, 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. The accompanying consolidated financial statements
have been prepared assuming that we will continue as a going concern, although
the report of our former independent accountant as of and for the year ended
March 31, 1997, and our independent accountant as of and for each of the years
F-12
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
ended March 31, 1999 and 1998, 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.
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. 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.
F-13
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
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.
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.
F-14
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO 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 - PREPAID EXPENSES AND DEPOSITS:
- ---------------------------------------------
Prepaid expenses and deposits comprise the following:
March 31, March 31,
1999 1998
---------- ----------
Consulting contract $ 120,000 $ NIL
---------- ----------
$ 120,000 $ NIL
========== ==========
The consulting agreement is for the purpose of providing investor relations
services for us and expires April 1, 2001.
NOTE 5 - DUE FROM SHAREHOLDERS:
- ------------------------------------
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 6 - DEFERRED CHARGES:
- -----------------------------
Deferred charges consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Current: $ 80,309 $ 776,055
Deferred sales commission (net of cancellation reserve)
Other 34,096 411,644
---------- ----------
Long term $ 114,405 $1,187,699
---------- ----------
Deferred sales' commission (net of cancellation reserve) $ 52,192 $ 183,041
Other 89,408 92,002
---------- ----------
$ 141,600 $ 275,043
---------- ----------
</TABLE>
F-15
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 7 - PROPERTY AND EQUIPMENT:
- -------------------------------------
We currently lease all ofour equipment from Global Tracker under short-term
agreements classified as operating leases.Lease payments are expensed as
incurred. See Note 1.
NOTE 8 - ACCRUED LIABILITIES:
- ---------------------------------
<TABLE>
<CAPTION>
Accrued liabilities comprise the following:
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
Directors fees $ 24,432 $ 24,432
Interest expense for convertible debentures 115,209 58,785
Others 445,182 445,182
---------- --------
$ 584,823 $ 528,399
========= =========
</TABLE>
Other accrued liabilities include: professional fees, sales commissions, rent,
and miscellaneous trade payables.
NOTE 9 - CAPITAL STOCK:
- ---------------------------
(i) The Class B voting common stock was held in trust pursuant to the
terms of an exchange agency and voting trust agreement with holders of
exchangeable preference shares in the Canadian subsidiary.
(ii) At March 31, 1997, all outstanding warrants to acquire exchangeable
preference shares of the Canadian subsidiary at Canadian $14 per share
had expired.
(iii)On March 15, 1995, 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.
(iv) 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
F-16
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
stock-based performance incentives to certain officers as determined at the
discretion of the compensation committee of the board of directors.
(v) During the year ended March 31, 1999,we amended and restated the Plan
and increased the number of shares reserved for issuance thereunder.
(vi) During the year ended March 31, 1999,we adopted a plan allowing for
the issuance of options to outside directors.
(vii) We have issued the following options and warrants:
<TABLE>
<CAPTION>
FOR YEAR WEIGHTED- GRANT FOR YEAR WEIGHTED- GRANT
ENDED AVERAGE DATE ENDED AVERAGE DATE
MARCH EXERCISE FAIR MARCH EXERCISE FAIR
31, 1999 PRICE VALUE 31, 1998 PRICE VALUE
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPTIONS:
Opening (*) 1,890,000 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
Expired/cancelled during period 900,000
--------- ---------
Closing 7,176,968 1,890,000
========= =========
<FN>
(*) 40,000 options were issued in July 1994 and 50,000 options were issued in July 1997 to
non-employee directors and vest proportionately over a period of three years.
(**) 2,700,000 options were issued in August 1997 to management at various terms from 4 to
7 years
(***) 5,286,968 options were issued in December 1998 to management vesting over two years.
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.
</TABLE>
Grant date fair value is based on the average market price for the five days
preceding the grant date.
The following table summarizes information about options outstanding and
exercisable at March 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Weighted-average Weighted- Weighted-average
Range of Options Remaining verage Exercise Options Exercise Price of
Exercise Prices Outstanding Contractual Life Price Exercisable Options Exercisable
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.07 -- $0.13 5,736,968 7.70 $ 0.077 3,333 0.13
- ---------------------------------------------------------------------------------------------------
$ 0.50 -- $0.75 1,800,000 10.00 $ 0.708 0 N/a
- ---------------------------------------------------------------------------------------------------
$ 7.50 -- $7.50 40,000 2.25 $ 7.950 40,000 7.95
- ---------------------------------------------------------------------------------------------------
$ 0.07 -- $7.50 7,576,968 8.20 $ 0.269 43,333 4.395
- ---------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Pro Forma Disclosure
We follow the intrinsic value method in accounting for our stock options.
Had compensation costs been recognized based on the fair value at the date of
grant for options granted in 1999, 1998 and 1997, the pro forma amounts of our
net loss per share for the years ended March 31, 1999, 1998 and 1997 would have
been as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1999 1998
------------ -----------
<S> <C> <C>
Net loss as reported $(751,754) $(90,467)
Net loss pro forma $(751,754) $(90,467)
Basic and diluted loss per share - as reported $ (0.02) $ (0.00)
Basic and diluted loss per share - pro forma $ (0.02) $ (0.00)
</TABLE>
The fair value for each option granted was estimated at the date of grant using
A Black-Scholes option-pricing model, assuming the
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1999 1998
------------- ----------
<S> <C> <C>
Average risk-free interest rates 4.7% 6.3%
Average expexted life in years 3.5 3.5
Volatility 200% 200%
</TABLE>
The weighted-average fair value of options granted during the years 1999 and
1998 was $0.06 and $0.14, respectively.
The pro forma effect of compensation expense on net income and earnings per
share for the 1999 and 1998 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
1999 PRICE 1998 PRICE
------- -------- --------- -----
<S> <C> <C> <C> <C>
WARRANTS (COMMON STOCK ):
Opening 750,000 N/A 750,000 N/A
Issued during the period 200,000 $ 0.40 0
Exercised during the period 0 0
Expired during the period 0 0 Cdn$14.00
======= ========
Closing 950,000 750,000
</TABLE>
F-18
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(viii) 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.
(ix) 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.
(x) 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.
(xi) In November 1995, at its annual general meeting, the shareholders
approved the increase of the authorized number of common shares from
20,000,000 to 30,000,000 shares.
(xii)In December 1998, at 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.
(xiii) In January 1999, we issued 13,175,995 shares to employees and
consultants.
(xiv) Other capital
At March 31, 1998, 627,625 common shares have been subscribed for but remain
unissued as the service for which these shares were subscribed for have yet to
be received.
<TABLE>
<CAPTION>
YEAR ENDED FROM INCEPTION
--------------
MARCH 31, (MAY 6, 1993)
THROUGH MAR 31,
--------------
1999 1998 1999
-----------------------------------
<S> <C> <C> <C>
OPENING,
Marketing services not yet received $ 0 $ 0 $ 0
Deferred compensation costs 0 0 0
Deferred consulting costs 262,500 0
Rent 93,502 0
-----------------------------
356,00 0
SHARES SUBSCRIBED BUT NOT ISSUED,
Marketing services not yet received 0 0 999,600
Deferred compensation costs 0 0 2,222,174
Deferred consulting costs 0 0 1,809,224
Rent 0 0 507,794
-----------------------------
0 0 5,538,792
F-19
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
CHARGED TO EXPENSE AS SERVICES ARE RECEIVED,
Marketing services not yet received 0 0 999,600
Deferred compensation costs 0 0 2,222,174
Deferred consulting costs 0 0 1,546,724
Rent 0 0 410,515
-----------------------------
0 0 5,182,790
CLOSING,
Marketing services not yet received 0 0 0
Deferred compensation costs 0 0 0
Deferred consulting costs 262,500 262,500
Rent 93,502 93,502
-----------------------------
$356,002 $356,002
=============================
</TABLE>
(xv) In November 1996, all holders of the convertible subordinated
debentures were requested to extend the maturity date from December 1,
1996 to June 1, 1997 on same terms and conditions. No additional
requests for extension have been made thereby placing us in default
under the terms of the convertible subordinated debenture agreement.
As of March 31, 1999 there remains outstanding $475,790 ($475,790 at
March 31, 1998) in convertible subordinated debentures with a maturity
date of June 1, 1997. The remaining balance of $ 31,809 ($31,809 at
March 31, 1998) has been reclassified as debentures that had a
repayment maturity term of December 1997 at a 4.75% interest rate.
Conversion rights under the convertible subordinated debentures have
expired.
(xvi)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.
(xvii)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.
(xviii)On October 21, 1996, our Prospectus on Amendment No. 4 of the
Registration Statement on Form S-1 was declared effective by the SEC.
(xix)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.
(xx) 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
F-20
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
agreed to pay the consultant 100,000 shares of our common stock. Our
obligations with respect to options issued to the consultant for the
purchase of 900,000 additional shares expired in 1999.
(xxi)During the year ended March 31, 1999, 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.
NOTE 10 - COMMITMENTS:
- -------------------------
LEASES
We leased space in Smyrna, Georgia for a three (3) year term commencing May
15, 1997. On November 1, 1997, we discontinued occupancy of the leased premises
and defaulted under the terms of the lease. The lease requires payment of an
annual base rent of $41,772. At March 31, 1999, we had a final settlement
payment obligation in the amount of $10,000, which has been included in other
accrued liabilities.
Rental expense for the year ended March 31, 1999 amounted to $ 64,132 and
$120,196 for the year ended March 31, 1998.
MARKETING AGREEMENT
On March 15, 1995, we entered into an agreement with The L.L. Knickerbocker
Company, Inc., of California ("Knickerbocker"), which provided for a television
and radio marketing campaign to be initially launched in the California
marketplace. As compensation for services to be performed by Knickerbocker, we
paid Knickerbocker a fee of $212,975 and issued 800,000 restricted common
shares, valued at $2.50 per share based on the trading price of our shares on
the date of the agreement. On December 11, 1996, we ended our relationship with
Knickerbocker and received 400,000 of the 800,000 restricted common shares back
from Knickerbocker. These shares were immediately cancelled in treasury.
F-21
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 11 - RELATED PARTY TRANSACTIONS:
- ------------------------------------------
Prior to the date of incorporation (May 6, 1993), the founder and other key
members of management received 5,089,286 exchangeable preference shares in
consideration for the assignment of international patents covering the Tracker
Canada system and as inducements to join 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, $ 185,000 for the year ended March 31,
1998 and $648,231 for the year ended March 31, 1997.
Finders fees amounting to Nil for years ended March 31, 1999 and March 31,
1998 and $25,870 for the year ended March 31, 1997 paid to related parties in
connection with our private equity placement are included as a reduction in
paid-in capital.
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.
NOTE 12 - INCOME TAXES:
- ---------------------------
The estimated deferred tax asset of $3,987,000 and $3,724,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to March 31, 1999 and March 31, 1998 respectively, has
not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $11,433,000 ($10,681,000
as at March 31,1998) expire starting in 2001; the benefit of these losses has
not been reflected in these consolidated financial statements.
<TABLE>
<CAPTION>
March 31 March 31,
1999 1998
------------- ------------
<S> <C> <C>
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses 3,987,000 3,724,000
------------- ------------
3,987,000 3,724,000
Valuation allowance ( 3,987,000) (3,724,000)
------------- ------------
$ 0 $ 0
============= ============
</TABLE>
The valuation allowance did increase by $263,000 during the year.
NOTE 13 - CONVERTIBLE SUBORDINATED DEBENTURES:
- ---------------------------------------------------
We have outstanding at March 31, 1999 subordinated debentures in the amount
of $475,790 ($ 475,790 as at March 31, 1998) bearing interest at 15% annually,
which are repayable within one year.
F-22
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Total interest incurred and included in
general and administrative expenses is $ 72,879 and $42,330 for year ended March
31, 1999 and 1998 respectively. At March 31, 1999, we were in default under the
terms of these agreements.
NOTE 14 - 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:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Assets:
- -------
Deferred charge - current portion $114,405 $1,187,699
Deferred charges - long term $141,600 $ 275,043
-------- ----------
Total deferred charges $256,005 $1,462,742
Liabilities:
- ------------
Deferred revenues - current portion $197,602 $1,798,727
Deferred revenues - long term $215,244 $ 412,846
-------- ----------
Total revenues charges $412,846 $2,211,573
</TABLE>
Summary Statement of Operations from discontinued operations
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
From Inception(May 6, 1993) For the
Through March 31, Year ended March 31,
1999 1999 1998
<S> <C> <C> <C>
Revenue $11,576,321 $1,798,727 $7,567,887
Cost of sales 8,756,728 1,206,737 5,953,944
Gross profit 2,819,593 591,990 1,613,943
Development Costs
Operational 1,189,393 ------ 373,849
Information systems 510,710 ------ 154,619
Sales and marketing 1,198,217 ------ 206,406
General and administration 2,811,828 ------ 817,020
------------ ---------- ----------
Total Development costs 5,710,148 ------ 1,551,893
------------ ---------- ----------
Gain (loss) from discontinued operations $(2,890,555) $ 591,990 $ 62,050
============ ========== ==========
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
( A DEVELOPMENT STAGE COMPANY)
- ----------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
ASSETS
DECEMBER 31 MARCH 31,
1999 1999
------------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 882,970 $ -
ACCOUNTS RECEIVABLE - 97,843
PREPAID EXPENSES AND DEPOSITS 120,000 120,000
DEFERRED CHARGES 114,269 114,405
------------- -------------
TOTAL CURRENT ASSETS 1,117,240 332,248
DUE FROM SHAREHOLDERS 14,072 14,072
DEFERRED CHARGES 51,413 141,600
PROPERTY AND EQUIPMENT (NET) - -
------------- -------------
TOTAL ASSETS $ 1,182,725 $ 487,920
============= =============
LIABILITIES & SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 458,352 $ 458,352
ACCRUED LIABILITIES 605,999 584,823
DEFERRED REVENUE 197,289 197,602
CONVERTIBLE BRIDGE NOTES 1,700,000 -
DEBENTURE PAYABLE 31,809 31,809
CONVERTIBLE DEBENTURES 475,790 475,790
------------- -------------
TOTAL CURRENT LIABILITIES 3,469,240 1,748,376
DEFERRED REVENUE 67,371 215,244
COMMITMENTS (NOTE 10) - -
SHAREHOLDERS' DEFICIENCY
COMMON STOCK, $.001PAR VALUE, 93,400,000 SHARES AUTHORIZED,
53,988,579 (50,388,579 - MARCH 31, 1999) SHARES ISSUED AND OUTSTANDING 53,989 50,389
CONVERTIBLE SENIOR PREFERRED STOCK, $.001 PAR VALUE, 6,500,000 SHARES
AUTHORIZED, NIL ISSUED AND OUTSTANDING - -
CLASS B VOTING COMMON STOCK, $0.00000007 PAR VALUE, 100,000
SHARES AUTHORIZED, NIL (NIL - MARCH 31, 1999) ISSUED
AND OUTSTANDING - -
PAID-IN CAPITAL 16,773,882 16,777,482
OTHER CAPITAL (671,949) (424,267)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (18,383,541) (17,753,037)
COMPREHENSIVE INCOME (126,263) (126,263)
------------- -------------
TOTAL SHAREHOLDERS' DEFICIT (2,353,886) (1,475,700)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT 1,182,725 $ 487,920
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR 3 MONTHS ENDING FOR 9 MONTHS ENDING FROM INCEPTION (MAY 6,1993)
DECEMBER 31, DECEMBER 31 THROUGH DECEMBER 31
------------------------ ---------------------------------------
1999 1998 1999 1998 1999
---------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 176 $ 20,117 $ 55,061 $ 113,630 $ 488,657
COST OF SALES 102 7,798 5,563 59,222 177,487
---------- ------------ ---------- ------------ -------------
GROSS PROFIT 74 12,319 49,498 54,408 311,171
---------- ------------ ---------- ------------ -------------
DEVELOPMENT COSTS
OPERATIONAL 72,257 43,194 197,833 153,455 2,043,254
INFORMATION SYSTEMS 21,671 3,860 66,027 12,765 1,041,239
SALES AND MARKETING 99,236 40,348 180,774 100,777 3,744,419
GENERAL AND ADMINISTRATIVE 122,976 43,554 293,230 179,241 9,033,106
---------- ------------ ---------- ------------ -------------
TOTAL DEVELOPMENT COSTS $ 316,141 $ 130,956 $ 737,864 $ 446,238 $ 15,862,018
GAIN (LOSS) FROM CONTINUING OPERATIONS (316,066) (118,637) (688,366) (391,830) (15,550,848)
GAIN (LOSS) FROM DISCONTINUED OPERATION 19,262 (5,985) 57,862 373,794 (2,832,693)
---------- ------------ ---------- ------------ -------------
NET PROFIT (LOSS) APPLICABLE TO COMMON STOCK $(296,804) $ (124,622) $(630,504) $ (18,036) $(18,383,541)
========== ============ ========== ============ =============
PROFIT (LOSS) PER SHARE OF COMMON STOCK
LOSS FROM CONTINUING OPERATIONS (0.01) (0.00) (0.01) (0.02) (0.89)
GAIN (LOSS) FROM DISCONTINUED OPERATION 0.00 (0.00) 0.00 0.02 (0.16)
---------- ------------ ---------- ------------ -------------
NET LOSS (0.01) (0.01) (0.01) (0.00) (1.05)
========== ============ ========== ============ =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 52,766,357 23,782,128 52,766,357 23,782,128 17,412,328
========== ============ ========== ============ =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
- ----------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------
(UNAUDITED)
FROM INCEPTION
(MAY 6, 1993) FOR 9 MONTHS FOR 9 MONTHS
THROUGH ENDED ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1999 1998
-------------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET LOSS ($18,383,541) $ (630,504) ($18,036)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM
OPERATING ACTIVITIES:
DEPRECIATION 380,019 - -
LOSS ON SALE OF LONG-TERM INVESTMENT 13,414 - -
RENT, CONSULTING AND MARKETING SERVICES, EMPLOYEE
COMPENSATION SETTLED VIA THE ISSUANCE OF COMPANY
SHARES 5,976,045 - -
CHANGES IN ASSETS AND LIABILITIES:
PREPAID EXPENSES AND DEPOSITS (137,273) - -
ACCOUNTS RECEIVABLE - 97,843 (23,651)
DEFERRED CHARGES (165,682) 90,323 1,189,576
DEFERRED REVENUE 264,661 (148,186) (1,749,232)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 1,078,995 21,175 98,661
-------------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (10,973,362) (569,348) (502,682)
-------------- ----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
DUE TO GLOBAL TRACKER - - 285,588
ACQUISITION OF FIXED ASSETS 6,028 -
LOAN TO SHAREHOLDERS (370,484) -
REPAYMENT OF LOANS TO SHAREHOLDERS 356,412 - -
LONG-TERM INVESTMENT (2,301,372) - -
UNWIND OF LONG-TERM INVESTMENT 2,287,958 - -
-------------- ----------- -----------
-
NET CASH FROM (USED IN) INVESTING ACTIVITIES (21,458) - 285,588
-------------- ----------- -----------
-
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: -
ISSUANCE OF COMMON SHARES 9,748,275 - 45,282
ISSUANCE OF PREFERRED SHARES 1,050,000 -
ISSUANCE OF CONVERTIBLE SUBORDINATED DEBENTURES 2,189,529 -
REPAYMENT OF DEBENTURES AND CONVERTIBLE SUBORDINATED DEBENTURES (297,401) -
ISSUANCE OF CONVERTIBLE BRIDGE NOTES 1,700,000 1,700,000
SHARE ISSUE COSTS (1,932,417) (247,682) -
----------- -----------
NET CASH FROM (USED IN) FINANCING ACTIVITIES 12,457,986 1,452,318 45,282
-------------- ----------- -----------
-
EFFECT OF EXCHANGE RATE CHANGES (580,196) - 171,812
-
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING 882,970 882,970 -
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - - 171,812
-------------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 882,970 $ 882,970 ($0)
============== =========== ===========
-
(0)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-26
<PAGE>
NOTE 1 - DESCRIPTION OF DEVELOPMENT STAGE ACTIVITIES AND 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 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, the
Company changed its year-end from December 31 to March 31.
On July 28, 1998, we settled a lawsuit with the FTC that alleged we
violated Section 5 of the Federal Trade Commission Act and the FTC Trade
Regulator Telemarketing Sales Rule. Following initiation of the lawsuit, four
of our five members on the board of directors and our Chief Financial Officer
resigned. The settlement, among other things, permanently barred us, and our
current Chief Executive Officer from engaging directly or indirectly, in the
business of credit card registration or promotion.
The FTC lawsuit and the cessation of the credit card registration service
resulted in the insolvency and dissolution of Tracker Canada. The liquidation
and dissolution occurred in February 1998. On February 10, 1998, 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.
NOTE 2 - GOING CONCERN:
- ---------------------------
We have been in a development stage since 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. The accompanying consolidated financial statements
have been prepared assuming that we will continue as a going concern. However,
the reports of our former independent accountant as of and for the year ended
March 31, 1997, and our current independent accountant as of and for each of the
years ended March 31, 1999 and 1998, express 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.
DEVELOPMENT COSTS
We expense development costs as incurred.
F-27
<PAGE>
DEFERRED CHARGES
Deferred charges relate primarily to unamortized commissions, net of a 30%
cancellation reserve and other costs of sales. The other costs include:
- cost of goods sold
- sales commissions
- telemarketing costs amortized on a straight-line basis over the term
of the related agreement
REVENUE RECOGNITION AND DEFERRED REVENUE
We recognize revenue for our services on a straight-line basis over the
term the services are offered. It is shown net of sales discounts and
allowances. We record amounts received for services not yet provided as
deferred revenue. The average length of the services agreement varies from
monthly to a five-year period.
STOCK-BASES COMPENSATION
We elected to follow fair value accounting allowed by SFAS No. 123 in
accounting for our employee stock options.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of Tracker Canada are translated at the fiscal
year or period end exchange rate. 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 antidilutive.
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 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.
F-28
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This 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 already substantially in compliance.
In April 1998, the American Institute of Certified Public Accountants
issued SOP 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 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. SFAS No. 133 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 - PREPAID EXPENSES AND DEPOSITS:
- ---------------------------------------------
Prepaid expenses and deposits comprise the following:
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------- ------------
<S> <C> <C>
Consulting contract 120,000 $120,000
------------- ------------
TOTAL: 120,000 $120,000
</TABLE>
The consulting agreement relates to investor relations services. The
contract expires on December 31, 2000.
NOTE 5 - DUE FROM SHAREHOLDERS:
- ------------------------------------
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
F-29
<PAGE>
NOTE 6 - DEFERRED CHARGES:
- -----------------------------
<TABLE>
<CAPTION>
Deferred charges consist of the following:
Dec. 31, March 31,
1999 1999
--------- ----------
<S> <C> <C>
Current:
Deferred sales commission (net of cancellation reserve) $ 80,309 $ 80,309
Other 33,960 34,096
--------- ----------
$ 114,269 $ 114,405
--------- ----------
Long term:
Deferred sales' commission (net of cancellation reserve) $ 29,177 $ 52,192
Other 22,236 89,408
--------- ----------
$ 51,413 $ 141,600
--------- ----------
</TABLE>
NOTE 7 - PROPERTY AND EQUIPMENT:
- -------------------------------------
We currently lease all of our equipment from Global Trackerunder short-term
agreements classified as operating leases. Lease payments are expensed as
incurred. See Note 1.
NOTE 8 - ACCRUED LIABILITIES:
- ---------------------------------
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------- ----------
<S> <C> <C>
Directors fees $ 24,432 $ 24,432
Interest expense for convertible debentures 255,508 115,209
Others 350,467 445,182
------------- ----------
$ 605,999 $ 528,399
============= ==========
</TABLE>
Other accrued liabilities include: professional fees, sales commissions,
rent, and miscellaneous trade payables.
NOTE 9 - COMMITMENTS:
- ------------------------
LEASES
We leased space in Smyrna, Georgia for a three (3) year term commencing May
15, 1997. On November 1, 1997, we discontinued occupancy of the leased premises
and defaulted under the terms of the lease. The lease requires payment of an
annual base rent of $41,772. At March 31, 1999, we had a final settlement
payment obligation in the amount of $10,000, which we include in other accrued
liabilities.
Rental expense for the year ended March 31, 1999 amounted to $ 64,132 and
$120,196 for the year ended March 31, 1998.
F-30
<PAGE>
MARKETING AGREEMENT
On March 15, 1995, we entered into an agreement with The L.L. Knickerbocker
Company, Inc., of California, which provided for a television and radio
marketing campaign to be initially launched in the California marketplace. As
compensation for services to be performed by Knickerbocker, we paid
Knickerbocker a fee of $212,975 and issued 800,000 restricted common shares,
valued at $2.50 per share based on the trading price of our shares on the date
of the agreement. On December 11, 1996, we ended our relationship with
Knickerbocker and received 400,000 of the 800,000 restricted common shares back
from Knickerbocker. These shares were immediately cancelled in treasury.
THE IACP ENDORSEMENT
We entered into an agreement with the International Association of Chiefs
of Police in February 1996 that ran through February 1999. Under the agreement,
we agreed to pay IACP, on a quarterly basis in arrears, the greater of $100,000
per year or a fee based on the total number of our subscribers. At March 31,
1999, we defaulted in the payment obligations under the agreement. According to
the cancellation terms under the contract, we owe the IACP $120,316.67. This
amount is included in part in Accounts payable and in part in other accrued
liabilities.
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, $300,000 for the year ended March 31, 1999
and $175,000 for the year ended March 31, 1998.
Finders fees amounting to Nil for years ended March 31, 1999 and March 31,
1998 and $25,870 for the year ended March 31, 1997 paid to related parties in
connection with our private equity placement are included as a reduction in
paid-in capital.
Our President, Chief Operating Officer and Chief Financial Officer is the
sole shareholder of Global Tracker Corporation. Global Tracker acquired Tracker
Canada's assets at arms' length in an insolvency proceeding. Global Tracker
leases all of such assets to us.
F-31
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to our bylaws, we may indemnify, purchase indemnity insurance, or
pay and advance expenses to our directors, officers and other persons who are
eligible or entitled to such indemnification, payments or advances. Any such
indemnification or payment must be expressly authorized by our board of
directors and in accordance with the provisions of the laws of Delaware. Our
right to indemnify such persons shall include our authority to enter into
written agreements for indemnification with such provisions.
Subject to the provisions of the laws of Delaware, our directors shall not
be liable to the company or our shareholders for monetary damages for an act or
omission in the director's capacity of a director, as long as the director acted
in good faith.
Indemnification of officers or persons controlling us for liabilities
arising under the Securities Act of 1933 is held to be against public policy by
the SEC and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Other expenses in connection with this registration that we will pay are
estimated to be substantially as follows:
Item Amount (in US$)
- ---- -----------------
SEC Registration Fee $ 1,788.93
State Securities Laws (Blue Sky) Fees and Expenses $ 500.00
Printing and Engraving Fees $ 500.00
Legal Fees $ 65,000.00
Accounting Fees and Expenses $ 0.00
Transfer Agent's Fees $ 3,000.00
Miscellaneous $ 4,081.80
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
We have issued the following securities within the past three years without
registering the securities under the Securities Act and without the aid of any
underwriters:
1. VEE LTD. Date issued:
5/1/98 Title of securities:
Common stock Amount:1,000,000 shares
Consideration: $30,000.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
<PAGE>
2. BRUCE LEWIS
Date issued: 5/11/98
Title of securities: Common stock
Amount: 4,252,222 shares
Consideration: $127,566.66
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
3. PRUTA SECURITIES LTD.
Date issued: 5/11/98
Title of securities: Common stock
Amount: 480,000 shares
Consideration: $14,400.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
4. MAHLER OIL COMPANY
Date issued: 5/11/98
Title of securities: Common stock
Amount: 124,000 shares
Consideration: $3,720.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
5. BARNABY J. HOWARD
Date issued: 5/11/98
Title of securities: Common stock
Amount: 312,500 shares
Consideration: $9,375.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
6. RICHARD W. PRESNER
Date issued: 5/11/98
Title of securities: Common stock
Amount: 100,000 shares
Consideration: $3,000.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
<PAGE>
7. KAY STARR
Date issued: 5/11/98
Title of securities: Common stock
Amount: 750,000 shares
Consideration: $37,500.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
8. ELAINE MARCHES
Date issued: 6/9/98
Title of securities: Common stock
Amount: 250,000 shares
Consideration: $15,000.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
9. FRANK PHALEN
Date issued: 6/9/98
Title of securities: Common stock
Amount: 250,000 shares
Consideration: $15,000.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
10. WILLIAM FOLLETT
Date issued: 6/22/98
Title of securities: Common stock
Amount: 300,000 shares
Consideration: $9,000.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
Date issued: 8/24/98
Title of securities: Common stock
Amount: 125,000 shares
Consideration: $3,750.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
<PAGE>
11. FRAN DANIELS
Date issued: 9/30/99
Title of securities: Common stock
Amount: 100,000 shares
Consideration: stock issued in lieu of consulting services valued at
$18,000,000 regarding investor relations.
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
12. SOVEREIGN CAPITAL ADVISORS, LLC.
Date issued: 8/18/99
Title of securities: warrant
Amount: 50,000 shares
Consideration: additional commission due under placement agent
agreement.
Securities Act exemption: 4(2) - these securities were issued to
institutional investors pursuant to a private placement pursuant to
Rule 506 of Regulation D.
Date issued: 10/15/99
Title of securities: warrant
Amount: 17,500 shares
Consideration: additional commission due under placement agent
agreement.
Securities Act exemption: 4(2) - these securities were issued to
institutional investors pursuant to a private placement pursuant to
Rule 506 of Regulation D.
Date issued: 12/7/99
Title of securities: warrant
Amount: 17,500 shares
Consideration: additional commission due under placement agent
agreement.
Securities Act exemption: 4(2) - these securities were issued to
institutional investors pursuant to a private placement pursuant to
Rule 506 of Regulation D.
13. SOVCAP EQUITY PARTNERS, LTD.
Date issued: 8/18/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $1,000,000 in convertible notes, $1,000,000 worth of callable
warrants and 200,000 shares of purchase warrants
Consideration: $1,700,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
Date issued: 12/7/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $200,000 in convertible notes, $200,000 worth of callable
warrants and 40,000 shares of purchase warrants
Consideration: $200,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
<PAGE>
14. CORRELLUS INTERNATIONAL, LTD.
Date issued: 10/15/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $150,000 in convertible notes, $150,000 worth of callable
warrants and 30,000 shares of purchase warrants
Consideration: $150,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
Date issued: 12/7/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $50,000 in convertible notes, $50,000 worth of callable
warrants and 10,000 shares of purchase warrants
Consideration: $200,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
15. ARAB COMMERCE BANK, LTD.
Date issued: 10/15/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $150,000 in convertible notes, $150,000 worth of callable
warrants and 30,000 shares of purchase warrants
Consideration: $150,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
16. ENRICO BONETTI
Date issued: 10/15/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $50,000 in convertible notes, $50,000 worth of callable
warrants and 10,000 shares of purchase warrants
Consideration: $50,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
17. FRUTOSE - MARKETING & INVESTORS INTERNACIONAIS LDA
Date issued: 12/7/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $100,000 in convertible notes, $100,000 worth of callable
warrants and 20,000 shares of purchase warrants
Consideration: $100,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
<PAGE>
18. TRADEWELL, LLC
Date issued: 4/12/99
Title of securities: warrant
Amount: 500,000 shares
Consideration: warrant issued in lieu of consulting services valued at
$43,500 regarding investor relations.
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued warrant is restricted from
being distributed unless an effective registration statement is filed.
Date issued: 12/17/99
Title of securities: warrant
Amount: 150,000 shares
Consideration: warrant issued in lieu of consulting services valued at
$18,000 regarding investor relations.
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued warrant is restricted from
being distributed unless an effective registration statement is filed.
19. STEVEN CUNNINGHAM
Date issued: 12/17/99
Title of securities: warrant
Amount: 150,000 shares
Consideration: stock issued in lieu of attorneys fees valued at
$18,000.
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued warrant is restricted from
being distributed unless an effective registration statement is filed.
ITEM 27. 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
<PAGE>
3.2 Bylaws
4.1 Specimen Common Stock Certificate
5.1 Legal Opinion of Arkin Merolla LLP
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
10.10Right 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)
10.11Stock 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
10.18Letter 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
10.19Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis to the
Tracker Corporation of America
10.30Letter agreement dated March 22, 1996 between The Tracker Corporation of
America and Sony of Canada Ltd.
10.36Agreement dated May 22, 1997 between The Tracker Corporation of America
and Schwinn Cycling & Fitness Inc.
<PAGE>
10.37Modification Agreement dated May 27, 1997 between The Tracker Corporation
of America, Saturn Investments, Inc., I. Bruce Lewis, Mark J. Gertzbein,
and Jonathan B. Lewis
10.38Agreement dated July 1, 1998 between The Global Tracker Corporation and
Warrantech Additive, Inc.
10.39License Agreement dated as of July 30, 1998 between The Global Tracker
Corporation and the Tracker Corporation of America
10.41Employment Agreement dated December 18, 1998 between Bruce I. Lewis and
The Tracker Corporation of America
10.42Employment Agreement dated December 18, 1998 between Jay S. Stulberg and
The Tracker Corporation of America
10.43Letter 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
10.46Placement Agreement dated August 18, 1999 with Sovereign Capital Advisors,
LLC.
10.47Stock Option Award Agreement dated December 22, 1998 between Bruce Lewis
and The Tracker Corporation of America
10.48Stock Option Award Agreement dated December 22, 1998 between Jay Stulberg
and The Tracker Corporation of America
10.49Non-Qualified Stock Option Award Agreement dated December 31, 1999 between
Bruce Lewis and The Tracker Corporation of America
10.50Non-Qualified Stock Option Award Agreement dated December 31, 1999 between
Jay Stulberg and The Tracker Corporation of America
10.51Incentive Stock Option Award Agreement dated December 31, 1999 between
Christopher Creed and The Tracker Corporation of America
10.52Incentive Stock Option Award Agreement dated December 31, 1999 between
Tizio Panara and The Tracker Corporation of America
10.53 2000 Stock Wage and Fee Payment Plan
21.1 List of subsidiaries of the Registrant
23.1 Consent of Hirsch Silberstein & Subelsky, P.C.
23.2 Consent of Arkin Merolla LLP (included in Exhibit 5.1)
<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)
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)
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)
ITEM 28. UNDERTAKINGS
The undersigned hereby undertakes:
(a) Rule 415 Offering.
(1) During any period in which we make offers or sales, to file to a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
<PAGE>
(iii)Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities being offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(e) Request For Acceleration of Effective Date.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit it to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned thereunto duly authorized.
THE TRACKER CORPORATION OF AMERICA,
a Delaware corporation
By: /s/ Bruce I. Lewis
--------------------------------------------------------------
Bruce I. Lewis, Chairman of the Board and Chief
Executive Officer
Dated: April 3, 2000
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
By: /s/ Bruce I. Lewis
----------------------
Bruce I. Lewis
Chairman of the Board and Chief Executive Officer
Dated: April 3, 2000
<PAGE>
Exhibit 5.1
ARKIN MEROLLA LLP
ATTORNEYS AT LAW
ONE SECURITIES CENTRE
3490 PIEDMONT ROAD, SUITE 302
ATLANTA, GEORGIA 30305
VOICE: 404. 467.5244
FAX: 404.467.5249
March 31,2000
The Tracker Corporation of America
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3HJ
To Whom It May Concern:
We have acted as special counsel to The Tracker Corporation of America, a
Delaware corporation (the "Company"), in connection with the Registration
Statement on Form SB-2 (the "Registration Statement"), to be filed by the
Company with the Securities and Exchange Commission (the "Commission"). The
Registration Statement relates to the registration under the Securities Act of
1933, as amended (the "Act"), of 20,000,000 shares (the "Shares") of the
Company's Common Stock, par value $.001 per share.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Certificate of
Incorporation and the Bylaws of the Company, (ii) certain resolutions of the
Board of Directors of the Company relating to the Registration Statement, (iii)
the form of Registration Statement proposed to be filed with the Commission, and
such other documents as we have deemed necessary or appropriate as a basis for
the opinions set forth below. In such examination, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents. As to
any facts material to this opinion, which we did not independently establish or
verify, we have relied upon statements and representations of officers and other
representatives of the Company and others.
Based upon and subject to the foregoing and the limitations set forth
below, we are of the opinion that the Shares have been duly authorized and,
after the Registration Statement becomes effective and when the Shares are
issued and sold in accordance with the Form SB-2/A prospectus to be delivered to
the participants, the Shares will be duly issued, fully paid and nonassessable.
We are qualified to practice law only in the State of Georgia and we do not
purport to express any opinion herein concerning any law other than the Delaware
General Corporation law. With respect to such law, our opinions are as to what
the law is or, in circumstances where the status of the law is uncertain, what
the law might reasonably be expected to be at the date hereof, and we assume no
obligation to revise or supplement this opinion due to any change in the law by
legislative action, judicial decision or otherwise. We do not render any
opinion with respect to any matters than those expressly set forth in the
immediately preceding paragraph. Without limiting the generality of the
<PAGE>
immediately preceding sentence, we express no opinion as to the applicability or
effect of any securities or Blue Sky laws of any state.
This opinion is furnished to you solely for your benefit in connection with
the filing of the Registration Statement and is not to be used, circulated,
quoted or otherwise referred to for any other purpose without our prior written
consent. Notwithstanding the foregoing, we hereby consent to the filing of this
opinion with the Commission as Exhibit 5.1 to the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Sincerely,
ARKIN MEROLLA LLP
/s/ A. Todd Merolla
----------------------
By: A. Todd Merolla
<PAGE>
EXHIBIT 10.46
PLACEMENT AGENT AGREEMENT
THIS PLACEMENT AGENT AGREEMENT ("AGREEMENT"), is made as of the 18th day of
August, 1999, by and between THE TRACKER CORPORATION OF AMERICA, INC., a
Delaware corporation (the "COMPANY"), and SOVEREIGN CAPITAL ADVISORS, LLC, a
Nevada limited liability company (the "AGENT").
BACKGROUND
The Company proposes to issue and sell Series 1 Secured Bridge Notes (the
"SECURITIES") resulting in gross proceeds to the Company of up to $3,000,000
(the "OFFERING") in a transaction not involving a public offering and without
registration under the Securities Act of 1933, as amended (the "ACT"), pursuant
to exemptions from the registration requirements of the Act under Section 4(2)
of the Act and Regulation D promulgated under the Act ("REGULATION D"). Agent
has offered to assist the Company to structure the Offering and the Securities,
and introduce the Company to prospective investors on a "best efforts basis."
The Company desires to secure the services of Agent on the terms and conditions
hereinafter set forth.
AGREEMENT
For and in consideration of the mutual covenants herein, and other good and
valuable consideration, the receipt and legal sufficiency of which is hereby
acknowledged, the parties hereto agree:
SECTION 1. ENGAGEMENT OF AGENT.
SECTION 1.1 APPOINTMENT. The Company hereby appoints Agent as its exclusive
agent in connection with the proposed issuance and sale by the Company of
securities resulting in gross proceeds to the Company of up to $3,000,000.
Agent, on the basis of the representations and warranties herein contained, and
upon and subject to the terms and conditions herein set forth, accepts such
appointment. This appointment shall be irrevocable for the period commencing
July 19, 1999 and ending February 18, 2000, which period maybe extended by the
consent of the Company and Agent (the "OFFERING PERIOD").
SECTION 1.2 COMPENSATION. The Company shall pay Agent a finder's fee of ten
percent (10%) of the gross proceeds derived from the offer, sale, and issuance
of the Securities or any other securities issued by the Company issued by the
Company during the Offering Period (the "GROSS PROCEEDS") PLUS a non-accountable
expense allowance of three percent (3%) of the Gross Proceeds.
SECTION 1.3 REIMBURSEMENT OF EXPENSES. The Company agrees to pay the
out-of-pocket expenses of Agent including the fees and expenses of counsel to
Agent for the preparation of the Transaction Agreements in accordance with
Section 7.7 of the Purchase Agreement, and fees and expenses of Escrow Agent in
accordance with Section 13 of the Escrow Agreement. The Company agrees that the
amount of such fees and expenses shall be deducted by Escrow Agent from the
proceeds of the issuance and sale of the Securities.
SECTION 1.4 LIMITED ROLE OF AGENT. Agent has acted only as an advisor to
the Company, Agent has advised the Company on the structure of the Offering and
Securities, and has identified potential investors. The Company has offered the
Securities to the investors and has negotiated directly with the investors in
the Offering. Agent will use
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Exhibit 10.46
best efforts to introduce the Company only to "accredited investors" as defined
in Regulation D. Wherever possible Agent will introduce the Company to
prospective investors who are not "U.S. Persons," as defined in Regulation S.
SECTION 1.5 RIGHT OF FIRST REFUSAL. The Company hereby grants Agent a right
of first refusal to act as placement agent for any future private financings of
the Company, whether of equity securities, convertible debt securities, or
securities or instruments convertible into or exchangeable for debt or equity
securities of the Company, mergers, acquisitions, or similar transactions. The
duration of Agent's right of first refusal under this Section 1.5 shall be for a
period of one (1) year following the final Closing of the Offering. In the event
that the Company wishes to undertake a transaction described in this Section
1.5, the Company shall send Agent a written notice of the proposed transaction
(whether the transaction is initiated by the Company or is offered to the
Company by a third party) in sufficient specificity to allow Agent to understand
the proposed transaction clearly. This notice must be delivered to Agent at
least twenty days prior to the proposed closing of the transaction. Agent shall
have ten days from receipt of that notice to determine whether or not it wishes
to exercise its right of first refusal with respect to that transaction. Agent
shall notify the Company in writing of its decision to exercise or waive its
right of first refusal with respect to the transaction described in the notice.
If Agent waives its right of first refusal with respect to a particular
transaction, the Company may proceed with that transaction, PROVIDED HOWEVER,
that if the terms of the transaction are changed in any material way from the
terms set forth in the notice to Agent, Agent's right of first refusal shall
commence again. Agent's waiver of its rights of first refusal with respect to
any specific transaction shall not act as a waiver of its rights with respect to
future transactions within the applicable time period.
SECTION 1.6 CONFIDENTIALITY. The Company agrees to maintain the
confidentiality of all prospective investors identified to the Company by Agent,
except as required by applicable law. For a period of two (2) years from the
Closing, the Company will not solicit or enter into any financing transaction
with such investors without the written consent of Agent AND payment to Agent of
compensation no less than the compensation to be paid to Agent hereunder for
raising a like amount.
SECTION 1.7 REMEDIES. In the event that Company breaches Section 1.5 hereof
or Section 1.6 hereof, Agent shall be entitled to receive compensation in
respect of the financing giving rise to the breach of this Agreement at the
rates set forth in Section 1.2 hereof. SECTION 2. CONDUCT OF THE OFFERING.
SECTION 2.1 OFFERING DOCUMENTS. The Company shall utilize a Series 1
Secured Bridge Note Purchase Agreement (the "PURCHASE AGREEMENT"), a Series 1
Secured Bridge Note in the form of EXHIBIT A to the Purchase Agreement (the
"BRIDGE NOTES"), a Repricing Warrant to be issued with each Bridge Note in the
form of EXHIBIT B to the Purchase Agreement (the "WARRANTS"), a Registration
Rights Agreement in the form of EXHIBIT C to the Purchase Agreement the
("REGISTRATION RIGHTS AGREEMENT"), an Escrow Agreement in the form of EXHIBIT D
to the Purchase Agreement (the "ESCROW AGREEMENT"), a form of opinion of Company
counsel in the form of EXHIBIT E to the Purchase Agreement (the "COMPANY
OPINION"), a Form of Irrevocable Transfer Agent Instructions in the form of
EXHIBIT _ to the Purchase Agreement (the "TRANSFER AGENT INSTRUCTIONS"), a
certificate of the Company's Secretary (the "SECRETARY CERTIFICATE") and a
certificate of the Company's chief executive officer ("COMPLIANCE CERTIFICATE")
(collectively, the Purchase Agreement and all Exhibits thereto, the Secretary
Certificate and the Compliance Certificate are herein after referred to as the
"TRANSACTION AGREEMENTS") in connection with the Offering. The Company and its
counsel have reviewed, commented upon, and approved the Transaction Agreements.
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Exhibit 10.46
SECTION 2.2 PUBLIC INFORMATION. The Company within a reasonable amount of
time prior to any Closing, shall provide each prospective investor with a copy
of all information required by Rule 502(b)(2)(ii) of Regulation D promulgated
pursuant to the Securities Act (collectively, "SEC DOCUMENTS"). The SEC
Documents have been prepared in conformity with the requirements (to the extent
applicable) of the Securities and Exchange Act of 1934, as amended (the "ACT")
and the rules and regulations ("RULES AND REGULATIONS") of the Commission
promulgated thereunder. As used in this Agreement, the term "OFFERING DOCUMENTS"
means collectively the SEC Documents and the Transaction Agreements, and all
amendments, exhibits, and supplements thereto, together with any other documents
which are provided to Agent by, or approved for Agent's use by, the Company for
this Offering.
SECTION 2.3 ACCURACY OF OFFERING DOCUMENTS. The Offering Documents, at the
time of delivery to Purchasers, conformed in all material respects with the
requirements, to the extent applicable, of the Act and the applicable Rules and
Regulations, and did not include any untrue statement of a material fact, or
omit to state any material fact required to be stated therein, or necessary, to
make the statements therein, in light of the circumstances under which they were
made, not misleading. At each Closing, the Offering Documents will contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations for the purposes of the proposed Offering, and all
statements of material fact contained in the Offering memorandum will be true
and correct, and the Offering Documents will not include any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; PROVIDED, HOWEVER, that the Company does
not make any representations or warranties as to the information contained in or
omitted from the Offering Documents in reliance upon written information
furnished on behalf of Agent specifically for use therein. Agent has no
responsibility for the contents, accuracy, or adequacy of the Offering
Documents, or for the compliance of the Offering Documents, with the
requirements of Rule 502(b)(2)(ii) of Regulation D promulgated pursuant to the
Securities Act.
SECTION 2.4 DUTY TO AMEND. If, at any time during the Offering, or such
longer period as the Offering Documents are required to be delivered under the
Act, any event occurs or any event known to the Company relating to or affecting
the Company shall occur as a result of which the Offering Documents as then
amended or supplemented would include an untrue statement of a material fact, or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or if it
is necessary at any time after the date hereof to amend or supplement the
Offering Documents to comply with the Act or the applicable Rules and
Regulations, the Company shall forthwith notify Agent thereof and shall prepare
such further amendment or supplement to the Offering Documents as may be
required and shall furnish and deliver to Agent and to others, whose names and
addresses are designated by Agent, all at the cost of the Company, a reasonable
number of copies of the amendment or supplement or of the amended or
supplemented Offering Documents which, as so amended or supplemented, will not
contain an untrue statement of a material fact or omit to state any material
fact necessary in order to make the Offering Documents not misleading in the
light of the circumstances when it is delivered to a purchaser or prospective
purchaser, and which will comply in all respects with the requirements (to the
extent applicable) of the Act and the applicable Rules and Regulations.
SECTION 2.5 ESCROW OF FUNDS. Pursuant to the Escrow Agreement, executed by
the Company, the person named as escrow agent in the Escrow Agreement (the
"ESCROW AGENT"), and the prospective investors who have executed signature pages
to the Purchase Agreement, the Registration Rights Agreement, and the Escrow
Agreement (the "PURCHASERS"), the purchase price for the Securities to be
purchased as reflected on the Purchaser Signature Page to the Purchase Agreement
shall be wired to the Escrow Agent to be held by the Escrow Agent as provided in
the Escrow Agreement.
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Exhibit 10.46
SECTION 2.6 APPROVAL OF INVESTORS. Prior to each closing, the Company shall
have the right to approve each Purchaser. If the Company withholds approval of
any Purchaser, the purchase price wired to Escrow Agent by such Purchaser shall
be returned to such Purchaser along with the Purchaser Signature Pages of such
Purchaser to the Purchase Agreement, the Registration Rights Agreement, and the
Escrow Agreement. The right to withhold approval of any Purchaser shall be
deemed to have been waived if the Company authorizes the Escrow Agent to
disburse funds provided by any Purchaser at any closing.
SECTION 2.7 DELIVERY OF SECURITIES. Securities in such form that, subject
to applicable transfer restrictions as described in the Purchase Agreement, they
can be negotiated by the holders thereof (issued in such denominations and in
such names as the Purchasers of the Securities may request shall be delivered by
the Company to the counsel for Placement Agent, with copies made available to
Agent for checking at least one (1) full business day prior to the Closing Date,
it being understood that the directions from Agent to the Company shall be given
at least two (2) full business days prior to the Closing Date. The Securities
shall be delivered at the Initial Closing and at each Subsequent Closing.
SECTION 2.8 INITIAL CLOSING. The Initial Closing (the "INITIAL CLOSING")
shall occur at such time as (a) Purchasers have delivered to the Company (care
of Balboni Law Group LLC, counsel for Agent) executed Purchaser Signature Pages
to each of the Purchase Agreement, the Registration Rights Agreement, and the
Escrow Agreement, (b) the Company has not withheld approval the Purchasers, and
(c) all other conditions to the obligation of the Purchasers and the Company to
close the transactions contemplated by the Purchase Agreement have been
satisfied or waived.
SECTION 2.9 SUBSEQUENT CLOSINGS. In the event that the Initial Closing
shall be for an amount of Securities that is less than the amount of the
Offering, the Offering may be continued, and additional Closings may be held
(each a "SUBSEQUENT CLOSING") throughout the Offering Period, PROVIDED THAT (a)
Purchasers have delivered to the Company (care of Balboni Law Group LLC, counsel
for Agent) executed Purchaser Signature Pages to each of the Purchase Agreement,
the Registration Rights Agreement, and the Escrow Agreement, (b) the Company has
not withheld approval the Purchasers, and (c) all other conditions to the
obligation of the Purchasers and the Company to close the transactions
contemplated by the Purchase Agreement have been satisfied or waived.
SECTION 2.10 DISBURSEMENTS AT CLOSING. At each Closing, the Company shall
execute a Release Notice that authorizes the Escrow Agent to receive expenses of
the Offering in the amounts specified, and effect a wire transfer of the net
proceeds of such Closing to the Company or another entity designated therein by
the Company. The authorization of the Company to release the funds held by the
Escrow Agent is the Company's authorization to release the executed Transaction
Agreements and Securities to the Purchasers. One complete set of executed
Transaction Documents will be delivered to the Company.
SECTION 2.11 TIME AND PLACE OF CLOSINGS. The Initial Closing and any
Subsequent Closing shall be held at the offices of Balboni Law Group LLC, 3475
Lenox Road, Suite 990, Atlanta, Georgia 30326, at 10:00 a.m. on such dates as
are fixed in accordance with this Agreement and the Purchase Agreement. The
Closing Date may be changed by mutual agreement of Agent and the Company. The
Company agrees to rely on faxed signature pages from the Purchasers, without the
requirement of obtaining an originally signed version of any of the Transactions
Agreements to which a Purchaser is a Party.
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Exhibit 10.46
SECTION 3. CONDITIONS OF AGENT'S OBLIGATIONS.
Agent's obligations hereunder shall be subject to the accuracy, as of the
Closing Date, of the representations and warranties on the part of the Company
contained in this Agreement, to the fulfillment of or compliance by the Company
with all covenants and conditions hereof, and to the following additional
conditions:
(a) There shall be no outstanding objection to any Transaction
Agreement by the Company or its counsel or any Purchaser or its counsel.
(b) The Company shall not have disclosed that the Offering Documents,
or any amendment thereof or supplement thereto, contains an untrue
statement of fact, which, in the opinion of counsel to Agent, is material,
or omits to state a fact, which, in the opinion of such counsel, is
material and is required to be stated therein, or is necessary to make the
statements therein, under the circumstances in which they were made, not
misleading.
(c) Between the date hereof and the Closing Date, the Company shall
not have sustained any loss on account of fire, explosion, flood, accident,
calamity, or any other cause of such character as would materially
adversely affect its business or property considered as an entire entity,
whether or not such loss is covered by insurance.
(d) There shall be no litigation instituted or overtly threatened
against the Company, and there shall be no proceeding instituted or
threatened against the Company before or by any federal or state
commission, regulatory body, or administrative agency, or other
governmental body, domestic or foreign, wherein an unfavorable ruling,
decision, or finding would materially adversely affect the business,
franchises, license, permits, operations, or financial condition or income
of the Company considered as an entity.
(e) Except as contemplated herein or as set forth in the Offering
Documents, during the period subsequent to the most recent financial
statements contained in the Offering Documents, if any, and prior to the
Closing Date, the Company
(i) shall have conducted its business in the usual and ordinary manner
as the same is being conducted as of the date hereof and (ii) except in the
ordinary course of business, the Company shall not have incurred any
liabilities or obligations (direct or contingent) or disposed of any
assets, or entered into any material transaction, or suffered or
experienced any substantially adverse change in its condition, financial or
otherwise. At the Closing Date, the equity account of the Company shall be
substantially the same as reflected in the most recent balance sheet
contained in the Offering Documents without considering the proceeds from
the sale of the Securities other than as may be set forth in the Offering
Documents.
(f) The authorization of the Securities by the Company and all
proceedings and other legal matters incident thereto and to this Agreement
shall be reasonably satisfactory in all respects to Agent and its counsel.
(g) The Company shall have furnished Agent a copy of the Company
opinion with respect to the sufficiency of all corporate proceedings and
other legal matters relating to this Agreement as Agent may reasonably
require.
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Exhibit 10.46
(h) The Company shall have furnished to Agent the opinion, dated the
Initial Closing, addressed to Agent, from counsel to the Company, as
required by the Purchase Agreement.
(h) The Company shall have furnished to Agent a copy of the Compliance
Certificate and the Secretary Certificate each dated as of the Closing
Date.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
For the purpose of inducing Agent to enter into this and perform this
Agreement, the Company hereby represents and warrants to and agrees with Agent
as follows:
SECTION 4.1 CORPORATION CONDITION. The Company's condition is as described
in its Offering Documents, except for changes in the ordinary course of business
and normal year-end adjustments that are not in the aggregate materially adverse
to the Company. The Offering Documents, taken as a whole, present fairly the
business and financial position of the Company as of the Closing Date.
SECTION 4.2 NO MATERIAL ADVERSE CHANGE. Except as may be reflected in or
contemplated by the Offering Documents, subsequent to the dates as of which
information is given in the Offering Documents, and prior to the Closing Date,
there shall not have been any material adverse change in the condition,
financial or otherwise, or in the results of operations of the Company or in its
business taken as a whole.
SECTION 4.3 NO DEFAULTS. Except as disclosed in the Offering Documents or
in writing to Agent, the Company is not in default in any material respect in
the performance of any material obligation, agreement, or condition contained in
any debenture, note, or other evidence of indebtedness or any indenture or loan
agreement of the Company. The execution and delivery of this Agreement, and the
consummation of the transactions herein contemplated, and compliance with the
terms of this Agreement, will not conflict with, or result in, a breach of any
of the terms, conditions, or provisions of, or constitute a default under, the
Certificate of Incorporation or bylaws of the Company (in any respect that is
material to the Company), any material note, indenture, mortgage, deed of trust,
or other agreement or instrument to which the Company is a party or by which the
Company or any property of the Company is bound, or to the Company's knowledge,
any existing law, order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality, agency, or body, arbitration tribunal
or court, domestic or foreign, having jurisdiction over the Company or any
property of the Company. The consent, approval, authorization, or order of any
court or governmental instrumentality, agency or body is not required for the
consummation of the transactions herein contemplated except such as may be
required under the Act or under the blue sky or securities laws of any state or
jurisdiction.
SECTION 4.4 INCORPORATION AND STANDING. The Company is, and at the Closing
Date will be, duly formed and validly existing in good standing as a corporation
under the laws of the State of Delaware and with full power and authority
(corporate and other) to own its properties and conduct its business, present
and proposed, as described in the Offering Documents; the Company, has full
power and authority to enter into this Agreement; and the Company is duly
qualified and in good standing as a foreign entity in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the Company or
its properties.
SECTION 4.5 LEGALITY OF SECURITIES. Prior to the Closing Date, the
Securities will have been duly and validly authorized and issued, will be valid,
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Exhibit 10.46
binding and enforceable against the Company in accordance with their terms, and
will conform in all material respects to the statements with regard thereto
contained in the Offering Documents.
SECTION 4.6 LEGALITY OF CONVERSION SHARES. The Common Stock into which the
Securities are convertible, when converted in accordance with the Securities
will be duly and validly issued and outstanding, fully paid, and non-assessable
and conform in all material respects to the statements with regard thereto
contained in the Offering Documents.
SECTION 4.7 LITIGATION. Except as set forth in the Offering Documents,
there is now, and at the Closing Date there will be, no action, suit, or
proceeding before any court or governmental agency, authority or body pending
or, to the knowledge of the Company, threatened, which might result in judgments
against the Company not adequately covered by insurance or which collectively
might result in any material adverse change in the condition (financial or
otherwise) or business of the Company or which would materially adversely affect
the properties or assets of the Company.
SECTION 4.8 FINDERS. The Company does not know of any outstanding claims
for services in the nature of a finder's fee or origination fees with respect to
the sale of the Securities hereunder for which Agent may be responsible, and the
Company will indemnify Agent from any liability for such fees by any party who
has a claim for such compensation from the Company and for which person Agent is
not legally responsible.
SECTION 4.9 TAX RETURNS. The Company has filed all federal and state tax
returns which are required to be filed, and has paid all taxes shown on such
returns and on all assessments received by it to the extent such taxes have
become due. All taxes with respect to which the Company is obligated have been
paid or adequate accruals have been set up to cover any such unpaid taxes.
SECTION 4.10 AUTHORITY. The execution and delivery by the Company of this
Agreement have been duly authorized by all necessary action, and this Agreement
is the valid, binding, and legally enforceable obligation of the Company subject
to standard qualifications as to the availability of equitable remedies, the
effect of bankruptcy and other laws relating to the protection of debtors and
public policy opinions promulgated by the Commission with respect to
indemnification against liabilities under the Act.
SECTION 4.11 ACTIONS BY THE COMPANY. The Company will not take any action
which will impair the effectiveness of the transactions contemplated by this
Agreement.
SECTION 5. COVENANTS OF THE COMPANY.
The Company covenants and agrees with Agent that:
SECTION 5.1 RESTRICTIONS ON AMENDMENTS. After the date hereof, the Company
will not at any time, prepare and distribute any amendment or supplement to the
Offering Documents, of which amendment or supplement Agent shall not previously
have been advised and Agent and its counsel furnished with a copy within a
reasonable time period prior to the proposed adoption thereof, or to which Agent
shall have reasonable objected in writing on the ground that it is not in
compliance with the Act or the Rules and Regulations (if applicable).
SECTION 5.2 EXPENSES OF OFFERING. The Company will pay, whether or not the
transactions contemplated by the Transaction Agreements are consummated, all
costs and expenses incident to the Transaction Agreements, including all
expenses incident to the authorization of the Securities, their issue and
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Exhibit 10.46
delivery to the Escrow Agent, any original issue taxes in connection therewith,
all transfer taxes, if any, incident to the initial sale of the Securities, the
fees and expenses of Agent's and the Company's counsel (except as provided
below) and accountants, and the cost of reproduction and furnishing to Agent
copies of the Offering Documents as herein provided, PROVIDED HOWEVER, that the
Company shall not be responsible for the payment of fees and expenses incurred
by Agent's counsel, if Agent is unable to procure Purchaser Signature Pages to
the Transaction Agreements from a Purchaser that the Company was willing to
accept.
SECTION 5.3 AVAILABILITY OF INFORMATION. Prior to the Closing Date, the
Company will cooperate with Agent in such investigation as it may make or cause
to be made of all of the properties, business, and operations of the Company in
connection with the Offering of the Securities. The Company will make available
to it in connection therewith such information in its possession as Agent may
reasonably request and will make available to Agent such persons as Agent shall
deem reasonably necessary and appropriate in order to verify or substantiate any
such information so supplied.
SECTION 5.4 REPORTS AND FILINGS. The Company shall be responsible for
making any and all filings required by the blue sky authorities and filings
required by the laws of the jurisdictions in which the subscribers who are
accepted for purchase of Securities are located, if any. Agent shall assist
Company in this respect, but such filings shall be the responsibility of
Company.
SECTION 5.5 NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS, OR
CIRCUMSTANCES. The Company's condition is as described in its Offering
Documents, except for changes in the ordinary course of business and normal
year-end adjustments that are not individually or in the aggregate materially
adverse to the Company. The Offering Documents, taken as a whole, will present
fairly the business and financial position of the Company as of each Closing
Date.
SECTION 5.6 NO MATERIAL ADVERSE CHANGE. Except as may be reflected in or
contemplated by the Offering Documents, subsequent to the dates as of which
information is given in the Offering Documents, and prior to each Closing Date,
there shall not have been any material adverse change in the condition,
financial, or otherwise, or in the results of operations of the Company or in
its business taken as a whole.
SECTION 6. INDEMNIFICATION.
SECTION 6.1 INDEMNIFICATION OF AGENT. The Company agrees to indemnify and
hold harmless Agent, each person who controls Agent within the meaning of
Section 15 of the Act and Agent's employees, accountants, attorneys and agents
(the "AGENT'S INDEMNITEES") against any and all losses, claims, damages, or
liabilities, joint or several, to which they or any of them may become subject
under the Act or any other statute or at common law for any legal or other
expenses (including the costs of any investigation and preparation) incurred by
them in connection with any litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, damages, liabilities, and
litigation arise out of or are based upon any untrue statement of material fact
contained in the Offering Documents or any amendment or supplement thereto or
any application or other document filed in any state or jurisdiction in order to
qualify the Securities under the Blue Sky or securities laws thereof, or the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, under the circumstances under which
they were made, not misleading, all as of the date of the Offering Documents or
of such amendment as the case may be; PROVIDED HOWEVER, that the indemnity
agreement contained in this Section 6.1 shall not apply to amount paid in
settlement of any such litigation, if such settlements are made without the
consent of the Company, nor shall it apply to Agent's Indemnitees in respect to
any such losses, claims, damages, or liabilities arising out of or based upon
<PAGE>
Exhibit 10.46
any such untrue statement or alleged untrue statement or any such omission or
alleged omission, if such statement or omission was made in reliance upon
information furnished in writing to the Company by Agent specifically for use in
connection with the preparation of the Offering Documents or any such amendment
or supplement thereto or any application or other document filed in any state or
jurisdiction in order to qualify the Securities under the Blue Sky or securities
law thereof. This indemnity agreement is in addition to any other liability
which the Company may otherwise have to Agent's Indemnitees. Agent's Indemnitees
agree, within ten (10) days after the receipt by them of written notice of the
commencement of any action against them in respect to which indemnity may be
sought from the Company under this Section 6.1, to notify the Company in writing
of the commencement of such action; PROVIDED HOWEVER, that the failure of
Agent's Indemnitees to notify the Company of any such action shall not relieve
the Company from any liability which it may have to Agent's Indemnitees on
account of the indemnity agreement contained in this Section 6.1, and further
shall not relieve the Company from any other liability which it may have to
Agent's Indemnitees, and if Agent's Indemnitees shall notify the Company of the
commencement thereof, the Company shall be entitled to participate in (and, to
the extent that the Company shall wish, to direct) the defense thereof at its
own expense, but such defense shall be conducted by counsel of recognized
standing and reasonably satisfactory to Agent's Indemnitees, defendant or
defendants, in such litigation. The Company agrees to notify Agent's Indemnitees
promptly of the commencement of any litigation or proceedings against the
Company or any of the Company's officers or directors of which the Company may
be advised in connection with the issue and sale of any of the Securities and to
furnish to Agent's Indemnitees, at their request, to provide copies of all
pleadings therein and to permit the Company's Indemnitees to be observers
therein and apprise Agent's Indemnitees of all developments therein, all at the
Company's expense.
SECTION 6.2 INDEMNIFICATION OF COMPANY. Agent agrees, in the same manner
and to the same extent as set forth in Section 6.1 above, to indemnify and hold
harmless the Company, and the Company's and Company's employees, accountants,
attorneys, and agents (the "COMPANY'S INDEMNITEES") with respect to (a) any
statement in or omission from the Offering Documents or any amendment or
supplement thereto or any application or other document filed in any state or
jurisdiction in order to qualify the Securities under the Blue Sky or securities
laws thereof, or any information furnished pursuant to Section 2.2 hereof, if
such statement or omission was made in reliance upon information furnished in
writing to the Company by Agent on its behalf specifically for use in connection
with the preparation thereof or supplement thereto, or (b) any untrue statement
of a material fact made by Agent or its agents not based on statements in the
Offering Documents or authorized in writing by the Company, or with respect to
any misleading statement made by Agent or its agents resulting from the omission
of material facts which misleading statement is not based upon the Offering
Documents, or information furnished in writing by the Company or, (c) any breach
of any representation, warranty, or covenant made by Agent in this Agreement.
Agent's liability hereunder shall be limited to the amount received by it for
acting as Agent in connection with the Offerings. Agent shall not be liable for
amounts paid in settlement of any such litigation if such settlement was
effected without its consent. In case of the commencement of any action in
respect of which indemnity may be sought from Agent, the Company's Indemnitees
shall have the same obligation to give notice as set forth in Section 6.1 above,
subject to the same loss of indemnity in the event such notice is not given, and
Agent shall have the same right to participate in (and, to the extent that it
shall wish, to direct) the defense of such action at its own expense, but such
defense shall be conducted by counsel of recognized standing reasonably
satisfactory to the Company. Agent agrees to notify the Company's Indemnitees
and, at their request, to provide copies of all pleadings therein and to permit
the Company's Indemnitees to be observers therein and apprise them of all the
developments therein, all at Agent's expense.
<PAGE>
Exhibit 10.46
SECTION 7. TERMINATION.
SECTION 7.1 TERMINATION BY AGENT. This Agreement may be terminated at any
time during the Offering Period by Agent by written notice to the Company, if
the Company shall have failed or been unable to comply with any of the terms,
conditions, or provisions of the Transaction Agreements to be performed,
complied with, or fulfilled by the Company within the respective times, if any,
herein provided for, unless compliance therewith or performance or satisfaction
thereof shall have been expressly waived by Agent in writing.
SECTION 7.2 TERMINATION BY COMPANY. This Agreement may be terminated by the
Company at the conclusion of the Offering Period by notice to Agent if Agent
shall have failed or been unable to comply with any of the terms, conditions, or
provisions of this Agreement to be performed, complied with, or fulfilled by
Agent within the respective times, if any, herein provided for, unless
compliance therewith or performance or satisfaction thereof shall have been
expressly waived by the Company in writing.
SECTION 7.3 TERMINATION FOR FORCE MAJEURE EVENTS. This Agreement may be
terminated by Agent by notice to the Company at any time, if, in the reasonable,
good faith judgment of Agent, payment for and delivery of the Securities is
rendered impracticable or inadvisable because: (a) additional material
governmental restrictions not in force and effect on the date hereof shall have
been imposed upon trading in securities generally; (b) a war or other national
calamity shall have occurred; or (c) the condition of the market (either
generally or with reference to the sale of the Securities to be offered hereby)
or the condition of any matter affecting the Company or any other circumstance
is such that it would be undesirable, impracticable or inadvisable, in the
judgment of Agent, to proceed with this Agreement or with the Offering.
SECTION 7.4 TERMINATION WITHOUT LIABILITY. Any termination of this
Agreement pursuant to this Section 7 shall be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages) on the part of any party thereto, except that the Company shall remain
obligated to pay the costs and expenses provided to be paid by it specified in
Sections 1.3 and 5.2, and the Company and Agent shall be obligated to pay,
respectively, all losses, claims, damages, or liabilities, joint or several,
under Section 6.1 in the case of the Company and Section 6.2 in the case of
Agent.
SECTION 8. MISCELLANEOUS.
SECTION 8.1 NOTICES. Whenever notice is required by the provisions of this
Agreement to be given, such notice shall be in writing, addressed:
If to Company:
The Tracker Corporation of America, Inc.
180 Dundas Street West, 26th Floor
Toronto, Ontario
Canada M5G 1Z8
Attn: Jay S. Stulberg, President
Telephone: (416) 593-2604
Facsimile: (416) ___-____
<PAGE>
Exhibit 10.46
with a copy (which shall not constitute notice) to:
Arkin Merolla LLP
3490 Piedmont Road, Suite 302
Atlanta, Georgia 30305
Robert Arkin, Esq.
Tel: 404-467-5244
Fax: 404-467-5249
If to Agent:
Sovereign Capital Advisors, LLC
3340 Peachtree Road, N.E.
Suite 1965
Atlanta, Georgia 30326
Attention: Don Odom
Tel: (404) 814-3737
Fax: (404) 812-3738
With a copy (which shall not constitute notice) to:
Balboni Law Group LLC
3475 Lenox Road
Suite 990
Atlanta, Georgia 30326
Attention: Gerardo M. Balboni II, Esq.
Tel: (404) 812-3100
Fax: (404) 812-3101
8.2 BENEFIT. This Agreement is made solely for the benefit of Agent and the
Company, their respective officers and directors and any controlling person
referred to in Section 15 of the Act and their respective successors and
assigns, and no other person may acquire or have any right under or by virtue of
this Agreement, including, without limitation, the holders of any Securities.
The term "SUCCESSOR" or the term "SUCCESSORS AND ASSIGNS" as used in this
Agreement shall not include any purchasers, as such, of any of the Securities.
8.3 SURVIVAL. The respective indemnities, agreements, representations,
warranties, covenants and other statements of the Company and Agent, or the
officers, directors or controlling persons of the Company and Agent as set forth
in or made pursuant to this Agreement and the indemnity agreements of the
Company and Agent contained in Section 6 hereof shall survive and remain in full
force and effect, regardless of (a) any investigation made by or on behalf of
the Company or Agent or any such officer, director or controlling person of the
Company or of Agent; (b) delivery of or payment for the Securities; or (c) the
Closing Date, and any successor of the Company or Agent or any controlling
person, officer or director thereof, as the case may be, shall be entitled to
the benefits hereof.
8.4 GOVERNING LAW. The validity, interpretation, and construction of this
Agreement will be governed by the laws of the State of Georgia. Any dispute or
controversy between the parties arising in connection with this Agreement or the
subject matter contemplated by this Agreement shall be resolved by arbitration
before a three-member panel of the American Arbitration Association in
accordance with the commercial arbitration rules of said forum and the Federal
Arbitration Act, 9 U.S.C. 1 et seq., with the resulting award being final and
conclusive. Said
<PAGE>
Exhibit 10.46
arbitrators shall be empowered to award all forms of relief and damaged claimed,
including, but not limited to, attorney's fees, expenses of litigation and
arbitration, exemplary damages, and prejudgment interest. The parties further
agree that any arbitration action between them shall be heard in Atlanta,
Georgia, and expressly consent to the jurisdiction and venue of the Superior
Court of Fulton County, Georgia, and the United States District Court for the
Northern District of Georgia, Atlanta Division for the adjudication of any civil
action asserted pursuant to this Paragraph.
8.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
8.6 CONFIDENTIAL INFORMATION. All confidential financial or business
information (except publicly available or freely usable material otherwise
obtained from another source) respecting either party will be used solely by the
other party in connection with the within transactions, be revealed only to
employees or contractors of such other party who are necessary to the conduct of
such transactions, and be otherwise held in strict confidence.
8.7 PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, neither party hereto
will issue any public announcement concerning the within transactions without
the approval of the other party.
8.8 FINDERS. The parties acknowledge that no person has acted as a finder
in connection with the transactions contemplated herein and each will agree to
indemnify the other with respect to any other claim for a finder's fee in
connection with the Offering.
8.9 RECITALS. The recitals to this Agreement are a material part hereof,
and each recital is incorporated into this Agreement by reference and made apart
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to
be executed as of the day and year first above written.
[Signatures begin on the following page]
<PAGE>
Exhibit 10.46
COMPANY SIGNATURE PAGE
TO
PLACEMENT AGENT AGREEMENT
THE COMPANY:
THE TRACKER CORPORATION OF AMERICA, INC.
By: /s/ Jay S. Stulberg
-----------------------------------------
Jay S. Stulberg, President
<PAGE>
Exhibit 10.46
AGENT SIGNATURE PAGE
TO
PLACEMENT AGENT AGREEMENT
THE AGENT
SOVEREIN CAPITAL ADVISORS, LLC
By:
-----------------------------------------
Don Odom
By: /s/ Jay S. Stulberg
-----------------------------------------
Jay S. Stulberg, President
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the use in this Registration Statement of The Tracker
Corporation of America, Inc. on Form SB-2/A of our report dated July 9, 1999,
appearing in the Prospectus, which is part of this Registration Statement.
- ---------------------------------------
Hirsch Silberstein & Subelsky, P.C.
Farmington Hills, Michigan
March 31, 2000
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
this Form SB-2/A registration statement hereby constitutes and appoints Bruce I.
Lewis and Jay S. Stulberg, or either of them, with full power to act without the
other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (unless revoked in writing) to sign any or all amendments
(including post-effective amendments thereto) to this Form SB-2 registration
statement to which this power of attorney is attached, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting to said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
- --------------------------------------------------------------------------------
/s/ Bruce I. Lewis Chief Executive Officer March 31, 2000
- ------------------------------- (Principal Executive
Bruce I. Lewis Officer), Director
/s/ Jay S. Stulberg President, Chief Operating March 31, 2000
- ------------------------------- Officer, Chief Financial
Jay S. Stulberg Officer (Principal Financial
Officer and Principal
Accounting Officer),
Secretary, Director
/s/ David G. R. Butler Director March 31, 2000
- -------------------------------
David G. R. Butler
- -------------------------------
Director March 31, 2000
Carl J. Corcoran
/s/ H. Joseph Greenberg Director March 31, 2000
- -------------------------------
H. Joseph Greenberg
<PAGE>
