DATE FILED: NOVEMBER 17, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period year ended SEPTEMBER 30, 2000, or
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
Commission file number 0- required 24944
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THE TRACKER CORPORATION OF AMERICA, INC.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 86-0767918
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1120 FINCH AVENUE WEST, SUITE 303, NORTH YORK, ONTARIO, CANADA M3J3H8
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (416) 663-8222
------------------------
Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [ ] No [X]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date:
Classes of Common Stock Outstanding at November 10, 2000
----------------------- --------------------------------
Common Stock, $0.001 par value 59,395,259
Class B Common Stock, $0.00000007 par value 0
<PAGE>
THE TRACKER CORPORATION OF AMERICA
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 1
Consolidated Balance Sheet as of September 30, 2000
and March 31, 2000 2
Consolidated Statement of Operations for the three
and six months ended September 30, 2000 and 1999
and for the period from May 6, 1993 (inception)
through September 30, 2000 3
Consolidated Statement of Cash Flows for the three and
six months ended September 30, 2000 and 1999 and
for the period from May 6, 1993 (inception) through
September 30, 2000 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
ii
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
---------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
ASSETS
SEPT.30 MARCH 31,
2000 2000
------------- -------------
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 81,549 $ 497,749
ACCOUNTS RECEIVABLE - -
DEFERRED CHARGES 67,790 114,065
------------- -------------
TOTAL CURRENT ASSETS 149,339 611,814
DUE FROM SHAREHOLDERS 1,434 1,434
DEFERRED CHARGES - 21,514
PROPERTY AND EQUIPMENT (NET) -
------------- -------------
TOTAL ASSETS $ 150,774 $ 634,763
============= =============
LIABILITIES & SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 470,660 $ 434,223
ACCRUED LIABILITIES 596,139 487,114
DUE TO RELATED PARTIES 2,922 13,324
DEFERRED REVENUE 107,622 192,135
CONVERTIBLE BRIDGE NOTES 2,200,000 1,700,000
DEBENTURE PAYABLE 31,809 31,809
CONVERTIBLE DEBENTURES 465,790 465,790
----------------------------
TOTAL CURRENT LIABILITIES 3,874,941 3,324,394
DEFERRED REVENUE - 23,109
COMMITMENTS (NOTE 12)
SHAREHOLDERS' DEFICIENCY
COMMON STOCK, $.001PAR VALUE, 90,000,000 SHARES AUTHORIZED,
56,627,509 (50,388,579 - MARCH 31, 1999) SHARES ISSUED AND OUTSTANDING 56,628 56,628
CONVERTIBLE SENIOR PREFERRED STOCK, $.001 PAR VALUE, 6,500,000 SHARES
AUTHORIZED, NIL ISSUED AND OUTSTANDING -
CLASS B VOTING COMMON STOCK, $0.00000007 PAR VALUE, 20,000,000
SHARES AUTHORIZED, 793,594 (1,072,994 - MARCH 31, 1999) ISSUED
AND OUTSTANDING -
PAID-IN CAPITAL 16,908,378 16,981,878
OTHER CAPITAL (60,000) (60,000)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (20,502,906) (19,564,979)
COMPREHENSIVE INCOME (NOTE 3) (126,267) (126,267)
------------- -------------
TOTAL SHAREHOLDERS' DEFICIT (3,724,167) (2,712,741)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 150,774 $ 634,763
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
-------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
FOR 3 MONTHS FOR 6 MONTHS FROM INCEPTION (MAY 6, 1993)
ENDING SEPTEMBER 30 ENDING SEPTEMBER 30 THROUGH SEPTEMBER 30/00
-------------------------- -------------------------- ------------------------
2000 1999 2000 1999 2000
------------ ------------ ------------ ------------ ------------------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 98 $ 21,102 $ 14,349 $ 54,885 $ 433,694
COST OF SALES 57 3,163 9,446 5,461 171,981
------------ ------------ ------------ ------------ ------------------------
GROSS PROFIT 40 17,939 4,903 49,424 261,713
------------ ------------ ------------ ------------ ------------------------
DEVELOPMENT COSTS
OPERATIONAL 56,206 39,050 122,407 125,576 3,166,642
INFORMATION SYSTEMS 108,592 30,952 170,513 44,356 1,643,182
SALES AND MARKETING 163,780 51,325 342,345 81,538 5,147,150
GENERAL AND ADMINISTRATIVE 173,082 140,071 347,397 170,254 13,066,569
------------ ------------ ------------ ------------ ------------------------
TOTAL DEVELOPMENT COSTS 501,660 261,398 982,663 421,724 23,023,543
GAIN(LOSS) FROM CONTINUING OPERATIONS (501,619) (243,459) (977,759) (372,300) (22,761,830)
GAIN(LOSS) FROM DISCONTINUED OPERATIONS
GAIN FROM OPERATION 19,916 37,090 39,832 38,600 4,684,179
GAIN (LOSS) ON DISPOSAL OF CPS SEGMENT - - - - (157,088)
------------ ------------ ------------ ------------ ------------------------
19,916 37,090 39,832 38,600 4,527,091
------------ ------------ ------------ ------------ ------------------------
NET PROFIT (LOSS) APPLICABLE TO COMMON STOCK $ (481,703) $ (206,369) $ (937,927) $ (333,700) $ (18,234,739)
============ ============ ============ ============ ========================
PROFIT (LOSS) PER SHARE OF COMMON STOCK
LOSS FROM CONTINUING OPERATIONS $ (0.01) $ (0.00) $ (0.02) $ (0.01) $ (1.04)
GAIN (LOSS) FROM DISCONTINUED OPERATION 0.00 0.00 0.00 0.00 0.21
------------ ------------ ------------ ------------ ------------------------
NET LOSS $ (0.01) $ (0.00) $ (0.02) $ (0.01) $ (0.82)
============ ============ ============ ============ ========================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 56,627,509 51,855,246 56,627,509 51,855,246 21,933,636
============ ============ ============ ============ ========================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
--------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
From inception
(May 6, 1993) For 6 months ended For 6 months ended
through Sept.30 September 30 September 30
2000 2000 1999
----------------- -------------------- --------------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net loss ($20,502,906) $ (937,927) ($333,700)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation 380,019 - -
Loss on sale of long-term investment 13,414 - -
Rent, consulting and marketing services, employee 571,900 - -
Compensation settled via the issuance of company shares 5,284,144 - -
Changes in assets and liabilities:
Prepaid expenses and deposits (17,273) - -
Accounts receivable - - -
Deferred charges (67,790) 67,789 97,843
Deferred revenue 107,623 (107,621) 60,220
Due to related parties 2,922 (10,402) (98,820)
Accounts payable and accrued liabilities 1,081,443 145,461 (294,892)
----------------- -------------------- --------------------
Net cash used in operating activities (13,146,504) (842,700) (569,348)
----------------- -------------------- --------------------
Cash flows from (used in) investing activities:
Acquisition of fixed assets 6,028 - -
Loan to shareholders (357,847) - -
Repayment of loans to shareholders 356,412 - -
Note receivable (200,317) - -
Repayment of note receivable 200,317 - -
Long-term investment (2,301,372) - -
Unwind of long-term investment 2,287,958 - -
----------------- -------------------- --------------------
Net cash from (used in) investing activities (8,821) - -
----------------- -------------------- --------------------
Cash flows from (used in) financing activities:
Issuance of common shares 10,369,677 (73,500) -
Issuance of preferred shares 1,050,000 - -
Issuance of convertible subordinated debentures 2,189,529 - -
Repayment of debentures and convertible subordinated debentures (307,401) - -
Issuance of convertible bridge notes 2,200,000 500,000 1,000,000
Share issue costs (1,684,735) - (149,280)
----------------- -------------------- --------------------
Net cash from (used in) financing activities 13,817,070 426,500 850,720
----------------- -------------------- --------------------
Effect of exchange rate changes (580,196) - -
Increase (decrease) in cash and cash equivalents during 81,549 (416,201) 281,372
the period
Cash and cash equivalents, beginning of period - 497,749 -
----------------- -------------------- --------------------
Cash and cash equivalents, end of period $ 81,549 $ 81,549 $ 281,372
================= ==================== ====================
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)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
NOTE 1 - DESCRIPTION OF DEVELOPMENT STAGE ACTIVITIES AND CORPORATE HISTORY:
--------------------------------------------------------------------------------
The Tracker Corporation of America has been in the development stage since
its formation. We primarily market, sell and operate a personal property
marking and monitoring system we developed that utilizes advanced bar code and
laser scanning technology to create an identification device that interfaces
with a computer database and scanning network. We also sell, install and
support corporate asset tracking management software.
Our current business originated in July 1994 through a reorganization in
which we acquired all of the issued and outstanding voting shares of Tracker
Canada, an Ontario, Canada corporation, in exchange for approximately 90% of our
total voting shares as of that date. Our predecessor was incorporated as a Utah
corporation in 1986, and changed its state of incorporation to Nevada in 1992
and Delaware in 1994 through change in domicile mergers. Concurrent with the
effective date of the reorganization, we changed our year-end from December 31
to March 31. The reorganization was accounted for as a reverse acquisition.
On July 28, 1998, pursuant to an agreement with the FTC we discontinued our
credit card registration service that had been the primary source of our
revenues through September 1997. The FTC agreement and the cessation of the
credit card registration service resulted in the insolvency and dissolution of
Tracker Canada. The liquidation and dissolution occurred in February 1998.
On February 10, 1998, Global Tracker, a newly formed Ontario, Canada
corporation, acquired substantially all of Tracker Canada's assets at arm's
length in a bankruptcy proceeding. Shortly thereafter, Global Tracker entered
into an agreement with us which permitted the use of personnel retained by
Global Tracker and assets formerly owned or leased by Tracker Canada to continue
the business formerly conducted by Tracker Canada. As a result of this
arrangement, we have continued on a limited basis the business formerly operated
by Tracker Canada.
NOTE 2 - GOING CONCERN:
---------------------------
We have been in a development stage since inception on May 6, 1993. The
likelihood that we will attain profitability depends on many factors, including
our ability to obtain adequate financing and generate sufficient revenues.
Management is currently working to secure adequate capital through the private
placement of securities for the purpose of executing its revised business plan.
The accompanying consolidated financial statements have been prepared assuming
that we will continue as a going concern, although the report of our former
independent accountant as of and for each of the years ended March 31, 1998 and
1999, and our independent accountant as of and for the year ended March 31,
2000, express substantial doubt as to our ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES:
----------------------------------------------
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include our accounts and those of our
former wholly owned subsidiary, Tracker Canada, through its date of dissolution
on January 27, 1998. All significant inter-company accounts and transactions
have been eliminated.
5
<PAGE>
DEVELOPMENT COSTS
Development costs are expensed as incurred.
DEFERRED CHARGES
Deferred charges relate primarily to unamortized commissions, net of a 30%
cancellation reserve, and other costs of sales including cost of goods sold;
sales commissions; and telemarketing costs which are amortized on a
straight-line basis over the term of the related agreement.
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue for our services is recognized on a straight-line basis over the
term of the services offered and is shown net of sales discounts and allowances.
Amounts received for which service has not yet been provided, are recorded as
deferred revenue. Typical services provided include assistance with the
recovery of lost and stolen property, cancellation of lost and expired credit
cards as well as continued maintenance of database of all customers' registered
property. The average length of the services agreement varies from monthly to a
five-year period.
STOCK-BASES COMPENSATION
We have elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB No. 25"), and related
interpretations, in accounting for its employee stock options rather than the
alternative fair value accounting allowed by SFAS No. 123, Accounting for
Stock-Based Compensation. APB No. 25 provides that the compensation expense
relative to our employee stock options is measured based on the intrinsic value
of the stock option. SFAS No. 123 requires companies that continue to follow APB
No. 25 to provide a pro forma disclosure of the impact of applying the fair
value method of SFAS No. 123.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of our Canadian operations are translated at the
fiscal year or period end exchange rate while revenues, expenses and cash flows
are translated at average rates in effect for the period.
EARNINGS PER SHARE
Basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. We compute basic earnings per share using
the weighted-average number of common shares outstanding during the period. We
compute diluted earnings per share using the weighted-average number of common
and common stock equivalent shares outstanding during the period. We exclude
common equivalent shares from the computation if their affect is anti-dilutive.
6
<PAGE>
COMPREHENSIVE INCOME (LOSS)
As of April 1, 1998 we adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. The
Statement of Shareholder Equity has been restated for all previous years. The
only item of comprehensive income (loss) that we currently report is unrealized
gain on foreign currency translation adjustments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used when accounting for
inventory obsolescence, depreciation and amortization, taxes, and contingencies.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1 ("SOP 98-1"), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires all costs
related to the development of internal use software other than those incurred
during the application development stage to be expensed as incurred. Costs
incurred during the application development stage are required to be capitalized
and amortized over the estimated useful life of the software. Adoption is not
expected to have a material effect on our consolidated financial statements as
our policies are substantially in compliance with SOP 98-1.
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred. Adoption is not expected to have material effect on our consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999 and requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction and, if it is, the type of hedge transaction. We do not expect that
the adoption of SFAS No. 133 will have a material impact on our consolidated
financial statements because we do not currently hold any derivative
instruments.
NOTE 4 - DUE FROM SHAREHOLDERS:
------------------------------------
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 5 - DUE TO RELATED PARTIES:
--------------------------------------
Global Tracker Corporation has incurred expenses on behalf of the Company.
The balance represents un-reimbursed portion of these expenses.
7
<PAGE>
NOTE 6 - DEFERRED CHARGES:
------------------------------
Deferred charges consist of the following:
Sept. 30, March 31,
2000 2000
---------- ----------
Current:
Deferred sales commission (net of cancellation reserve) $ 44,704 $ 80,309
Other 23,086 33,756
---------- ----------
$ 67,790 $ 114,065
---------- ----------
Long term:
Deferred sales' commission (net of cancellation reserve) $ nil $ 9,099
Other nil 12,415
---------- ----------
$ nil $ 21,514
---------- ----------
NOTE 7 - PROPERTY AND EQUIPMENT:
-------------------------------------
We currently lease all of our equipment from Global Tracker under
short-term agreements classified as operating leases. Lease payments are
expensed as incurred. The lease expense for the period was $10,876. See Note 1.
NOTE 8 - ACCRUED LIABILITIES:
---------------------------------
Accrued liabilities comprise the following:
Sept. 30, March 31,
2000 2000
---------- ----------
Interest expense for convertible debentures $ 341,204 $ 267,114
Others 254,935 220,000
---------- ----------
$ 596,139 $ 487,114
========== ==========
Other accrued liabilities include: professional fees, sales refunds and
commissions, rent, and various trade payables.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
We have been in the development stage since formation. We primarily
market, sell and operate a personal property marking and monitoring system. Our
system utilizes advanced bar code and laser scanning technology to create an
identification device that interfaces with a computer database and scanning
network. We also sell, install and support corporate asset tracking and
management software.
We have not generated any significant revenue since we cancelled our credit
card registration program in September 1997. Our ability to generate revenue
from operations and achieve profitability is largely dependent on the successful
commercialization of our products and services. This has not happened to date.
In order to achieve success, we will require significant additional financing to
penetrate new markets for our products and services. For these reasons, in its
most recent report our independent auditor has expressed substantial doubt that
we can continue as a going concern.
We believe the societal trend towards using the internet for purchasing
goods and services will have a positive effect on our future financial results
through enhanced sales and a reduction in costs. In April 2000, we upgraded our
website to enable e-commerce applications for the sale of our products and
services. The website enables existing customers to upgrade our applications.
We hope to reduce costs through the introduction of web-based activation of our
tags and labels by end users and resellers. Currently, the tags and labels must
be activated by either mail or telephone.
We are presently focusing our resources on the development of our products
and services rather than sales. During the past two fiscal years ended we spent
$3,325,683 on development costs. The associated costs may have a detrimental
effect on our short-term financial results and cash flow. However, these costs
are necessary to our becoming commercially viable.
Given our focus on development rather than sales, we have no source of
current income. Although our agreements with Schwinn and Sony may prove
fruitful in the future, we are not currently generating any income from them.
Similarly, we are not generating any income from the bicycle identification
program. Furthermore, our future success is largely dependent on the retention
of Symbol Technologies as our supplier of portable bar-code scanning equipment.
Because we have not satisfied Symbol's minimum annual purchase requirements to
date, we cannot guarantee Symbol will support our sales effort in accordance
with our agreement. The termination of the Symbol contract would directly
affect our general viability as a going concern.
OVERVIEW
TREATMENT OF DISCONTINUED OPERATIONS
Our profit and loss from discontinued operations appears as a single line
item in our statement of operations as required by generally accepted accounting
principals. The balance of deferred revenue and expenses from our discontinued
operations appearing on our balance sheet will be written off over the next two
years and will continue to appear as a single line item on our statement of
operations. Consequently, the only future impact of activities related to
discontinued operations will be the recognition of deferred revenue and deferred
charges. Their impact on our overall financial performance is not material to
our present and future financial performance. As such, we limit our discussion
in this section to only continuing operations.
9
<PAGE>
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
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999
REVENUES. Revenues from our personal property registration kits decreased
by 99% to $98 for the three months ended September 30, 2000 compared to $21,102
for the three months ended September 30, 1999. The decrease in revenues was
primarily due to our total shift in emphasis from sales of personal property
registration kits to the development of new products and services. We expect
revenue to increase due to our roll out of new products and services.
COSTS OF SALES. Costs of sales decreased by 98% to $57 for the three
months ended September 30, 2000 compared to $3,163 for the three months ended
September 30, 1999. We expect cost of sales to increase in accordance with our
expected improvement in revenue.
10
<PAGE>
OPERATIONAL. Operational costs increased by 43% to $56,206 for the three
months ended September 30, 2000 compared to $39,050 for the three months ended
September 30, 1999. This increase reflects our efforts to build an
infrastructure to support our development and roll out of new products and
services. We expect these costs to increase over the next quarter.
INFORMATION SYSTEMS. Information systems costs increased by 251% to
$108,592 for the three months ended September 30, 2000 compared to $30,952 for
the three months ended September 30, 1999. We expect these costs to continue to
increase as we explore e-commerce applications for our products and services.
SALES AND MARKETING. Sales and marketing expenses increased by 219% to
$163,780 for the three months ended September 30, 2000 compared to $51,325 for
the three months ended September 30, 1999. This increase in sales and marketing
expenses reflects the increase in costs associated with the development and
proof of concept 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 24% to $173,082 for the three months ended September 30, 2000 compared to
$140,071 for the three months ended September 30, 1999. The increase in general
and administrative expenses primarily resulted from the necessity to build an
infrastructure to support our development of new products and services. These
costs are expected to slightly increase as we continue to build infrastructure
to support new sales initiatives.
SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1999
REVENUES. Revenues from our personal property registration kits decreased
by 74% to $14,349 for the six months ended September 30, 2000 compared to
$54,885 for the six months ended September 30, 1999. 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.
COSTS OF SALES. Costs of sales increased by 73% to $9,446 for the six
months ended September 30, 2000 compared to $5,461 for the six months ended
September 30, 1999. We expect cost of sales to increase in accordance with our
expected improvement in revenue.
OPERATIONAL. Operational costs decreased by 3% to $122,407 for the six
months ended September 30, 2000 compared to $125,576 for the six months ended
September 30, 1999. We expect these costs to increase over the next quarter.
INFORMATION SYSTEMS. Information systems costs increased by 284% to
$170,513 for the six months ended September 30, 2000 compared to $44,356 for the
six months ended September 30, 1999. We expect these costs to continue to
increase as we explore e-commerce applications for our products and services.
SALES AND MARKETING. Sales and marketing expenses increased by 320% to
$342,345 for the six months ended September 30, 2000 compared to $81,538 for the
six months ended September 30, 1999. This increase in sales and marketing
expenses reflects the increase in costs associated with the development as well
as proof of concept 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.
11
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 104% to $347,397 for the six months ended September 30, 2000 compared to
$170,254 for the six months ended September 30, 1999. The increase in general
and administrative expenses primarily resulted from the necessity to build an
infrastructure to support our development of new products and services.
LIQUIDITY AND CAPITAL RESOURCES
From our inception, we have primarily financed our operations through funds
generated from the sale of capital stock, notes and debentures. Our losses
since inception total approximately $20,502,906 as of September 30, 2000. Since
August 1999, we have received approximately $1,400,000 in venture capital
funding from off shore investors through the issuance of convertible bridge
financing notes and associated warrants. We have used these funds primarily to
fund the development of our new products and services. We plan to immediately
convert these notes into common stock upon the registration of the underlying
common stock to the notes and warrants. Thereafter, we may call, and the
security holders may exercise, the outstanding warrants. We estimate that we
could receive up to an additional $1,500,000 through the exercise of the
warrants over the next twelve months.
As of September 30, 2000, we are in default under the terms of our
convertible debentures in the principal amount of $475,790 plus accrued interest
at 15% per annum. Under the default, the debenture holders have the same rights
as any unsecured creditor. Based on preliminary negotiations, we believe that
some of the debenture holders are still inclined to convert the outstanding debt
into common stock. We estimate the balance will be retired over the next
twenty-four months through either conversion or future income streams. Our
financial statements presently account for the fact that the debenture holders
will not convert the outstanding debt. Consequently, if they do decide to
convert their debt into common stock, our liquidity will improve.
We are in default under a three-year real property lease that commenced on
May 15, 1997. The lease requires an annual payment of $41,772. We negotiated a
final settlement in the amount of $10,000, which currently remains unpaid.
Our operating activities have used cash in each of the last two fiscal
years. Cash used in operating activities totaled $842,700 and $569,348 for the
six months ended September 30, 2000 and 1999, respectively. This resulted from
net losses of $937,927 and $333,700 for the six months ended September 30, 2000
and 1999, respectively.
Cash from investing activities was $NIL and $NIL for the six months ended
September 30, 2000 and 1999, respectively.
Cash provided by financing activities amounted to $426,500 and $850,720 for
the six months ended September 30, 2000 and 1999, respectively. During the six
months ended September 30, 2000, we received $500,000 from the issuance of
convertible bridge notes less $73,500 in share issue costs which are reflected
as a reduction in paid up capital. During the six months ended September 30,
1999, we received $1,000,000 from the issuance of convertible bridge notes less
$149,280 in share issue costs.
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.
12
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INFLATION; SEASONABLITY
While inflation has not had a material impact on operating results and we
do not expect inflation to have a material impact on operating results, we
cannot assure that our business will not be affected by inflation in the future.
While our business to date has not been seasonal and we do not expect that our
business will be seasonal in the future, we cannot assure that our business, on
a consolidated basis, will not be seasonal in the future.
YEAR 2000 COMPLIANCE
We use various packaged software applications as tools in running our
accounting operations, database management and general business functions. We
use certain proprietary software programs as tools to run our technology and
have assessed the impact of year 2000 issues on all software and hardware. We
determined that all existing hardware equipment is year 2000 compliant, except
for certain equipment that we plan to retire. We implemented software vender
upgrades and modifications to ensure that our accounting operations, database
management and general business systems remain functional with the year 2000.
Our proprietary software programs were developed on year 2000 compliant
platforms and we are not dependent on computer systems of any significant
customers, vendors or other third parties in the course of normal business.
We did not experience any disruptions due to year 2000 problems.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities. This requires costs of start-up activities and organization costs to
be expensed as incurred. Adoption is not expected to have a material effect on
our consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. This is effective for fiscal years beginning
after June 15, 1999 and requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income.
This depends on whether a derivative is designed as part of a hedge transaction
and, if it is, the type of hedge transaction. We do not expect this standard to
have a material impact on our consolidated financial statements since we do not
currently hold any derivative instruments.
13
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PART II
OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
As of September 30, 2000, we are in default to our subordinated convertible
debenture holders in the principal amount of $475,790, plus accrued interest.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Number Description
------ -----------
2.1* Reorganization Agreement Among Ultra Capital Corp. (the predecessor of the
Registrant), Jeff W. Holmes, R. Kirk Blosch and the Tracker Corporation dated May
26, 1994, as amended by Amendment Number One dated June 16, 1994, Amendment
Number Two dated June 24, 1994, and Amendment Number Three dated June 30,
1994, Extension of Closing dated June 23, 1994, and July 11, 1994 letter agreement
2.2* Agreement and Plan of Merger dated July 1, 1994 between Ultra Capital Corp. (the
predecessor of the Registrant) and the Registrant
3.1* Certificate of Incorporation, as corrected by Certificate of Correction of Certificate of
Incorporation dated March 27, 1995, and as amended by Certificate of Amendment to
the Certificate of Incorporation dated November 1, 1995, and Certificate of
Designation of Rights, Preferences and Privileges of $1,000.00 6% Cumulative
Convertible Preferred Stock of the Registrant dated April 19, 1996
3.2* Bylaws
4.1* Specimen Common Stock Certificate
10.2* Discretionary Cash Bonus Arrangement of The Tracker Corporation of America
10.3* Form of Indemnification Agreement entered into between the Registrant and each of its
Directors
10.10* Right of First Refusal, Co-Sale and Voting Agreement dated March 14, 1994 between
The Tracker Corporation of America, Stalia Holdings B.V., I. Bruce Lewis, MJG
Management Accounting Services Ltd., Spire Consulting Group, Inc., 1046523 Ontario
Limited, Mark J. Gertzbein, Gregg C. Johnson and Jonathan B. Lewis, as confirmed by
letter dated June 22, 1994 and Agreement dated July 1994 (contained in Exhibit 9.2)
10.11* Stock Option Agreement dated March 14, 1994 between The Tracker Corporation of
America and Stalia Holdings B.V., as confirmed by letter dated June 22, 1994
14
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10.18* Letter agreement dated October 5, 1993 between The Tracker Corporation of America
and Symbol Technologies, Inc., as amended by letter from The Tracker Corporation of
America to Symbol Technologies Canada, Inc. dated November 23, 1995, and letter
from Symbol Technologies Canada, Inc. to The Tracker Corporation dated November
27, 1995
10.19* Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis to the Tracker
Corporation of America
10.30** Letter agreement dated March 22, 1996 between The Tracker Corporation of America
and Sony of Canada Ltd.
10.36*** Agreement dated May 22, 1997 between The Tracker Corporation of America and
Schwinn Cycling & Fitness Inc.
10.37*** Modification Agreement dated May 27, 1997 between The Tracker Corporation of
America, Saturn Investments, Inc., I. Bruce Lewis, Mark J. Gertzbein, and Jonathan B.
Lewis
10.38**** Agreement dated July 1, 1998 between The Global Tracker Corporation and
Warrantech Additive, Inc.
10.39**** License Agreement dated as of July 30, 1998 between The Global Tracker Corporation
and the Tracker Corporation of America
10.41***** Employment Agreement dated December 18, 1998 between Bruce I. Lewis and The
Tracker Corporation of America
10.42***** Employment Agreement dated December 18, 1998 between Jay S. Stulberg and The
Tracker Corporation of America
10.43***** Letter Agreement dated May 18, 1999 between Symbol Technologies, Inc. and The
Tracker Corporation of America
10.44******Purchase and Security Agreement dated August 18, 1999
10.45******1994 Amended and Restated Stock Option Plan
10.46*(9) Placement Agreement dated August 18, 1999 with Sovereign Capital Advisors, LLC.
10.47*(7) Stock Option Award Agreement dated December 22, 1998 between Bruce
Lewis and The Tracker Corporation of America
10.48*(7) Stock Option Award Agreement dated December 22, 1998 between Jay
Stulberg and The Tracker Corporation of America
10.49*(7) Non-Qualified Stock Option Award Agreement dated December 31, 1999
between Bruce Lewis and The Tracker Corporation of America
10.50*(7) Non-Qualified Stock Option Award Agreement dated December 31, 1999
between Jay Stulberg and The Tracker Corporation of America
10.51*(7) Incentive Stock Option Award Agreement dated December 31, 1999 between
Christopher Creed and The Tracker Corporation of America
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10.52*(7) Incentive Stock Option Award Agreement dated December 31, 1999 between Tizio
Panara and The Tracker Corporation of America
10.53*(8) 2000 Stock Wage and Fee Payment Plan
23.1*(10) Consent of J. L. Stephan Co., P. C.
23.2*(10) Consent of Hirsch Silberstein & Subelsky, P.C.
24.1 Power of Attorney
27 Financial Data Schedule, for the three months ended September 30, 2000
-----------
* Incorporated by reference from the Registrant's Registration Statement on Form S-1
(No. 33-99686).
** Incorporated by reference from the Registrant's Annual Report on Form 10-K dated
March 31, 1996 (filed July 15, 1996).
*** Incorporated by reference from the Registrant's Annual Report on Form 10-K dated
March 31, 1997 (filed July 3, 1997).
**** Incorporated by reference from the Registrant's Annual Report on Form 10-K dated
March 31, 1998 (filed November 4, 1998).
***** Incorporated by reference from the Registrant's Annual Report on Form 10-K dated
March 31, 1999 (filed August 17, 1999).
****** Incorporated by reference from the Registrant's Amended Quarterly Report on
Form 10-QSB dated September 30, 1999 (filed January 11, 2000)
*(7) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 concerning the 1994 Amended and Restated Stock Option Plan (filed March
28, 2000)
*(8) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 concerning the 2000 Stock Wage and Fee Payment Plan (filed March 28,
2000)
*(9) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2/A (filed July 10, 2000)
*(10) Incorporated by reference from the Registrant's Annual Report on Form 10-K dated
March 31, 2000 (filed July 17, 2000).
</TABLE>
(b) REPORTS ON FORM 8-K
No reports were filed on Form 8-K with the SEC for the quarter ended June
30, 2000.
16
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 17, 2000 THE TRACKER CORPORATION
OF AMERICA, a Delaware
corporation
By: /s/ Bruce I. Lewis
--------------------------
Bruce I. Lewis
Chief Executive Officer
17
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