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 DECEMBER 31, 1999, or
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________________
Commission file number 0-24944
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THE TRACKER CORPORATION OF AMERICA, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 86-0767918
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(State or Other Jurisdiction of (I.R.S. Employer Incorporation or
Organization) Identification No.)
1120 FINCH AVENUE WEST, SUITE 303, NORTH YORK, ONTARIO, CANADA M3J 3H8
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (416) 663-8222
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Indicate by check [x] whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date:
Classes of Common Stock Outstanding at February 10, 1999
----------------------- --------------------------------
Common Stock, $0.001 par value 53,988,579
Class B Common Stock, $0.00000007 par value 0
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THE TRACKER CORPORATION OF AMERICA, INC.
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 1
Consolidated Balance Sheet as of December 31, 1999
and March 31, 1999 2
Consolidated Statement of Operations for the three and nine
months ended December 31, 1999 and 1998 and for the
Period from May 6, 1993 (inception) through September 30,
1999 3
Consolidated Statement of Cash Flows for the three months
ended December 31, 1999 and 1998 and for the period from
May 6, 1993 (inception) through December 31, 1999 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
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PART IFINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
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THE TRACKER CORPORATION OF AMERICA
( A DEVELOPMENT STAGE COMPANY)
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CONSOLIDATED BALANCE SHEET
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ASSETS
31-DEC MARCH 31,
1999 1999
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(UNAUDITED) (AUDITED)
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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
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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) - -
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TOTAL ASSETS $ 1,182,725 $ 487,920
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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
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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 #REF! 16,777,482
OTHER CAPITAL #REF! (424,267)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (18,383,541) (17,753,037)
CUMULATIVE TRANSLATION ADJUSTMENT (126,263) (126,263)
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TOTAL SHAREHOLDERS' DEFICIT #REF! (1,475,700)
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TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT #REF! $ 487,920
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
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<TABLE>
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THE TRACKER CORPORATION OF AMERICA
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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
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1999 1998 1999 1998 1999
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REVENUE $ 176 $ 20,117 $ 55,061 $ 113,630 $ 488,657
COST OF SALES 102 7,798 5,563 59,222 177,487
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GROSS PROFIT 74 12,319 49,498 54,408 311,171
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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 8,720,341
---------- ------------ ---------- ------------ -------------
TOTAL DEVELOPMENT COSTS $ 316,141 $ 130,956 $ 737,864 $ 446,238 $ 15,549,254
GAIN (LOSS) FROM CONTINUING OPERATIONS (316,066) (118,637) (688,366) (391,830) (15,238,083)
GAIN (LOSS) FROM DISCONTINUED OPERATION 19,262 (5,985) 57,862 373,794 (3,145,458)
---------- ------------ ---------- ------------ -------------
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 #REF! (0.00) #REF! (0.02) #REF!
GAIN (LOSS) FROM DISCONTINUED OPERATION #REF! (0.00) #REF! 0.02 #REF!
---------- ------------ ---------- ------------ -------------
NET LOSS #REF! (0.01) #REF! (0.00) #REF!
========== ============ ========== ============ =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING #REF! 23,782,128 #REF! 23,782,128 #REF!
========== ============ ========== ============ =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
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CONSOLIDATED STATEMENT OF CASH FLOWS
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(UNAUDITED)
FROM INCEPTION
(MAY 6, 1993) FOR 9 MONTHS FOR 9 MONTHS
THROUGH ENDED ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1999 1998
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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) -
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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.
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NOTE 1 - DESCRIPTION OF DEVELOPMENT STAGE ACTIVITIES AND CORPORATE HISTORY:
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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:
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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.
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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.
<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:
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December 31, March 31,
1999 1999
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Consulting contract 120,000 $120,000
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TOTAL: 120,000 $120,000
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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.
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NOTE 6 - DEFERRED CHARGES:
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Deferred charges consist of the following:
Dec. 31, March 31,
1999 1999
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Current:
Deferred sales commission (net of cancellation reserve) $ 80,309 $ 80,309
Other 33,960 34,096
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$ 114,269 $ 114,405
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Long term:
Deferred sales' commission (net of cancellation reserve) $ 29,177 $ 52,192
Other 22,236 89,408
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$ 51,413 $ 141,600
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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:
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December 31, March 31,
1999 1999
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Directors fees $ 24,432 $ 24,432
Interest expense for convertible debentures 255,508 115,209
Others 350,467 445,182
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$ 605,999 $ 528,399
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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.
<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.
<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 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 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 research and development of
our products and services rather than sales. 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 Florida Police
Chiefs. In order to complete the agreement with the Florida Police Chiefs, we
need to resolve an outstanding contract issue with the International Association
of Chiefs of Police no later than March 31, 2000. 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.
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. 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.
<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 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.
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1999 COMPARED TO QUARTER ENDED DECEMBER 31, 1998
REVENUES. Revenues from our personal property registration kits decreased
by 99% to $176 for the three months ended December 31, 1999 compared to $20,117
for the three months ended December 31, 1998. 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.
COSTS OF SALES. Costs of sales decreased by 99% to $102 for the three
months ended December 31, 1999 compared to $7,798 for the three months ended
December 31, 1998. The decrease occurred due to the substantially complete
absence of any sales.
OPERATIONAL. Operational costs increased by 67% to $72,257 for the three
months ended December 31, 1999 compared to $43,194 for the three months ended
December 31, 1998. This increase reflects our efforts to build an
infrastructure to support our development and roll out of new products and
services.
<PAGE>
INFORMATION SYSTEMS. Information systems costs increased by 461% to
$21,671 for the three months ended December 31, 1999 compared to $3,860 for the
three months ended December 31, 1998. The increase resulted from the continuing
necessity to have our computer systems year 2000 compliant.
SALES AND MARKETING. Sales and marketing expenses increased by 146% to
$99,236 for the three months ended December 31, 1999 compared to $40,348 for
the three 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 182% to $122,976 for the three months ended December 31, 1999 compared to
$43,554 for the three 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.
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.
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
solutions. The construction and packaging costs for software sales are
significantly less than the personal property registration kits.
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.
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.
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.
<PAGE>
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 December 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. 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.
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. We are also
in default on our agreement with the International Association of Chiefs of
Police in the amount of $120,000. We plan to retire this debt no later than
March 31, 2000.
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
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.
Cash used in investing activities was $NIL and $285,588 for the nine months
ended December 31, 1999 and 1998, respectively. The cash used in investing
activities for the nine months ended December 31, 1998 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.
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.
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
<PAGE>
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 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.
FORWARD LOOKING STATEMENTS
This report on contains "forward-looking statements" as defined in Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. When used in this Form 10-QSB and other filings with the SEC, in our
press releases, and in our oral statements, words or phrases such as "believes,"
"anticipates," "expects," "intends," "will likely result," "estimates,"
"projects" or similar expressions are intended to denote forward-looking
statements. The possible results that may be suggested by forward-looking
statements are subject to risks and uncertainties that may cause our actual
results to materially differ. Some of the factors that might cause such
differences include:
- risks associated with the development of a new technology
- technological obsolescence
- dependence on our technology and the uncertainty of its market
acceptance
- history of operating losses and expectation of future losses
- limited sales and marketing experience
- heightened competition
- lack of manufacturing capability and dependence on contract
manufacturers and suppliers
<PAGE>
- dependence on proprietary technology, including the adequacy of patent
and trade secret protection
- retention of key personnel and recruitment of additional qualified
skilled personnel
- the failure to raise additional funds.
You should not place undue reliance on forward-looking statements. The
forward-looking statements speak only as of the date made and may not reflect
events or circumstances that occur thereafter. Carefully review and consider
the various disclosures we make in this report and in our other public filings
to advise interested parties of the risks factors and other uncertainties that
may affect our business.
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
We sold and issued the following unregistered securities during the nine
months ended December 31, 1999:
1. FRAN DANIELS
Date issued: 9/30/99
Title of securities: Common stock
Amount: 100,000 shares
Consideration: stock issued in lieu of consulting services 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.
2. SOVEREIGN CAPITAL ADVISORS, LLC.
Date issued: 8/18/99
Title of securities: warrant
Amount: 50,000 shares
Consideration: 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: 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: 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.
3. 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.
<PAGE>
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.
4. 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.
5. 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.
6. 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.
7. 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>
8. TRADEWELL, LLC
Date issued: 4/12/99
Title of securities: warrant
Amount: 500,000 shares
Consideration: warrant issued in lieu of consulting services 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 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.
9. STEVEN CUNNINGHAM
Date issued: 12/17/99
Title of securities: warrant
Amount: 150,000 shares
Consideration: stock issued in lieu of attorneys fees.
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.
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
As of December 31, 1999, 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>
Number Description
- ------------- ---------------------------------------------------------------------------------------
<C> <S>
2.1++++ Reorganization Agreement Among Ultra Capital Corp. (the predecessor of the
Registrant), Jeff W. Holmes, R. Kirk Blosch and the Tracker Corporation dated
May 26, 1994, as 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
10.1++++ 1994 Stock Incentive Plan of the Registrant, as amended by Amendment No. 1 to
the 1994 Stock Incentive Plan
10.2++++ Discretionary Cash Bonus Arrangement of the Registrant
10.3++++ Form of Indemnification Agreement entered into between the Registrant each of its
Directors
10.4++++ Employment Agreement dated June 30, 1994 between the Registrant and I. Bruce
Lewis, as amended by Amendment to Employment Agreement dated July 12, 1995
10.10++++ Right of First Refusal, Co-Sale and Voting Agreement dated March 14, 1994
between The Tracker Corporation, Stalia Holdings B.V., I. Bruce Lewis, MJG
Management Accounting Services Ltd., Spire Consulting Group, Inc., 1046523
Ontario Limited, Mark J. Gertzbein, Gregg C. Johnson and Jonathan B. Lewis, as
confirmed by letter dated June 22, 1994 and Agreement dated July 1994 (contained
in Exhibit 9.2)
10.11++++ Stock Option Agreement dated March 14, 1994 between The Tracker Corporation
and Stalia Holdings B.V., as confirmed by letter dated June 22, 1994
10.18++++ Letter agreement dated October 5, 1993 between The Tracker Corporation and
Symbol Technologies, Inc., as amended by letter from The Tracker Corporation to
Symbol Technologies Canada, Inc. dated November 23, 1995, and letter from
Symbol Technologies Canada, Inc. to The Tracker Corporation dated November
27, 1995
10.19++++ Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis to the Tracker
Corporation
10.22++++ 1995 Stock Wage and Fee Payment Agreement
10.30+++++ Letter agreement dated March 22, 1996 between The Tracker Corporation and
Sony of Canada Ltd.
10.36++++++ Agreement dated May 22, 1997 between The Tracker Corporation of America and
Schwinn Cycling & Fitness Inc.
10.37++++++ Modification Agreement dated May 27, 1997 between The Tracker Corporation of
America, Saturn Investments, Inc., The Tracker Corporation, I. Bruce Lewis, Mark
J. Gertzbein, and Jonathan B. Lewis.
10.38+++++++ Agreement dated July 1, 1998 between The Global Tracker Corporation and
Warrantech Additive, Inc.
<PAGE>
10.39+++++++ License Agreement dated as of July 30, 1998 between The Global Tracker
Corporation and The Tracker Corporation of America, Inc.
10.40+++++++ Employment Agreement dated September 24, 1996 between I. Bruce Lewis and
The Tracker Corporation of America, Inc.
10.41+(8) Employment Agreement dated December 18, 1998 between Bruce I. Lewis and
The Tracker Corporation of America
10.42+(8) Employment Agreement dated December 18, 1998 between Jay S. Stulberg and
The Tracker Corporation of America
10.43+(8) Letter Agreement dated May 18, 1999 between Symbol Technologies, Inc. and
The Tracker Corporation of America
10.44+(9) Series 1 Bridge Note Purchase and Security Agreement dated as of August 18, 1999.
10.45+(9) 1994 Amended and Restated Stock Option Plan.
10.44+(10) Placement Agreement dated August 18, 1999 with Sovereign Capital Advisors, LLC.
21.1++++ List of subsidiaries of the Registrant
23+++++++ Consent of Independent Accountants
27 Financial Data Schedule, for the nine months ended December 31, 1999
99.1++++++++ Cautionary Statement
+ Incorporated by reference from the Registrant's Current Report on Form 8-K dated
July 12, 1994.
++ Incorporated by reference from the Registrant's Current Report on Form 8-KA
dated February 28, 1995 (filed March 15, 1995).
+++ Incorporated by reference from the Registrant's Current Report on Form 8-K dated
July 29, 1994 (filed August 12, 1994).
++++ Incorporated by reference from the Registrant's Registration Statement on Form S-
1 (No. 33-99686).
+++++ Incorporated by reference from the Registrant's Annual Report on Form 10-K
dated March 31, 1996 (filed July 15, 1996.)
++++++ Incorporated by reference from the Registrant's Annual Report on Form 10-K
dated March 31, 1997 (filed July 3, 1997).
+++++++ Incorporated by reference from the Registrant's Annual Report on Form 10-K
dated March 31, 1998 (filed November 4, 1998).
<PAGE>
+(8) Incorporated by reference from the Registrant's Annual Report on Form 10-K
dated March 31, 1999 (filed August 17, 1999).
+(9) Incorporated by reference from the Registrant's Quarterly Report on Form 10-
QSB/A dated September 30, 1999 (filed January 11,2000).
+(10) Incorporated by reference from the Registrant's Annual Registration Statement on
Form SB-2/A (filed February 10, 2000).
</TABLE>
(B) REPORTS ON FORM 8-K
No reports were filed on Form 8-K with the SEC for the quarter ended
December 31, 1999.
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: February 14, 2000 THE TRACKER CORPORATION
OF AMERICA, a Delaware
corporation
By: /s/ Bruce I. Lewis
-------------------------
Bruce I. Lewis
Chief Executive Officer
<PAGE>
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