SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2/A
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
THE TRACKER CORPORATION OF AMERICA
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(Name of Small Business Issuer in Its Charter)
DELAWARE 7299 86-0767918
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(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification
or Organization) Code Number) Number)
1120 FINCH AVE. WEST, SUITE 303, NORTH YORK, ONTARIO CANADA M3J 3H8;
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800-822-8757
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(Address and Telephone Number of Principal Executive Offices)
ARKIN MEROLLA LLP, ONE SECURITIES CENTRE, SUITE 302,
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3490 PIEDMONT ROAD, ATLANTA GEORGIA 30305; 404-467-5244
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(Name, Address and Telephone Number of Agent For Service)
Approximate Date of Commencement of Proposed Sale to the Public: from time
to time after this registration statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================== ============= ================== ================ =============
Title of Each Class Estimated Amount of
Of Securities To Amount to Conversion or Estimated Registration
Be Registered Be Registered Exercise Value(1) Aggregate Value Fee
---------------------- ------------- ------------------ ---------------- -------------
<S> <C> <C> <C> <C>
Resale of common stock
underlying:
Conversion notes 10,000,000 .185 $1,850,000.00 $488.40
Repricing warrants 5,500,000 .185 $1,017,500.00 $268.62
Purchase warrants 100,000 .185 $18,500.00 $4.88
Callable warrants 8,900,000 .185 $1,646,500.00 $434.68
------------- ---------------- -------------
24,500,000 $4,532,500.00 $1,196.58
-------------
====================== ============= ================== ================ =============
<FN>
(1) Computed pursuant to Rule 457(c) for the purpose of calculation of the
registration fee on the basis of the bid and asked price of our common stock on
July 6, 2000 as reported by the National Quotation Bureau, Inc.
</TABLE>
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
<PAGE>
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
JULY 7, 2000 AMENDED PRELIMINARY PROSPECTUS
THE TRACKER CORPORATION
OF AMERICA
UP TO 24,500,000 SHARES OF COMMON STOCK
The selling stockholders of The Tracker Corporation of America may offer up
to 24,500,000 shares of our common stock upon conversion of the notes and the
exercise of the warrants.
The security holders may sell their shares of common stock after delivery
of this prospectus to purchasers, from time to time, through broker-dealers or
underwriters at the prevailing market price as listed on the OTC Bulletin Board
under the symbol "TRKR." We will not receive any of the proceeds from the
secondary offering and sale of the common stock by the security holders.
See, RISK FACTORS on page 1.
Our principal offices are located at 1120 Finch Avenue West, Suite 303,
North York, Ontario, Canada M3J 3H7. For more information, contact Bruce Lewis
at 1-800-822-8757.
-------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
-------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . 1
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . 7
DETERMINATION OF CONVERSION AND EXERCISE PRICES. . . . . . . . 8
SELLING SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . 14
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . 16
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS . 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 19
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . 20
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES . . . . . . . . . . . . . 21
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . 29
DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 35
MARKET FOR COMMON EQUITY . . . . . . . . . . . . . . . . . . . 36
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 37
CHANES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . 45
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE>
RISK FACTORS
The securities offered in this prospectus involve a high degree of risk.
In addition to the other information contained in this prospectus, you should
consider the following risk factors before making an investment. The
occurrence of any the following risks could materially adversely affect our
business, financial condition and results of operations. Additional risks and
uncertainties not presently known to us or that we currently view as immaterial
might also materially adversely affect our business, financial condition or
results of operations. In such a case, the value of your investment could
decline and you may lose all or part of your investment.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in such forward-looking statements as a result of a variety of
factors, including those set forth in the following risk factors and elsewhere
in this prospectus.
BECAUSE OF OUR HISTORY OF OPERATING LOSSES AND EXPECTATION OF FUTURE LOSSES, OUR
INDEPENDENT AUDITORS EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR FUTURE VIABILITY AS A
GOING CONCERN IN THEIR MOST RECENT AUDIT REPORT.
We have generated only modest revenue and have sustained significant
operating losses each year since our inception. In fact, we have not generated
any significant revenue since September 1997. We have accumulated a deficit of
$18,383,541 as of December 31, 1999. Our ability to generate revenue from
operations and achieve profitability is largely dependent upon a successful
transition from a development stage company to a fully operating company. In
order to achieve that, we will require significant additional financing to
penetrate new markets for our products and services. If we are unable to
attract such financing or achieve profitable operations, we may be forced to
cease or significantly limit our operations. As a result of the foregoing
conditions, our independent public accountants expressed doubt about our future
viability as a going concern in their audit report dated July 8, 1999.
THE CONVERSION OF THE BRIDGE FINANCING NOTES AND THE EXERCISE OF THE WARRANTS
MAY CAUSE A SUBSTANTIAL INCREASE IN SHARES OUTSTANDING, WHICH COULD ADVERSELY
AFFECT OUR STOCK PRICE AND OTHER SHAREHOLDERS' OWNERSHIP INTEREST.
As of December 31, 1999, we had 53,988,579 shares of common stock
outstanding. We have reserved 20,000,000 shares of common stock for future
issuance pursuant to the conversion of notes and the exercise of certain
warrants. We cannot assure that the issuance of the common stock reserved for
future issuance will not materially adversely affect the prevailing market price
of our common stock and other shareholders' ownership interest.
BECAUSE THE CONVERSION AND/OR EXERCISE PRICE IS TIED TO THE MARKET PRICE, THE
NUMBER OF SHARES THAT MAY BE ISSUED WILL INCREASE AS OUR STOCK PRICE DECREASES.
A potentially unlimited number of shares can be issued under the conversion
terms of the notes and related warrants since the exercise price of the warrants
is tied to the market price of our common stock. As such, the number of shares
that can be issued will increase as the price decreases. The 24,500,000 shares
we are registering should be sufficient to cover the conversion of the notes and
exercise of the warrants down to a low price of $.18 per share. Should the
conversion and/or exercise price drop below $.18 per share, we may need to
register additional shares to complete the transaction.
1
<PAGE>
BECAUSE NO CLEARLY IDENTIFIED MARKET EXISTS FOR OUR PRODUCTS AND SERVICES, WE
MAY LACK THE FINANCIAL RESOURCES TO DEVELOP ANY MARKET ACCEPTANCE.
Our future success entirely depends on the successful development,
commercialization and market acceptance of our personal property marking and
monitoring system. Our initial marketing efforts, which focused primarily on
consumer applications of our technology, were not successful. Identifying
markets that will respond favorably to our products and services will present
marketing and financial challenges to us. We are experimenting with new
business models that are speculative and untested to date. We cannot assure
that we will gain a significant level of commercial acceptance for our products
and services in any commercial market.
We have a large number of competitors across a variety of industries that
have substantially greater financial, technical, marketing, and management
resources. For example, we currently offer a pet registration service using our
technology. However, Pets.com and Petopia.com have recently launched web pages
as a lead in to the sale of pet related products. These marketing efforts may
hinder our success in the pet registration market. Similarly, we recently
launched a business asset management system in certain niche markets. One of
our competitors, Tangram Enterprise Solutions, has over twenty times greater
assets than us and ten times the work force. Should we compete directly with
them, their financial and personnel strength could prevent us from capturing
those markets. As a result, demand and market acceptance for our products and
services are subject to a high level of uncertainty.
OUR FUTURE SUCCESS DEPENDS ON THE EXPERIENCE AND RETENTION OF KEY PERSONNEL.
Our success is largely dependent on our ability to attract and retain key
management and operating personnel. We particularly depend on the efforts and
skills of Bruce I. Lewis, Jay S. Stulberg, Christopher Creed, and Tizio Panara.
We have entered into employment agreements with Mr. Lewis and Mr. Stulberg and
are planning to enter into agreements with Mr. Creed and Mr. Panara. The loss,
incapacity, or unavailability of any of these individuals could materially
adversely affect our business, financial condition or results of operation.
It may also be necessary for us to attract and retain additional
individuals to support our growth or to replace key personnel in the event of
their termination of employment. Because qualified individuals are in high
demand and are often subject to competing offers, we cannot assure that we can
attract and retain qualified personnel needed for our business.
OUR STOCK MAY EXPERIENCE SEVERE VOLATILITY BECAUSE OF THE LIMITED TRADING MARKET
AVAILABLE.
Our common stock is traded in the over-the-counter market and is quoted on
the OTC Bulletin Board. The market for the common stock must be characterized
as extremely limited due to the low trading volume and the small number of
brokerage firms acting as market makers. Because stocks traded on the OTC
Bulletin Board generally have limited brokerage and news coverage, the market
price of our common stock may not reflect our true value. As a result, you may
find it difficult to dispose of our common stock or to obtain accurate
quotations as to our value. Over the past eighteen months our stock has traded
at a price as low as $.05 per share and as high as $.87 per share. We cannot
assure that the over-the-counter market for our securities will continue, that a
more active market will develop, or that the prices in any such market will be
maintained at their current levels or otherwise. Furthermore, technological
innovations, new product developments, general trends in our industry and
quarterly variations in our results of operations may cause the market price of
the common stock to fluctuate significantly.
2
<PAGE>
PENNY STOCK RULES
Our common stock is subject to the penny stock rules promulgated under the
Exchange Act of 1934. The penny stock rules regulate broker-dealer practices in
connection with transactions in equity securities with a price of less than
$5.00. This does not include securities registered on certain national
securities exchanges or quoted on the NASDAQ system as long as the exchange or
system provides current price and volume information with respect to
transactions in such securities. The penny stock rules require a broker-dealer
to deliver a standardized risk disclosure document prepared by the SEC that
provides information about penny stocks and the nature and level of risks in the
penny stock market. This must occur prior to a transaction involving a penny
stock not otherwise exempt from the rules. The broker-dealer must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid/offer quotations and the broker-dealer and
salesperson compensation information must be given to the customer orally or in
writing prior to effectuating the transaction. It also must be given to the
customer in writing before or with the customer's confirmation. In addition,
the penny stock rules require that the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for our common stock. As such, you may find it
more difficult to sell our common stock in the over-the-counter market.
OUR CURRENT OWNERSHIP STRUCTURE AND THE PROVISIONS OF OUR ARTICLES OF
INCORPORATION AND BYLAWS MAY HINDER ANY MATERIAL CHANGE IN CONTROL.
Our directors, officers, principal stockholders and their affiliates will
continue to beneficially own approximately 6% of the common stock immediately
following this registration. This assumes the full exercise of currently
exercisable options and warrants and the conversion of outstanding convertible
debentures. As a result of such ownership, our directors, officers, principal
stockholders and their affiliates will effectively have the ability to maintain,
control and direct our business and affairs. Such concentration of ownership
may have the effect of delaying, deferring or preventing a change in control.
In addition, our articles of incorporation and bylaws contain provisions that
have the effect of retaining the control of current management and may
discourage any acquisition bids. Such provisions could limit the price that
investors might be willing to pay in the future for shares of the common stock.
It may also impede the ability of stockholders to replace management should
factors warrant such a change.
OUR FUTURE SUCCESS DEPENDS ON THE ACCEPTANCE OF OUR TECHNOLOGY IN THE
MARKETPLACE AND OUR FINANCIAL ABILITY TO KEEP UP WITH THE TECHNOLOGY CHANGES IN
OUR INDUSTRY.
We cannot assure that our competitors and potential competitors will not
succeed in developing or marketing technologies and products that will be more
accepted in the marketplace or render our technology obsolete or noncompetitive.
Most of our competitors and potential competitors have substantially greater
capital resources, research and development staffs and facilities than us.
Products based on new technologies such as radio frequency or new industry
standards may render our existing products obsolete and unmarketable. Over the
past two years we have invested minimal capital to maintain and update our
technology. Any delay in developing, testing and releasing enhanced or new
products could materially adversely affect our business, operating results and
financial condition.
3
<PAGE>
OUR LACK OF SIGNED AGREEMENTS WITH SUPPLIERS MAY PREVENT US FROM EFFECTIVELY
DISTRIBUTING OUR PRODUCTS AND SERVICES TO THE MARKET.
The ability to market, sell and operate our products and services depends
on the procurement of necessary goods and services. Although we have
preliminary understandings with suppliers, these may be difficult to enforce.
We cannot assure that we will achieve and maintain product quality and
reliability in the quantities required for commercial operations or within a
period that will permit us to introduce our products in a timely fashion. We
also cannot assure that we will be able to assemble and manufacture our products
at an acceptable cost.
OUR FUTURE RELATIONSHIP WITH SYMBOL TECHNOLOGIES IS DEPENDENT ON OUR SALE OF A
MINIMUM NUMBER OF THEIR SCANNERS, WHICH WE PRESENTLY CANNOT FULFILL.
We procure scanning equipment from Symbol Technologies, particularly the
PDF 1000 laser scanner. This is the first laser scanner to read two-dimensional
bar code. On May 18, 1999 we entered into an agreement with Symbol whereby we
were granted the exclusive right to use the PDF 1000 laser scanners in the
United States, Canada, and Europe for personal property identification and
recovery purposes. This contract is subject to a minimum annual purchase
requirement of 5000 laser scanner units having a purchasing effect of at least
$10,000,000. We will likely not meet this requirement and Symbol will be
permitted to terminate the contract should it so choose. Should Symbol
terminate the agreement, our business may be harmed in two ways:
(1) we may no longer be capable of securing future orders due to a lack of
supply; and
(2) we may not be able to honor existing service agreements with current
customers using the Symbol scanners
Consequently, the termination of the Symbol contract would directly affect the
general viability of us as a going concern.
BECAUSE OUR PRODUCTS AND SERVICES ARE SUBJECT TO LENGTHY SALES CYCLES, WE MAY
LACK THE FINANCIAL RESOURCES TO MAINTAIN OPERATIONS.
We typically experience long sales cycles that generally vary from
three to six months. Because the implementation of our products and services
involves significant capital expenditures by the customer, our sales are subject
to lengthy approval processes and delays. We often devote significant time and
resources to a prospective customer, including costs associated with multiple
site visits, product demonstrations, and feasibility studies without any
assurance that the prospective customer will decide to purchase our products.
OUR FUTURE SUCCESS IS DEPENDANT ON PATENTS AND PROPRIETARY TECHNOLOGY. WE
CURRENTLY DO NOT HAVE ANY PATENTS, REGISTERED TRADEMARKS OR SERVICE MARKS.
Our success partly depends on our ability to obtain patent protection for
our proposed products and processes, to preserve our trade secrets and to
operate without infringing the proprietary rights of third parties. We rely on
a combination of trade secret, nondisclosure and other contractual agreements,
and technical measures to protect the confidential information, know-how and
proprietary rights relating to our personal property identification and recovery
system. In addition, we have an exclusive license with Global Tracker to use
the technology associated with an international patent application filed
4
<PAGE>
pursuant to the Patent Cooperation Treaty for our personal property
identification and recovery system. We cannot assure, however, that this will
mature into an issued patent or that any patent, trademark or service mark
obtained or licensed by us will be held valid and enforceable if asserted by us
against another party. In addition, these protections may not preclude third
parties from asserting infringement claims against us. The successful assertion
of such claims could materially adversely affect our business, operating results
and financial condition.
We do not have any registered trademarks or service marks. Furthermore, we
do not have any active trademark or service mark applications pending before the
U.S. Patent and Trademark Office or with any other regulatory authorities.
Even if our pending patent is ultimately issued, other parties may hold or
receive patents that contain claims covering our technology. Should this occur,
it may delay or prevent the sale of our products and services. It may also
require licenses resulting in the payment of fees or royalties by us in order to
continue operations. We cannot assure that needed or potentially useful
licenses will be available to us in the future on acceptable terms. An adverse
determination in any litigation with respect to proprietary infringement could
subject us to significant liabilities to third parties. In such a case, we may
be required to seek licenses from, or pay royalties to, third parties. We could
also be prevented from manufacturing, selling or using our proposed products.
WE WILL REQUIRE SIGNIFICANT FUTURE CAPITAL IN ORDER TO CONTINUE OPERATIONS. WE
CANNOT ASSURE THAT FUTURE CAPITAL WILL BE AVAILABLE.
We will require additional funds in the amount of $1,000,000 over the next
six months to successfully market and operate our business. We estimate needing
an additional $700,000 over the following twelve months. Our inability to
obtain financing or to raise additional capital when needed on favorable terms
could prevent or delay the marketing, sale and operation of our products and
services. Insufficient funds may require us to delay, scale back or eliminate
some or all of our programs designed to facilitate the commercial introduction
of our products and services or prevent such commercial introduction altogether.
5
<PAGE>
USE OF PROCEEDS
We will not receive any part of the proceeds from the sale of the shares of
common stock underlying the bridge financing notes, should they be converted, or
the attached repricing warrants, should they be exercised.
The net proceeds from the exercise of the remaining warrants, if called and
exercised, are estimated at $1,425,000. We cannot assure that we will call any
of these warrants. Further, even if we do call these warrants, we cannot assure
that the holders will choose to exercise them. We presently plan on using these
funds, if any, for the development, sales and marketing of new products and
services and for working capital.
6
<PAGE>
DETERMINATION OF CONVERSION AND EXERCISE PRICES
We have issued, sold, and delivered $1,700,000 in original principal amount
of the bridge financing notes, which occurred through three closings. Net
proceeds from the offering totaled approximately $1,436,000, which we deposited
directly into our operating account.
In addition to the convertible bridge notes, we issued four types of
warrants. The repricing warrants are attached to the notes and are exercisable
only if the stock price on the date of conversion falls below 125% of the stock
price on the date of each closing. Given the closing stock price on the dates
of the three closings, if the conversion occurs on a date when our stock is
traded at greater than $0.37 per share, no repricing warrants will become
exercisable. Each purchaser also received a callable warrant at the rate of
$100,000 worth of shares of common stock for each $100,000 in principal amount
of notes purchased and issued. Further, each investor received a purchase
warrant at the rate of 20,000 warrants for each $100,000 in principal amount of
notes purchased and issued.
Each warrant has its own formula to determine the number of common shares
into which it is exercisable. A summary of the principal amount of notes and
warrants issued from the three closings and an explanation as to the basic
returns on these instruments is given below:
FIRST CLOSING:
Original issue date: August 18, 1999
Average market price five days prior to closing: $0.294
<TABLE>
<CAPTION>
PRINCIPAL TYPE OF WARRANT
---------------------------
PURCHASER OF NOTE CALLABLE PURCHASE
------------------------------------------------------- ---------------- ---------------- --------
<S> <C> <C> <C>
SovCap Equity Partners, Ltd $ 1,000,000 $1,000,000 worth 200,000
Cumberland House
#27 Cumberland Street
P.O. Box CB-13016
Nassau, New Providence
The Bahamas
SECOND CLOSING:
Original issue date: October 15, 1999
Average market price five days prior to closing: $0.195
PRINCIPAL TYPE OF WARRANT
---------------------------
PURCHASER OF NOTE CALLABLE PURCHASE
------------------------------------------------------- ---------------- ---------------- --------
Correllus International, Ltd $ 150,000 $ 150,000 worth 30,000
Edificio Marina Marbella 6B
Avenida Severo Ochoa 28
29600 Marbella, Spain
Arab Commerce Bank, Ltd $ 150,000 $ 150,000 worth 30,000
P.O. Box 309
Grand Cayman
Cayman Islands
7
<PAGE>
Enrico Bonetti $ 50,000 $ 50,000 worth 10,000
C/o Cross Finanz
Via S. Tecla, No. 4
20122 Milan, Italy
THIRD CLOSING:
Original issue date: December 7, 1999
Average market price five days prior to closing: $0.140
PRINCIPAL TYPE OF WARRANT
-----------------
PURCHASER OF NOTE CALLABLE PURCHASE
------------------------------------------------------- ---------------- ---------------- --------
SovCap Equity Partners, Ltd $ 200,000 $ 200,000 worth 40,000
Cumberland House
#27 Cumberland Street
P.O. Box CB-13016
Nassau, New Providence
The Bahamas
Correllus International, Ltd $ 50,000 $ 50,000 worth 10,000
Edificio Marina Marbella 6B
Avenida Severo Ochoa 28
29600 Marbella, Spain
Frutose - Marketing & Investors $ 100,000 $ 100,000 worth 20,000
Internacionais LDA
C/o Cross Finanz
Via S. Tecla, No. 4
20122 Milan, Italy
</TABLE>
CONVERSION OF BRIDGE FINANCING NOTES
The bridge financing notes can be converted into our common stock.
Interest on the bridge financing notes is payable at a rate of 8% per annum from
the original issue date until the maturity date. The maturity date is one
hundred twenty days after the original issue date, at which time interest is
payable at the rate of 11% per annum. The notes can be converted at our option
up to 180 days after the original issue date. The redemption price of the notes
shall be equal to the outstanding principal amount of the note plus accrued and
unpaid interest and then increased by the following applicable rates:
Days After Redemption
Original Issue Date Price
------------------- -----
Day 0-Day 90 110.0%
Day 91-Day 120 112.5%
Day 121- 115.0%
Assuming a date of redemption of August 1, 2000 for all three closings, we
estimate the security holders would be entitled to the following redemption
prices:
8
<PAGE>
<TABLE>
<CAPTION>
Principal Interest Earned Redemption Price
Security Holder of Note Through 8/1/00 (@ 115%)
--------------------------------- ---------- ---------------- ----------------
<S> <C> <C> <C>
1ST CLOSING
SovCap Equity Partners $1,000,000 $ 88,411 $1,251,673
2ND CLOSING
Correllus International $ 150,000 $ 10,640 $ 184,736
Arab Commerce Bank $ 150,000 $ 10,640 $ 184,736
Bonetti $ 50,000 $ 3,547 $ 61,579
3RD CLOSING
SovCap Equity Partners $ 200,000 $ 11,112 $ 242,779
Correllus International $ 50,000 $ 2,778 $ 60,695
Frutose $ 100,000 $ 5,556 $ 121,389
</TABLE>
The number of shares of common stock issuable in payment of the redemption
price on the date of conversion for each closing is equal to the following
formula:
CONVERSION SHARES = redemption price
------------------------------------------------------------
average market price 5 days prior to the original issue date
Assuming the conversion occurs on May 1, 2000 for all three closings, the
following table shows the estimated number of conversion shares for the
respective security holders:
<TABLE>
<CAPTION>
Security Holder Redemption Price Original Issue Date Price Conversion Shares
------------------------------------- ----------------- -------------------------- -----------------
<S> <C> <C> <C>
SOVCAP EQUITY PARTNERS
1st Closing $ 1,251,673 $ 0.294 4,257,391
3rd Closing $ 242,779 $ 0.140 1,734,136
CORRELLUS INTERNATIONAL
2nd Closing $ 184,736 $ 0.195 947,364
3rd Closing $ 60,695 $ 0.140 433,536
ARAB COMMERCE BANK
2nd Closing $ 184,736 $ 0.195 947,364
BONETTI
2nd Closing $ 61,579 $ 0.195 315,790
FRUTOSE
3rd Closing $ 121,389 $ 0.140 867,064
TOTAL CONVERSION SHARES: 9,502,645
</TABLE>
We reserved 10,000,000 shares of common stock for conversion pursuant to
the notes. Should the conversion occur at a date later than August 1, 2000,
more shares may be issued than the above example since interest on the notes
continues to accrue through the date of conversion.
REPRICING WARRANTS
Each note carries a repricing warrant, which may be exercised after the
twenty-first trading day after the date of conversion of the note. The
noteholder's ability to exercise the repricing warrant expires ninety days later
at a price of $.001 per share. The number of shares of common stock to which
the repricing warrant is exercisable for each closing is equal to the following
formula:
9
<PAGE>
REPRICING SHARES = number of conversion shares * (x)
---
(y)
where:
(x) = (125% of the average market price 5 days prior to the original issue date)
- (average market price 5 days prior to the date of conversion)
(y) = average market price 5 days prior to the date of conversion
Given this formula, the repricing warrants will only be exercisable if the
stock price on the date of conversion falls below 125% of the stock price on the
date of each closing. In terms of the formula, if (x) is negative, no repricing
warrants are exercisable. As such, if the conversion occurs on a date when our
stock is traded as greater than $0.37 per share, no repricing warrants will
become exercisable under this offering. As of June 22, 2000 our stock traded at
$0.185 per share. To show an example of how the repricing warrants may work,
assume that we convert the notes on August 1, 2000 at a price of $0.20 per
share. The following table describes how the above formula computes the
repricing shares for each security holder:
<TABLE>
<CAPTION>
125% of
Original Issue Repricing
Security Holder Conversion Shares Date Price (x) (y) (x)/(y) Shares
----------------------- ----------------- --------------- -------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
SOVCAP EQUITY PARTNERS
1st Closing 4,257,391 $ 0.368 0.168 0.20 .84 3,576,208
3rd Closing 1,734,136 $ 0.175 -0.025 0.20 negative 0
CORRELLUS INTERNATIONAL
2nd Closing 947,364 $ 0.244 0.044 0.20 .22 208,420
3rd Closing 433,536 $ 0.175 -0.025 0.20 negative 0
ARAB COMMERCE BANK
2nd Closing 947,364 $ 0.244 0.044 0.20 .22 208,420
BONETTI
2nd Closing 315,790 $ 0.244 0.044 0.20 .22 69,474
FRUTOSE
3rd Closing 867,064 $ 0.175 -0.025 0.20 negative 0
TOTAL REPRICING SHARES: 4,062,522
</TABLE>
Should the security holders eligible to exercise the repricing warrants
choose to do so, then the number of shares of common stock issuable pursuant to
the repricing warrant for each closing is equal to the following formula:
= number of repricing shares * (average market price 5 days
prior to the date of conversion - .001)
--------------------------------------------------------------------------------
average market price 5 days prior to the date of conversion
The difference between this formula and the previous one is that the
security holder must pay a price of $0.001 for each exercised share. In the
previous example, the eligible security holders were eligible to exercise the
repricing warrants assuming a conversion price of $0.20 per share. Thus, the
formula is equal to:
number of repricing shares * (0.20-.001) = number of repricing shares * .995
-----------
0.20
10
<PAGE>
Consequently, the following table describes the resulting number of common
shares issued to the security holders, given a conversion price of $0.20 per
share:
<TABLE>
<CAPTION>
Security Holder Repricing Shares .995 Number of Shares of Common Stock
----------------------- ---------------- ------- --------------------------------
<S> <C> <C> <C>
SOVCAP EQUITY PARTNERS 3,576,208 * .995 = 3,558,327
CORRELLUS INTERNATIONAL 208,420 * .995 = 207,378
ARAB COMMERCE BANK 208,420 * .995 = 207,378
BONETTI 208,420 * .995 = 69,127
TOTAL SHARES OF COMMON STOCK FROM REPRICING WARRANTS: 4,062,522
</TABLE>
Given the recent price of our stock, we reserved 5,500,000 shares of common
stock to be issued according to the repricing warrants. Obviously, the number
of shares to be issued under the repricing warrants is directly linked to our
stock price on the conversion date of the notes. As the conversion price
decreases, the number of shares to be issued pursuant to the repricing warrants
increases. In fact, a potentially unlimited number of shares may be issued
under the repricing warrants should our stock near a price of $0.00 per share.
Given the current reserve of 5,500,000 shares, only if the notes are converted
at a price below $0.18 will we need to register additional shares in order to
satisfy our obligation under the repricing warrants.
PURCHASE WARRANTS
Each investor received an exercisable purchase warrant at the rate of
20,000 warrants for each $100,000 in principal amount of notes purchased and
issued. The expiration date for the purchase warrants is five years following
the original issue date for each closing. The exercise price of the purchase
warrants for each closing is equal to the greater of: (i) 120% of the closing
bid price on the original issue date; or (ii) 75% of the average closing bid
price for the 5 trading days immediately prior to the date the purchase warrant
is exercised.
As of June 22, 2000, our stock price traded at $0.185 per share. Assuming
this is the price on the date the purchase warrant is called, the exercise price
is then the greater of:
(i) 120% of the closing bid price on the original issue date
- 1st closing = 120% * $0.294 = $0.353
- 2nd closing = 120% * $0.195 = $0.234
- 3rd closing = 120% * $0.140 = $0.168
or (ii) 75% of the closing bid price on the exercise date
- 75% * $0.185 = .13875
Consequently, in this example the exercise price of the purchase warrants
is 120% of the closing bid price on the original issue date for all security
holders regardless of when the original closing occurred. At such a price, the
warrant holders would be purchasing our stock at a premium above market value.
This is unlikely to occur, since if the warrant holders wanted to make an
additional investment, each could do so at a lower price through purchase of our
shares at the market. However, to show an example of how the purchase warrants
may work, assume that the price on the date we call the purchase warrants is
$0.49 per share, which our stock traded at on March 21, 2000. The number of
shares of common stock then issuable upon conversion of the purchase warrants
for each closing is equal to the following formula:
= number of purchase warrants * (x)
---
(y)
11
<PAGE>
where:
(x) = (average market price 5 days prior to the date the warrant is exercised)
- (exercise price)
(y) = average market price 5 days prior to the date the warrant is exercised
Given the assumed price on the date the purchase warrant is exercised is
$0.49 per share and the exercise price is $0.3675, the formula above results in:
(x) = ($0.49 - $0.3675) = $0.1225
(y) = $0.49
(x)/(y) = $0.1225 = .25
-------
$0.49
Consequently, the number of shares of common stock issuable according to
the purchase warrants and our proceeds would be as follows:
<TABLE>
<CAPTION>
Purchase Issued
Security Holder Warrant Shares (x)/(y) Common Shares Exercise Price Our Proceeds
---------------------- -------------- ------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
SovCap Equity Partners 240,000 0.25 60,000 $ 0.3675 $ 22,050
Correllus 40,000 0.25 10,000 $ 0.3675 $ 3,675
Arab Commerce Bank 30,000 0.25 7,500 $ 0.3675 $ 2,756
Bonetti 10,000 0.25 2,500 $ 0.3675 $ 919
Frutose 20,000 0.25 5,000 $ 0.3675 $ 1,838
TOTAL SHARES ISSUED: 85,000 TOTAL PROCEEDS $ 31,238
</TABLE>
Should the call and exercise occur at a lower price than $0.49 on the date
of the exercise, our proceeds would decrease. We reserved 100,000 shares of
common stock to be issued according to the purchase warrants.
CALLABLE WARRANTS
Each investor received an exercisable callable warrant at the rate of
$100,000 worth of shares of common stock for each $100,000 in principal amount
of notes purchased and issued. The expiration date for the callable warrants is
one year following the original issue date for each closing. The exercise price
of the callable warrant shares is equal to 80% of the average closing bid price
for the five (5) trading days immediately prior to the date the warrant is
exercised. We may redeem the callable warrants at the rate of $.001 for each
callable warrant share.
For example, assuming a call and exercise price of $0.20 per share, the
resulting exercise price is $0.148 per share. The following table described the
amounts of common stock received by the security holders and the proceeds we
will receive from such a sale:
<TABLE>
<CAPTION>
Security Holder Principal in Notes Common Shares Exercise Price Our Proceeds
---------------------- ------------------ -------------- --------------- -------------
<S> <C> <C> <C> <C>
SovCap Equity Partners $1,200,000 6,000,000 $ 0.16 $ 960,000
Correllus $ 200,000 1,000,000 $ 0.16 $ 160,000
Arab Commerce Bank $ 150,000 750,000 $ 0.16 $ 120,000
Bonetti $ 50,000 250,000 $ 0.16 $ 40,000
Frutose $ 100,000 500,000 $ 0.16 $ 80,000
TOTAL SHARES ISSUED: 8,500,000 TOTAL PROCEEDS: $ 1,360,000
</TABLE>
12
<PAGE>
We reserved 8,900,000 shares of common stock pursuant to the callable
warrants. Should the call and exercise occur at a lower price than $0.19, we
would need to register more shares in order to complete the transaction. Our
proceeds would remain the same.
SELLING SECURITY HOLDERS
This prospectus registers the offer and sale of up to 24,500,000 shares of
our common stock by SovCap Equity Partners, Ltd., Correllus International, Ltd.,
Arab Commerce Bank, Ltd., Enrico Bonetti and Frutose - Marketing & Investors
Internacionais LDA. The following table describes the number of securities
presently owned by each selling security holder prior to this registration
statement. We also include the names of the control persons for each of the
selling shareholders.
SOVCAP EQUITY PARTNERS, LTD
Barry Herman, President
- $1,200,000 in convertible bridge notes with attached repricing warrant
- $1,200,000 worth of shares in callable warrants
- 240,000 in purchase warrants
CORRELLUS INTERNATIONAL, LTD
Jan Telander, Director
- $200,000 in convertible bridge notes with attached repricing warrant
- $200,000 worth of shares in callable warrants
- 40,000 purchase warrants
ARAB COMMERCE BANK, LTD
Tony DeNazareth, Secretary
- $150,000 in convertible bridge notes with attached repricing warrant
- $150,000 worth of shares in callable warrants
- 30,000 purchase warrants
FRUTOSE - MARKETING & INVESTORS INTERNACIONAIS LDA
Gianni Ferrara, General Attorney
- $100,000 in convertible bridge notes with attached repricing warrant
- $100,000 worth of shares in callable warrants
- 20,000 purchase warrants
ENRICO BONNETTI
- $50,000 in convertible bridge notes with attached repricing warrant
- $50,000 worth of shares in callable warrants
- 10,000 purchase warrants-
As of June 22, 2000, our stock traded at $0.185 per share. For purposes of
the below table, we assume the conversion price of the notes and the exercise
price of the warrants is $0.20 per share. Note, no purchase warrants will be
exercised at this price. The following table describes the number of securities
issued under this registration statement and the maximum total number of
securities available to be sold after the offering.
As of May 11, 2000, there were approximately 360 record holders of common
stock. Percentage of ownership is based upon 56,627,509 issued and outstanding
shares of common stock beneficially owned on May 11, 2000, including currently
exercisable warrants to purchase 1,250,000 shares of common stock, currently
exercisable options to purchase 40,000 shares of common stock, currently
exercisable options to purchase 2,498,578 shares of common stock, currently
13
<PAGE>
exercisable options to purchase 200,000 shares reserved under an option issued
to Toda Corporation Limited for financial consulting services, and the
22,044,855 shares issued under the conversion of the notes and exercise of the
warrants at $0.20 per share.
<TABLE>
<CAPTION>
Total Shares Owned
Security Holder/Relationship After Conversion/Exercise Percentage
-------------------------------------------------- ------------------------- ----------
<S> <C> <C>
SOVCAP EQUITY PARTNERS, LTD. 15,567,735 18.83
Institutional Investor
CORRLLUS INTERNATIONAL, LTD. 2,588,278 3.13
Institutional Investor
ARAB COMMERCE BANK, LTD. 1,904,742 2.30
Institutiional Investor
FRUTOSE - MARKETING & INVESTORS INTERNACIONAIS LDA 1,367,064 1.65
Institutional Investor
ENRICO BONETTI 634,917 0.08
Institutional Investor
</TABLE>
Should the conversion/exercise price drop below $0.20 per share, each
security holder will receive more shares and thereby attain a greater percentage
ownership.
14
<PAGE>
PLAN OF DISTRIBUTION
We will not receive any of the proceeds from the sale of the common stock
by the selling security holders. We anticipate the selling security holders
will offer the shares of common stock for sale either directly or through
broker-dealers or underwriters. The broker-dealers or underwriters may act
solely as agents or may acquire the shares of common stock as principals. They
may receive compensation in the form of usual and customary or specifically
negotiated underwriting discounts, concessions or commissions from the selling
security holders or the secondary purchasers of the shares of common stock
registered in this prospectus for whom they may act as agent.
The net proceeds to the selling security holders from the sale of common
stock will be the purchase price of the common stock sold less the aggregate
agents' commissions and underwriters' discounts, if any. The selling security
holders and any dealers or agents that participate in the distribution of the
common stock may be deemed to be an underwriter within the meaning of the
Securities Act of 1933.
The shares of common stock being offered by the selling security holders
will be sold in one or more transactions on the OTC Bulletin Board or on any
other market on which our common stock may be trading. The sale price to the
public may be the market price prevailing at the time of sale, or a different
price negotiated by the selling security holders. The selling security holders
shall have the sole and absolute discretion not to accept any purchase offer or
make any sale of shares of common stock if they deem the purchase price to be
unsatisfactory.
The selling security holders participating in the sale or distribution of
the shares of common stock will be subject to applicable provisions of the
Securities Exchange Act of 1934 and the rules and regulations passed by the SEC.
This may limit the timing of purchases and sales of any of the shares of the
common stock by the selling security holders. It may also affect the
marketability of the shares of common stock.
LEGAL PROCEEDINGS
We are not a party to any material litigation and are not aware of any
pending or threatened litigation that could materially adversely affect our
business, operating results or financial condition.
15
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information with respect to our
executive officers and directors as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bruce I. Lewis 59 Chief Executive Officer and Chairman of the Board of Directors
Jay S. Stulberg 49 President, Chief Operating Officer, Chief Financial Officer and
Director
Dr. H. Joseph Greenberg 77 Director
Carl J. Corcoran 62 Director
David G.R. Butler 63 Director
</TABLE>
________________________
BRUCE I. LEWIS has been our Chairman of the Board of Directors and Chief
Executive Officer since June 30, 1994, and our President from August 12, 1995 to
December 22, 1998. For the period from 1980 through May 1990, Mr. Lewis was
President and a director of Albert Berg Limited and its subsidiaries. Its
creditors petitioned Albert Berg into bankruptcy in May 1990. From June 1988 to
August 1990, he served as the Chief Executive Officer of Cape Breton Chemical
Corporation, a start-up PVC flexible stretch wrap manufacturer. From May 1990
through May 1993, Mr. Lewis was also a consultant to various companies in the
areas of management and acquisition financing. From May 1993 until its
dissolution in February 1998, Mr. Lewis served as the Chief Executive Officer
and Chairman of the Board of Directors of Tracker Canada. From November 1997 to
December 22, 1998, Mr. Lewis served as interim Chief Financial Officer.
JAY S. STULBERG has been our President, Chief Operating Officer and Chief
Financial Officer, and a director, since December 22, 1998 for the term expiring
at the 2001 annual meeting of stockholders. Since February 1998, Mr. Stulberg
has been the sole shareholder, director and officer of Global Tracker Corp.
Since approximately 1984, Mr. Stulberg has served on the board of directors of
two privately held family holding companies. From 1992 to 1994, Mr. Stulberg
served as the Controller of Enershare Technology Corp. From 1994 to mid-1996,
Mr. Stulberg served as the Group Controller of Algorithmics, Inc.
H. JOSEPH GREENBERG has been a Director since December 22, 1998 for a term
expiring at the 2002 annual meeting of stockholders. Dr. Greenberg has engaged
in the practice of medicine since his graduation from medical school in 1952.
He has been a director of Genevest, Inc. since 1993.
CARL J. CORCORAN has been a director since December 22, 1998 for a term
expiring at the 2000 annual meeting of stockholders. IBM Corporation employed
Mr. Corcoran in various capacities from 1951 to 1988, including General Manager
of Operations of IBM Japan and President of IBM Canada. Mr. Corcoran is
currently an officer and director of several family-held businesses, including
Corcair Farms, Ltd., CorProperties, Inc., Cor Source Water Corporation,
Corcorvest Corporation and CJC Bottling, Ltd. He is also a director of the
Accessible Software Corporation, a publicly traded corporation, and A.A.B.
Building Systems, Inc., a private company.
16
<PAGE>
DAVID G. R. BUTLER has been a director since December 22, 1998 for a term
expiring at the 2001 annual meeting of stockholders. Mr. Butler is the chief
executive officer and sole shareholder of Holiday Breaks International, Inc.,
which offers stay-free hotel accommodations to companies as sales and marketing
incentives; MF Incentives, Inc., which offers travel coupons as sales incentives
for manufacturers' products; and Newfound Communications, Inc., which offers
premium incentive promotions. From 1978 until its sale in 1994, Mr. Butler was
the sole shareholder and chief executive officer of Marshall Fenn Limited, a
public relations and advertising agency. At Marshall Fenn, Mr. Butler
established several affiliated enterprises referred to as the Marshall Fenn
Group of Companies, including Holiday Breaks International, Inc., MF Incentives,
Inc., and Newfound Communications, Inc.
CLASSIFICATION OF BOARD OF DIRECTORS
Our certificate of incorporation and bylaws provide that the board of
directors be divided into three classes of directors, with the classes to be as
nearly equal in number as possible. Currently, those provisions mandate that
approximately one-third of the directors will continue to serve until the 2000
annual meeting of stockholders, one-third will continue to serve until the 2001
annual meeting and one-third will continue to serve until the 2002 annual
meeting. This classification of the board of directors makes it more difficult
for stockholders to change the composition of the board of directors and could
discourage a third party from attempting to obtain control.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors currently has four committees:
The Executive Committee comprises of Messrs. Lewis and Stulberg and is
responsible for:
- supervising our day-to-day operations
- strategic planning
- recruiting outside directors.
The Audit Committee is comprised of Messrs. Butler and Stulberg and is
responsible for:
- reviewing and recommending the engagement of our independent auditors
- consulting with the independent auditors on the adequacy of internal
controls
- reviewing the auditors' reports on our financial statements
The Ethics Committee is comprised of Mr. Corcoran and Dr. Greenberg and is
responsible for:
- reviewing corporate policies and procedures
- insuring the dissemination of material information to all key
managers
The Compensation Committee is comprised of Messrs. Butler and Corcoran and is
responsible for:
- determining the compensation of our senior officers
- reviewing recommendations by management as to the compensation of
other officers and key personnel
- reviewing management's succession program
- administer the stock incentive plan
17
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of May 11, 2000 by:
- Each person known to us to own beneficially more than 5% of our total
voting stock;
- The CEO and the other executive officers named in the summary compensation
table;
- Each of our directors; and
- All of our directors and officers as a group.
Except as otherwise indicated below, to our knowledge all persons listed
below have sole voting and investment power with respect to their shares of
common stock, except to the extent that authority is shared by spouses under
applicable law. The common stock is our only outstanding class of equity
securities. As of May 11, 2000, there were approximately 360 record holders of
common stock. Percentage of ownership is based upon 56,627,509 issued and
outstanding shares of common stock beneficially owned on May 11, 2000, including
currently exercisable warrants to purchase 1,250,000 shares of common stock,
currently exercisable options to purchase 40,000 shares of common stock,
currently exercisable options to purchase 2,498,578 shares of common stock,
currently exercisable options to purchase 200,000 shares reserved under an
option issued to Toda Corporation Limited for financial consulting services, and
the 22,044,855 shares of common stock to be issued under the conversion of the
notes and exercise of the warrants at $0.20 per share.
<TABLE>
<CAPTION>
Total Shares Owned
Beneficial Owner and Address As of March 14, 2000 Percentage
--------------------------------------------- ---------------------- -----------
<S> <C> <C>
Bruce I. Lewis, Chief Executive Officer 3,344,289(1) 4.05%
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
Jay S. Stulberg, Chief Financial Officer 1,494,289(2) 1.81%
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
H. Joseph Greenberg, M.D., Director 3,333(3) 0.01%
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
David G. R. Butler, Director 3,333(3) 0.01%
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
H. Joseph Greenberg, M.D., Director 3,333(3) 0.01%
1120 Finch Avenue West, Suite 303
North York, Ontario, Canada M3J 3H7
Executive Officers and Directors as a group, 4,848,587(3) 5.87%
Including those named above (five persons)
<FN>
(1) Number of shares includes the option to purchase 1,244,289 shares of
common stock. Furthermore, Mr. Lewis has pledged 600,000 shares of common
stock and the option to purchase an additional 1,244,289 shares of common
stock as security to the bridge financing notes.
(2) Number of shares includes the option to purchase 1,244,289 shares of
common stock. Furthermore, Mr. Stulberg has pledged 250,000 shares of
common stock and the option to purchase an additional 1,244,289 shares of
common stock as security to the bridge financing notes.
(3) Number of shares includes the currently exercisable option to purchase
3,333 shares of common stock.
</TABLE>
18
<PAGE>
Upon registration of the common stock described in this prospectus, SovCap
Equity Partners, Ltd. will likely become a greater than 5% shareholder in our
company. SovCap presently has a principal balance of $1,200,000 in our
convertible bridge notes. Assuming we convert these notes into common stock at
a conversion price of $0.20 per share, after conversion of the notes and
exercise of the repricing warrants, SovCap would own approximately 9,549,854
shares of our common stock. Estimating the total issued and outstanding shares
of common stock to be 73,000,000 at that point, SovCap would be a 13.08%
shareholder. Under this scenario, our current management would beneficially own
approximately 6.64% of the issued and outstanding common stock. Should this
occur, SovCap may be in a position to effect a material change in our
management. Furthermore, if we decide to call the remaining warrants, SovCap
could be an even greater security owner if it decides to exercise them.
DESCRIPTION OF SECURITIES
We are authorized to issue 100,000,000 shares of capital stock, of which
93,400,000 shares are common stock, par value $.001 per share, 100,000 shares
are Class B common stock, par value $.00000007 per share, and 6,500,000 shares
are undesignated shares of preferred stock, par value $.001 per share. No Class
B common stock or preferred stock is issued and outstanding as of May 11, 2000.
COMMON STOCK
As of May 11, 2000, there were 56,627,509 shares of common stock
outstanding, held of record by approximately 360 stockholders.
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. They are entitled to
receive such dividends, if any, as may be declared from time to time by the
board of directors, subject to any dividend preferences of the preferred stock.
Upon our liquidation, dissolution, or winding up, the holders of common stock
are entitled to share ratably in all of our assets available for distribution
after payment of all liabilities and any liquidation preferences of the
preferred stock. Holders of common stock have no preemptive rights, no
cumulative voting rights and no rights to convert their common stock into any
other securities.
PREFERRED STOCK
The board of directors is authorized to issue shares of preferred stock and
establish the number of shares to be included in one or more classes or series.
It may fix or alter the designations, preferences, or other special rights and
qualifications or restrictions of the shares of each class or series. This
includes the dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, liquidation preferences and the designations of each class
or series. The issuance of preferred stock could adversely affect the rights of
existing stockholders or could delay or prevent a change in our control without
further action by the stockholders. The issuance of preferred stock could
decrease the amount of earnings and assets available for distribution to holders
of common stock and could make the removal of our present management more
difficult.
19
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
We shall indemnify to the fullest extent permitted by the laws of Delaware
any person made or threatened to be made, a party to any legal action or
proceeding by reason of the fact the individual is or was our director, officer
or employee, or served as an agent for any other enterprise at our request. The
board of directors shall have the power to indemnify any person, other than a
director or officer, made a party to any legal action, suit or proceeding by
reason of the fact the individual was our employee.
Pursuant to our bylaws, we may indemnify and/or purchase indemnity
insurance for our directors, officers or other employees. We may also pay
and/or advance expenses to our directors, officers and other employees who are
eligible for or entitled to such payments or advances. The extent of any such
indemnification, payment or advance shall be expressly authorized by the board
of directors. Our right to indemnify such persons shall include, but not be
limited to, our authority to enter into written agreements for indemnification.
Subject to the laws of Delaware, our directors shall not be liable to the
company or our shareholders for monetary damages for an act or omission in the
director's capacity of a director, as long as the director acted in good faith.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act of 1933 and is therefore unenforceable. In the
event that a claim for indemnification against such is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final adjudication of
such issue. This excludes any payment of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any action,
suit or proceeding.
Indemnification of officers or persons controlling us for liabilities arising
under the Securities Act of 1933 is held to be against public policy by the SEC,
and is therefore unenforceable.
20
<PAGE>
BUSINESS
CORPORATE HISTORY
We develop, market, sell and operate a personal property marking and
monitoring system. Our technology utilizes advanced bar code and laser scanning
technology that interfaces with a computer database and scanning network to
create an identification system. Our website is located at www.tracker.com.
Our current business began in July 1994 through a reorganization in which
we acquired all of the issued and outstanding voting shares of Tracker Canada in
exchange for approximately 90% of our total voting shares as of that date. Our
predecessor was incorporated as a Utah corporation in 1986, and changed its
state of incorporation to Nevada in 1992 and Delaware in 1994 through change in
domicile mergers. Concurrent with the effective date of the reorganization, we
changed our fiscal year-end from December 31 to March 31.
BACKGROUND
Tracker Canada, which originated our line of personal property
identification systems, was incorporated in May 1993 and, until February 1998,
was our operating subsidiary. Tracker Canada supported the development,
marketing and sale of our products and services. Its functions also included
personnel recruitment and management, advanced bar code and laser scanning
technology research and development, proprietary software development, key
supplier relationships, and business and marketing planning.
Until 1995, the operations of Tracker Canada generated our only source of
revenue. During the fiscal year ended March 31, 1996, we introduced a credit
card registration service marketed by independent telemarketing firms.
Subsequently, cash sales increased from $382,632 for the 1995-96 fiscal year to
$7,977,881 for the fiscal year ended March 31, 1997. The increase in cash sales
and the corresponding increase in recorded revenues for the 1996-97 fiscal year
was due primarily to the increase in sales from our now discontinued credit card
registration service.
FTC LAWSUIT; BOARD OF DIRECTORS AND OFFICER RESIGNATIONS
In September 1997, the Federal Trade Commission filed a lawsuit against us
in Georgia alleging our credit card registration service had violated Section 5
of the Federal Trade Commission Act and the FTC Trade Regulator Telemarketing
Sales Rule. The FTC obtained a temporary restraining order halting the further
sale of credit card registration services and an injunction freezing our assets.
Upon completing an internal investigation, we elected to discontinue credit card
registration service operations.
Following commencement of the lawsuit, four members of our five-member
board of directors, including all non-employee, outside directors, tendered
their resignations. Subsequently, our Chief Financial Officer resigned as an
executive officer, leaving Bruce I. Lewis, the Chief Executive Officer, as our
sole director and executive officer.
We settled the FTC lawsuit on July 28, 1998. The settlement, among other
things, permanently barred Mr. Lewis and us from engaging directly or
indirectly, in the business of credit card registration or promotion.
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TRACKER CANADA BANKRUPTCY; CESSATION OF OPERATIONS
The FTC lawsuit and the cessation of the credit card registration service
had a negative effect on our financial condition and that of Tracker Canada. On
January 27, 1998, Tracker Canada declared itself insolvent and a trustee in
bankruptcy was appointed to liquidate its assets. The trustee sold the assets
of Tracker Canada in February 1998.
GLOBAL TRACKER
- On February 10, 1998, Global Tracker acquired substantially all of
Tracker Canada's assets in an arm's length transaction from the
Bankruptcy trustee. On July 30, 1998, we entered into a license
agreement with Global Tracker. Under the agreement, we have an
exclusive worldwide license to commercially exploit the technology
formerly owned by Tracker Canada. The license is for a renewable
seven-year term and provides for payment of a 12% royalty on gross
revenues commencing in the second year of the license.
THE PRODUCT
Our technology consists of an identification device and a relational
database that, depending upon how it is applied, works in tandem with a scanning
network and recovery system.
Identification Device
----------------------
The identification device consists of a label displaying a serial number
that is resistant to partial destruction or defacement. The label may be
attached to an article by adhesive, thermal transfer or laser etching onto
metal, plastic or nylon textile. It contains a specially encoded insignia in
advanced two-dimensional redundant bar code form, otherwise known as PDF 417
symbology. The PDF 417 symbology permits multiple repetitions of the
alphanumeric number within the advanced bar code. Partial destruction or
defacement of the insignia does not impair the ability of our laser scanners to
read the label and communicate the information to our database.
Relational Database
--------------------
The relational database is a depository we maintain to index correlating
identification information and other data entries to codes identified with the
corresponding identification device. Although we make substantial efforts to
protect data, avoid human error and ensure system security, privacy and
integrity, no system is foolproof. Any material loss of information or security
breach could damage our credibility and could materially adversely affect our
business, operating results and financial condition.
Scanning Network
-----------------
We have developed a network consisting of a series of PDF 417-capable
scanners. The laser scanner reads the serial number displayed on the
identification device and transmits that information to our relational database.
Scanners are also utilized with our inventory control and asset management
systems. As of September 30, 1999, our scanners were located in 35 police
stations and other sites in Canada and 22 sites in the United States, as
compared to 39 scanners in Canada and 25 in the United States as of September
30, 1998.
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Recovery System
----------------
After the scanner reads the identification device, it transfers the data via
modem to our central database. We can then notify a user of an item's location
and arrange for its retrieval. As of September 30, 1999, utilization of our
technology has resulted in over 1000 successful recoveries. While these
recoveries demonstrate the effectiveness of the system, to date the system has
not generated sufficient sales volume.
STRATEGIC FOCUS
Prior to Tracker Canada's bankruptcy, our marketing efforts focused
primarily on the consumer market for personal property identification and
recovery. Although we believe the system has significant commercial potential,
the marketing efforts undertaken to date have been met with only limited market
acceptance. We presently do not have any current sources of income. Initially,
we developed a personal property security kit that included 24 possession
labels, eight clothing labels and 10 assorted shoe, key, luggage, and pet tags.
We packaged the initial purchase as a membership service term and marketed the
system indirectly as a value-added service offered by third parties.
PRESENT OPERATIONS
While management conceived other potential applications for our technology,
past experience and present financial circumstances dictate a more narrowly
focused strategy. Consequently, we recently altered our business plan to divide
our operations into two sectors: personal property registration and business
asset management.
Personal Property Registration
--------------------------------
We still believe that our technology provides an efficient method for
tracking inventory and accessing related information. Presently, this type of
central registration/identification system is mainly done through local
initiatives and no national or regional industry leader exists to date. Given
our failure to effectively market our products and services to date, there is a
risk that a competitor could enter the market and capture a substantial market
share to our detriment.
In May 1997, we entered into an agreement with Schwinn Cycling & Fitness, a
United States manufacturer of quality bicycles and accessories. In February
1999, Schwinn placed an additional order for 50,000 Tracker labels to be
combined with bicycle locks Schwinn manufactures in Taiwan. Furthermore, in
September 1999 we initiated a discussion with Schwinn on an OEM application of
identifying bicycle ownership in addition to continuing label sales in bicycle
accessory packs.
On July 1, 1998, we signed a two-year agreement with Warrantech Additive, a
wholly-owned subsidiary of Warrantech Automotive, to provide personal property
identification labels and global recovery services to automobile dealers
participating in Warrantech's vehicle service contract business. Through the
labels, we provide immediate access to vehicle service information contained in
our relational database. Because sales have thus far not met expectations,
Warrantech is reviewing and exploring enhancements to the program.
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Business Asset Management
---------------------------
We also believe our products and services can provide an efficient method
for tracking and managing fixed assets. Manufacturers can use our technology by
laser etching or otherwise applying a serial number containing specially coded
insignia directly onto or into products during the manufacturing process.
Possible applications for this service include computer chips, bicycles, power
tools, electronic equipment, cameras and auto parts. We believe that the coded
insignia adds value to a product by increasing the likelihood of recovery in the
event of loss or theft. We anticipate the manufacturers will absorb the cost of
laser etching. However, we currently do not have a contract with any
manufacturer to laser etch or otherwise apply coded insignia at the point of
manufacture.
We believe our products and services can assist consumer products
manufacturers combat long-term warranty fraud. This can be done through
identifying the proper owner of the product warranty and then refuse to honor
claims to which no obligation exists. The business asset management industry is
relatively new and contains hundreds of competitors. Because there is a low
cost of entry and basically no market barriers, software providers could achieve
significant market share through a predatory pricing strategy.
We recently installed a customized asset tracking management application at
Sony Computer Entertainment America. As Sony is an alpha and beta site for this
new product, we are continuing to develop the additional functionality that Sony
requires. When completed and approved by Sony, it will be designed and
incorporated into our new asset management system scheduled for release in July
2000. We plan to present the system to public and private sector clients as a
portable solution for asset movement and individual accountability. The asset
management system comprises of three components:
(1) a desktop multiple document interface application;
(2) a portable data collection and audit application; and
(3) a communication utility that allows for the exchange of data between
the desktop and portable device
We incurred approximately $125,000 in costs to date. These costs are
associated with the writing of functional specifications for the applications,
the development of desktop applications by third party software developers and
the installation and subsequent updates at our alpha and beta site. We estimate
the release of the system for sale to the public can provide significant revenue
over the next three years.
MARKETING AND DISTRIBUTION
Our long-term strategy is to introduce applications of our technology in
select market niches and establish the system as a dominant brand name.
Currently, we are considering an international pet registry lost and found, a
key return service, and a bike registration program.
We hope to establish credibility and confidence in the marketplace through
affiliations, alliances, sponsorships, and promotional programs with well
recognized, stable and reputable organizations. We are also marketing our
products and services to police departments who have a need to inventory and
warehouse lost and stolen bicycles. On March 22, 2000, we entered into a
five-year license agreement with the Florida Police Chiefs Foundation to
collaborate on a statewide Operation Bicycle Identification Program. This
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agreement will link our products and services to local and regional law
enforcement agencies and is fundamental to the distribution of our products and
services.
Should the pilot program prove successful, we plan to expand this program
to other states and then establish a national program. We are also beginning to
establish promotional programs with manufacturers of consumer specialty products
that have a high potential for loss. We intend to approach affinity groups such
as charities and police benevolent societies to market our labels as promotional
incentives. Finally, we are exploring the feasibility of the establishment of
an international pet registry marketed through veterinarians, animal shelters
and humane societies.
We presently have no material backlog of orders. We have granted, and may
grant in the future, commissions and other payments in connection with the
distribution of our products.
INTERNATIONAL OPERATIONS
We presently maintain operations in Canada and the United States.
International operations are subject to inherent risks, including unexpected
changes in regulatory requirements, currency exchange rates, tariffs and other
barriers, difficulties in staffing and managing foreign operations, and
potentially adverse tax consequences. These factors may have a material impact
on our ability to market products and services on an international basis. We do
not engage in any hedging contracts because we receive a majority of our cash
flow in United States dollars.
KEY SUPPLIERS
Our ability to market and sell our products and services depends in part on
our ability to procure necessary equipment, supplies and services. These
agreements or understandings tend to be informal, may be difficult to enforce,
and may be subject to termination. Accordingly, we cannot assure that
equipment, supplies or services will be available when needed or on terms
favorable to us. Any such unavailability of equipment, supplies or services
could prevent or delay the development, marketing, sale, operation and
effectiveness of our products.
We procure scanning equipment from Symbol Technologies. Symbol's PDF 417
is an advanced two-dimensional stacked symbology. In 1992, Symbol introduced
the PDF 1000 laser scanner. This is the first laser scanner to read
two-dimensional bar code. The PDF 1000 laser scanner is 30 times faster than
conventional scanners. It also decodes in a rastering pattern across and down
the PDF 417 symbol and reads both two-dimensional and one-dimensional bar codes.
It is able to read poorly printed or damaged codes that have been defaced up to
60%. On May 18, 1999, we entered into an agreement with Symbol whereby we were
granted the exclusive right to use Symbol's PDF 1000 laser scanners for personal
property identification and recovery purposes in Canada, the United States and
Europe. This contract is subject to a minimum annual purchase requirement of
5000 laser scanner units having a purchase price effect of at least ten million
dollars ($10,000,000). We will likely not meet this requirement. As such,
Symbol can terminate the contract if it so chooses. Nevertheless, we are
currently working with Symbol on the design and development of a custom mobile
registration application using two-dimensional barcodes as well as mobile
enhancements to our current asset management system. Symbol is compiling a
functional specification on applications identified from our initiated research.
COMPETITION
We have a large number of competitors with substantially greater financial,
technical, marketing, and management resources. The alternative methods used by
our competitors presently include: (1) tracking by serial number; (2) tracking
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by the owner's imprinted name and address; and (3) conventional forms of
insurance that reimburse consumers for lost items. As a result, demand and
market acceptance for our products and services are subject to a high level of
uncertainty. We currently have limited financial, personnel and other resources
to undertake the extensive activities necessary to produce and market our
products and services. We cannot assure that we will be able to successfully
compete with existing or new competitors.
INTELLECTUAL PROPERTY PROTECTION AND INFRINGEMENT
We rely on a combination of applicable patent laws, trade secret laws,
nondisclosure and other contractual agreements, and technical measures to
protect the confidential information, know-how and proprietary rights relating
to our personal property identification and recovery system. In addition, we
have filed an international patent application pursuant to the Patent
Cooperation Treaty for our personal property identification and recovery system.
However, these protections may not preclude competitors from developing a
personal property identification and recovery system that is competitive with
our system. We do not believe that our products and other confidential and
proprietary rights infringe upon the proprietary rights of third parties.
However, we cannot assure that third parties will not assert infringement claims
against us in the future. The successful assertion of such claims could
materially adversely affect our business, operating results and financial
condition.
We have no registered trademarks or service marks. Furthermore, we do not
have any active trademark or service mark applications pending with the U.S.
Patent and Trademark Office or with other regulatory authorities.
EMPLOYEES
As of December 31, 1999, through contractual arrangements with Global
Tracker, we employ a total of 14 persons, including two in management, two in
administration and accounting, five in operations, including two part-time,
three in sales and marketing and two in information systems, one of which is
part-time. Our future success will depend in large part on our ability to
attract, train and retain highly skilled and qualified personnel.
None of our employees are represented by a labor union. We have
experienced no work stoppages, and we believe that the relationship with our
employees is excellent.
GOVERNMENTAL REGULATIONS
We are not subject to any governmental regulations other than those
applicable to businesses generally. Although we believe we are in compliance
with all currently applicable regulations, additional regulations could be
enacted in the future that could materially adversely affect our business,
operating results and financial condition. We are not currently affected or
bear any costs associated with federal, state or local environmental laws.
REPORTS TO SECURITY HOLDERS
We have filed with the SEC a registration statement under the Securities
Exchange Act of 1933 with respect to the securities offered herein. This
prospectus does not contain all of the information set forth in the registration
statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. We will provide at no charge to any person upon written
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or oral request a copy of any such information. Requests should be directed to
Bruce I. Lewis, 1120 Finch Avenue West, Suite 303, North York, Ontario Canada
M3J 3H7.
We are required to file reports with the SEC. These reports include: (1)
an annual report on Form 10-K containing financial information examined and
reported upon by our certified public accountants; (2) quarterly reports on Form
10-Q containing unaudited financial statements for each of the first three
quarters of the fiscal year; and (3) additional information on Form 8-K
concerning our business and operations deemed appropriate by our board of
directors
You may read and copy any materials we file with the SEC by visiting the
public reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549
or by calling the Commission at 1-800-SEC-0330. Since we are an electronic
filer, you may also receive information about us through the SEC's internet
website that contains reports, proxy and information statements, and other
information at http://www.sec.gov.
------------------
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MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
We have been in the development stage since formation. We primarily
market, sell and operate a personal property marking and monitoring system. Our
system utilizes advanced bar code and laser scanning technology to create an
identification device that interfaces with a computer database and scanning
network. We 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
$1,269,631 on development costs. The associated costs may have a detrimental
effect on our short-term financial results and cash flow. However, these costs
are necessary to our becoming commercially viable.
Given our focus on development rather than sales, we have no source of
current income. Although our agreements with Schwinn, Warrantech and Sony may
prove fruitful in the future, we are not currently generating any income from
them. Similarly, we are not generating any income from the bicycle
identification program. Furthermore, our future success is largely dependent on
the retention of Symbol Technologies as our supplier of portable bar-code
scanning equipment. Because we have not satisfied Symbol's minimum annual
purchase requirements to date, we cannot guarantee Symbol will support our sales
effort in accordance with our agreement. The termination of the Symbol contract
would directly affect our general viability as a going concern.
OVERVIEW
TREATMENT OF DISCONTINUED OPERATIONS
Our profit and loss from discontinued operations appears as a single line
item in our statement of operations as required by generally accepted accounting
principals. The balance of deferred revenue and expenses from our discontinued
operations appearing on our balance sheet will be written off over the next two
years and will continue to appear as a single line item on our statement of
operations. Consequently, the only future impact of activities related to
discontinued operations will be the recognition of deferred revenue and deferred
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charges. Their impact on our overall financial performance is not material to
our present and future financial performance. As such, we limit our discussion
in this section to only continuing operations.
REVENUES
Since the discontinuation of the credit card registration program in
September 1997 our only source of revenue has been from our personal property
registration program and our nascent business information systems program. We
have generated minimal sales to date. The revenue reported on our financial
statements is mainly derived from the sale of our personal property registration
kits through a variety of retail outlets and corporate affinity programs.
COST OF SALES
The costs of sales primarily consists of costs associated with the
construction and packaging of the personal property registration kits.
OPERATIONAL
Operational costs contain wages paid to staff employees to maintain call
centers servicing our current customer base. This includes subscribers to our
personal property registration kit as well as residual clients from our
discontinued credit card registration program.
INFORMATION SYSTEMS
The costs associated with information systems primarily relate to our
efforts to maintain and update our operational systems to be year 2000
compliant.
SALES AND MARKETING
We sell our personal property registration kit primarily through our direct
sales forces. Selling and marketing expenses consist mostly of personnel costs,
travel and promotional events such as trade shows, advertising, market research
and public relations programs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include executive compensation, legal
and accounting fees and administrative costs associated with our facilities such
as rent, office supplies, telephone expenses and corporate travel.
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998
REVENUES. Revenues from our personal property registration kits decreased
by 52% to $55,061 for the nine months ended December 31, 1999 compared to
$113,630 for the nine months ended December 31, 1998. The decrease in
revenues was primarily due to our shift in emphasis from sales of personal
property registration kits to the development of new products and services. We
expect revenues to continue to decrease through June 2000.
COSTS OF SALES. Costs of sales decreased by 91% to $5,563 for the nine
months ended December 31, 1999 compared to $59,222 for the nine months ended
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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. We expect the
declining trend to continue as long as we do not experience any significant
revenue.
OPERATIONAL. Operational costs increased by 29% to $197,833 for the nine
months ended December 31, 1999 compared to $153,455 for the nine months ended
December 31, 1998. This slight increase reflects our efforts to build an
infrastructure to support our development and roll out of new products and
services. This includes the hiring and training of additional staff. We expect
operational costs to level off pending the implementation of our new products
and services in June 2000.
INFORMATION SYSTEMS. Information systems costs increased by 417% to
$66,027 for the nine months ended December 31, 1999 compared to $12,765 for the
nine months ended December 31, 1998. The increase resulted from the continuing
necessity to have our computer systems year 2000 compliant. We also hired a
chief information officer to explore and develop e-commerce applications for our
products and services. We expect this cost to continue to increase in order to
support our e-commerce development.
SALES AND MARKETING. Sales and marketing expenses increased by 79% to
$180,774 for the nine months ended December 31, 1999 compared to $100,777 for
the nine months ended December 31, 1998. This increase in sales and marketing
expenses reflects the increase in costs associated with the development of new
marketing ideas. Until we find a significant market niche for our products and
services, we expect these expenses to continue to grow if our cash flow allows
it.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 64% to $293,320 for the nine months ended December 31, 1999 compared to
$179,241 for the nine months ended December 31, 1998. The increase in general
and administrative expenses primarily resulted from the necessity to build an
infrastructure to support our development of new products and services. We do
not expect this cost to continue to grow until we achieve a substantial increase
in or revenue.
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
REVENUES. Revenues from our personal property registration kits increased
by 246% to $126,875 for the year ended March 31, 1999 compared to $51,551 for
the year ended March 31, 1998. The increase in revenues was primarily due to
our exclusive reliance on the sales of personal property registration kits for
income after we discontinued the credit card registration program in September
1997. We expect revenues for fiscal year end March 31, 2000 to decrease due to
our shift in emphasis from sales to the development of new products and
services.
COSTS OF SALES. Costs of sales increased by 347% to $71,630 for the year
ended March 31, 1999 compared to $20,660 for the year ended March 31, 1998.
This increase is commensurate with the increase in revenues between the two
years from the sale of personal property registration kits. We expect costs of
sales to decrease in accordance with the continued decline in revenue for fiscal
year end March 31, 2000.
OPERATIONAL. Operational costs increased by 55% to $323,560 for the year
ended March 31, 1999 compared to $717,193 for the year ended March 31, 1998.
This decrease reflects an overhaul of the old corporate structure with the
discontinuance of the CPS division and subsequent refocus of our efforts to
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build a new infrastructure to support our development and roll out of new
products and services. We do not expect this trend to continue for fiscal year
end March 31, 2000.
INFORMATION SYSTEMS. Informational systems costs decreased by 86% to
$45,181 for the year ended March 31, 1999 compared to $313,8113 for the year
ended March 31, 1998. This decrease primarily resulted from our need to reduce
staffing and stop further systems development for outbound telemarketing
activities. Ongoing costs were primarily incurred to support efforts to have
our computer systems year 2000 compliant. We expect a substantial increase for
fiscal year end March 31, 2000 due to our hiring a chief information officer to
explore and develop e-commerce applications for our products and services.
SALES AND MARKETING. Sales and marketing expenses decreased by 78% to
$126,601 for the year ended March 31, 1999 compared to $575,926 for the year
ended March 31, 1998. This decrease in sales and marketing expenses reflects
the reduction in corporate staffing and marketing initiatives required when we
shutdown the primary operating division. We anticipate an increase in costs
associated with the refocus of our business plan as well as the development of
new marketing ideas to support the roll out of new products and services for
fiscal year end March 31, 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
by 50% to $903,646 for the year ended March 31, 1999 compared to $1,797,952 for
the year ended March 31, 1998. The decrease in general and administrative
expenses primarily resulted from our efforts to rebuild our core staff, focus on
the development of new products and services, and the elimination of all
corporate infrastructure required to support discontinued operations. These
costs are expected to slightly increase for fiscal year end March 31, 2000 as we
build infrastructure to support new sales initiatives.
LIQUIDITY AND CAPITAL RESOURCES
From our inception, we have primarily financed our operations through funds
generated from the sale of capital stock, notes and debentures. Our losses
since inception total approximately $18,383,541 as of December 31, 1999. Since
August 1999, we have received approximately $1,400,000 in venture capital
funding from off shore investors through the issuance of convertible bridge
financing notes and associated warrants. We have used these funds primarily to
fund the development of our new products and services. We plan to immediately
convert these notes into common stock upon the registration of the underlying
common stock to the notes and warrants. Thereafter, we may call, and the
security holders may exercise, the outstanding warrants. We estimate that we
could receive up to an additional $1,500,000 through the exercise of the
warrants over the next twelve months.
As of March 31, 1999, we are in default under the terms of our convertible
debentures in the principal amount of $475,790 plus accrued interest at 15% per
annum. Under the default, the debenture holders have the same rights as any
unsecured creditor. Based on preliminary negotiations, we believe that some of
the debenture holders are still inclined to convert the outstanding debt into
common stock. We estimate the balance will be retired over the next twenty-four
months through either conversion or future income streams. Our financial
statements presently account for the fact that the debenture holders will not
convert the outstanding debt. Consequently, if they do decide to convert their
debt into common stock, our liquidity will improve.
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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 $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. Similarly, cash used in operating activities totaled $795,745 and
$505,244 for the years ended March 31, 1999 and 1998, respectively. This
resulted from net losses of $751,754 and $90,467 for the years ended March 31,
1999 and 1998, respectively.
Cash used in investing activities was $NIL and $285,588 for the nine months
ended December 31, 1999 and 1998, respectively. Similarly, cash used in
investing activities was $NIL and $838,076 for the years ended March 31, 1999
and 1998, respectively. The cash used in investing activities for these periods
was primarily used to purchase computer systems and software for internal
development used to support our credit card registration program. It was also
used to purchase furniture and equipment to accommodate our sales force.
Cash provided by financing activities amounted to $1,452,318 and $45,282
for the nine months ended December 31, 1999 and 1998, respectively. During the
nine months ended December 31, 1999, we received $1,452,318 from the sale and
issuance of $1,700,000 in convertible bridge notes and related warrants.
During the nine months ended December 31, 1998, we received $45,282 from the
sale of common stock. Cash provided by financing activities amounted to
$795,745 and $(137,138) for the year ended March 31, 1999 and 1998,
respectively. During the year ended March 31, 1999, we received $795,745 from
the sale of common stock. During the year ended March 31, 1998, we received
$30,000 from the sale of common stock. During that year, we also repaid
$167,138 to our outstanding debenture holders and convertible subordinated
debenture holders.
Our current cash projections indicate that our short-term annual funding
requirements will be approximately $1.5 million for the next twelve months. We
anticipate that future cash sales and equity or debt financing will cover our
long-term cash needs, but this might not occur. No assurance can be given that
the necessary funding will be available to us when needed, in sufficient
amounts, on acceptable terms, or at all. Any failure to receive sufficient
funding could affect our ability to continue as a going concern.
INFLATION; SEASONABLITY
While inflation has not had a material impact on operating results and we
do not expect inflation to have a material impact on operating results, we
cannot assure that our business will not be affected by inflation in the future.
While our business to date has not been seasonal and we do not expect that our
business will be seasonal in the future, we cannot assure that our business, on
a consolidated basis, will not be seasonal in the future.
YEAR 2000 COMPLIANCE
We use various packaged software applications as tools in running our
accounting operations, database management and general business functions. We
use certain proprietary software programs as tools to run our technology and
have assessed the impact of year 2000 issues on all software and hardware. We
determined that all existing hardware equipment is year 2000 compliant, except
for certain equipment that we plan to retire. We implemented software vender
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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.
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DESCRIPTION OF PROPERTY
We currently occupy approximately 3,700 square feet of office premises
leased by Global Tracker for us on a month-to-month basis at a rate of $5,000
per month. Under the sublease, we may withhold rent payments to Global Tracker
for the lesser of up to six consecutive months or such earlier date as the
parties may terminate the sublease. Lease payments due and unpaid accrue at the
rate of 10% per annum. We do not anticipate any difficulty in securing adequate
new space in the event Global Tracker terminates the sublease. We believe that
suitable additional space will be available as needed if future expansion is
required.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
We have entered into employment agreements containing severance
arrangements with certain executive officers. These agreements provide for
compensation payments under certain circumstances to each officer through the
remainder of the term of the agreements. Our certificate of incorporation and
bylaws provide for indemnification of all directors and officers. In addition,
each director nominee, when elected, will enter into separate indemnification
agreements with us.
We have agreed with certain state regulatory authorities that so long as
our securities are registered in such states, we will not make loans to our
officers, directors, employees, or principal stockholders. This does not
include loans made in the ordinary course of business, such as travel advances,
expense account advances, relocation advances, or reasonable salary advances.
Furthermore, all future transactions with our executive officers,
directors, employees, 5% stockholders and affiliates will be subject to the
approval of a majority of the independent, disinterested members of the board of
directors. Such future transactions must be for bona fide business purposes on
terms that are no less favorable to us than those that could be negotiated with
unaffiliated parties.
GLOBAL TRACKER
In February 1998, Global Tracker acquired substantially all of the assets
of Tracker Canada in a bankruptcy proceeding. Jay S. Stulberg, our Chief
Financial Officer and Director, is the sole shareholder, officer and Director of
Global Tracker. Following the bankruptcy proceeding, Global Tracker made the
assets formerly owned by Tracker Canada available to us in order to permit us to
carry on Tracker Canada's business. Since February 1998, Global Tracker has
expended approximately $110,000 to support our business operations.
Furthermore, Mr. Stulberg has personally loaned Global Tracker approximately
$50,000 (USD) in operating capital. Under a license agreement with Global
Tracker, we will pay Global Tracker a 12% gross royalty on our sales.
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MARKET FOR COMMON EQUITY
Our common stock is traded in the over-the-counter market on the OTC
Bulletin Board under the symbol "TRKR." Quotations for our common stock were
first listed on May 5, 1993. The market for our common stock must be
characterized as extremely limited due to the low trading volume and the small
number of brokerage firms acting as market makers. Additionally, stocks traded
on the OTC Bulletin Board generally have limited brokerage and news coverage.
Thus, the market price of the common stock may not reflect our true value. As a
result, you may find it difficult to dispose of, or to obtain accurate
quotations as to the value of, the common stock. We cannot assure that the
over-the-counter market for our securities will continue, that a more active
market will develop, or that the prices in any such market will be maintained at
their current levels or otherwise.
The following table sets forth, for the periods indicated, the high and low
bid quotations for our common stock as reported by the National Quotation Bureau
or Bloomberg. These quotations reflect inter-dealer prices, without adjustments
for retail markups, markdowns or commissions, and do not represent actual
transactions.
Quarter Ended High Low
------------- ---- ---
September 30, 1997 $0.3700 $0.1300
December 31, 1997 $0.2100 $0.0450
March 31, 1998 $0.0725 $0.0130
June 30, 1998 $0.1150 $0.0150
September 30, 1998 $0.09 $0.075
December 31, 1998 $0.11 $0.05
March 31, 1999 $0.1775 $0.0725
June 30, 1999 $0.35 $0.10
September 30, 1999 $0.40 $0.18
December 31, 1999 $0.210 $0.1025
On December 31, 1999, the high and low bid quotations for our common stock
on the OTC Bulletin Board were $0.125 and $0.111, respectively. As of May 11,
2000, there were 56,627,509 shares of common stock outstanding held by
approximately 360 holders of record, including broker-dealers and clearing
corporations holding common shares on behalf of their customers.
We have never paid any cash dividends on our common stock and do not intend
to pay any cash dividends in the foreseeable future. Future earnings, if any,
will be retained to fund the development and growth of our business.
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EXECUTIVE COMPENSATION
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table provides certain information concerning the
compensation earned by our Chief Executive Officer and other then-executive
officers who received compensation in excess of $100,000 for services rendered
in all capacities to us for the most recent three fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation
Awards Payouts
Restricted Securities
Stock Under-Lying LTIP All Other
Name and then- Fiscal Salary Bonus Other Award(s) Options/SARs Payouts Compensation
Principal Position Year ($) ($) ($)(1) ($) (#) ($) ($)
-------------------------------------- ------- ------- ------ ------- --------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BRUCE I. LEWIS, CEO 1999(2) 0 0 175,000 2,488,578
1998 43,750 10,000 131,250
1997 175,000 10,000
JAY S. STULBERG, President, COO & CFO
1999(2) 40,000 85,000 2,488,578
MARK J. GERTZBEIN, CFO & Executive VP
1998 175,000 10,000
<FN>
(1) Automobile allowance
(2) Estimated
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value At Alternative to
Assumed Annual Rates of Stock (f) and (g)
Price Appreciation For Option Grant Date
INDIVIDUAL GRANTS Term Value
Percent Of
Number of Total
Securities Options/
Underlying SARs Granted Exercise of Grant Date
Option/SARs To Employees Base Price Expiration Present Value
Name Granted (#) In Fiscal Year ($/Sh) Date 5% ($) 10% ($) $
(a) (b) (c) (d) (e) (f) (g) (h)
------------------ ------------ --------------- ------------ ----------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce I. Lewis(1) 2,488,578(3) 46.3% .075 2003 51,566 62,909
------------ --------------- ------------ ----------- -------- --------
Jay S. Stulberg(2) 2,488,578(3) 46.3% .075 2008 117,379 131,856
------------ --------------- ------------ ----------- -------- --------
<FN>
(1) Incentive stock option granted for a five-year term exercisable sequentially in two annual installments
beginning January 2000, and fully vesting beginning January 2001.
(2) Incentive stock option granted for a ten-year term exercisable sequentially in two annual installments
beginning January 2000, and fully vesting beginning January 2001.
(3) Mr. Lewis and Mr. Stulberg have each pledged their option rights to purchase an additional 1,244,289
shares of Common Stock as security to the Series 1 Bridge Notes.
</TABLE>
COMPENSATION OF DIRECTORS
Non-employee directors are paid $500 for attendance at each meeting of the
board of directors or a committee meeting and an annual retainer of $10,000. In
addition, non-employee directors are eligible to receive options to purchase
shares of our common stock.
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EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
BRUCE LEWIS
On December 18, 1998, we entered into an employment agreement with Mr.
Lewis, pursuant to which Mr. Lewis serves as our Chief Executive Officer. The
agreement provides for an annual base salary of $175,000, with increases of
$37,500 each year based upon certain performance criteria beginning April 1,
2000, a maximum automobile allowance of $10,000 and eligibility for
discretionary bonuses.
The initial term for Mr. Lewis' agreement is three years with one-year
renewal terms thereafter, and provides for the payment of a relocation allowance
equal to the lesser of the actual relocation expenses or $25,000 per each
occurrence. The agreement provides that Mr. Lewis is entitled to participate in
any stock option, stock purchase, annual bonus, pension, profit sharing, life
insurance and medical benefit plans and such other fringe benefits that may be
applicable to our senior executive employees.
If Mr. Lewis' employment is terminated for cause or if he terminates for
any reason, he will be entitled to compensation through the date of termination.
If, prior to a change of control, employment is terminated due to his death or
disability, by us other than for cause or by him for good reason, he is entitled
to receive all compensation through the date of termination. He also receives
the continuation of base salary for the greater of one year or the remainder of
the term of the agreement. In addition, we will maintain for 12 months, or
through the date he obtains alternative employment, whichever is earlier, his
participation in our employee benefit plans in which he was eligible to
participate immediately before termination to the extent permissible under such
plans. He will also have the right to exercise all vested stock options
outstanding at the termination date in accordance with the plans governing those
options. We will use our best efforts to remove the restrictions from any
restricted stock held by him at termination. If his employment is terminated
after a change of control, either by the executive for good reason or by us
without cause, he will receive all the benefits he would have received for such
a termination prior to a change of control. All unvested stock options held by
him shall become immediately fully vested. Payments made in conjunction with a
change of control are limited to an amount that will not result in either a loss
of our income tax deduction under Internal Revenue Code.
JAY STULBERG
On December 18, 1998, we entered into an employment agreement with Mr.
Stulberg, pursuant to which Mr. Stulberg serves as our President, Chief
Operating Officer and Chief Financial Officer and Secretary. The agreement
provides for an annual base salary of $125,000, with increases of $37,500 each
year based upon certain performance criteria beginning April 1, 2000, a maximum
automobile allowance of $10,000 and eligibility for discretionary bonuses.
The initial term of Mr. Stulberg's agreement is three years with one-year
renewal terms thereafter, and provides for the payment of a relocation allowance
equal to the lesser of the actual relocation expenses or $25,000 per each
occurrence. The agreement provides that Mr. Stulberg is entitled to participate
in any stock option, stock purchase, annual bonus, pension, profit sharing, life
insurance and medical benefit plans and such other fringe benefits that may be
applicable to our senior executive employees.
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If Mr. Stulberg's employment is terminated for cause or if he terminates
for any reason, he will be entitled to compensation through the date of
termination. If, prior to a change of control, employment is terminated due to
his death or disability, by us other than for cause or by him for good reason,
he is entitled to receive all compensation through the date of termination. He
also receives the continuation of base salary for the greater of one year or the
remainder of the term of the agreement. In addition, we will maintain for 12
months, or through the date he obtains alternative employment, whichever is
earlier, his participation in our employee benefit plans in which he was
eligible to participate immediately before termination to the extent permissible
under such plans. He will also have the right to exercise all vested stock
options outstanding at the termination date in accordance with the plans
governing those options. We will use our best efforts to remove the
restrictions from any restricted stock held by him at termination. If his
employment is terminated after a change of control, either by the executive for
good reason or by us without cause, he will receive all the benefits he would
have received for such a termination prior to a change of control. All unvested
stock options held by him shall become immediately fully vested. Payments made
in conjunction with a change of control are limited to an amount that will not
result in either a loss of our income tax deduction under Internal Revenue Code.
STOCK INCENTIVE PLAN
GENERAL. On June 30, 1994, the shareholders approved the 1994 Stock
Incentive Plan and on November 1, 1995, August 22, 1997, and August 27, 1999 the
shareholders approved certain amendments. The stock incentive plan is intended
to attract, retain and motivate officers and other key employees. It is also
intended to provide people with incentives and rewards for superior performance
more directly linked to our profitability and increases in stockholder value.
Individuals are selected for participation in the stock incentive plan by the
compensation committee within the board of directors. An aggregate of
10,000,000 shares of common stock are reserved for issuance under the plan. It
is subject to adjustment in the event of a stock split, stock dividend or other
change in the common stock or capital structure. We anticipate no more than
twelve people may receive grants under the plan, with no more than three
non-employee directors involved. Unexercised options that expire may again be
issued under the plan subject to limitations. The committee administers the
plan and has the exclusive power to determine whether to grant an award. It
also determines the terms and conditions of any grant of stock options, stock
appreciation rights, performance shares, performance units, restricted shares or
deferred shares to participants. It resolves all questions relating to the
administration of the plan. Members of the committee are not eligible to
receive grants or awards under the plan other than the automatic grants to
non-employee directors.
STOCK OPTIONS. Under the stock incentive plan, the committee may grant
options to purchase shares of common stock. This includes options qualifying as
incentive stock options under the Internal Revenue Code to employees as
additional compensation. Options may be granted prior to termination of the
plan. This will occur on the earlier of June 29, 2004 or the date on which all
awards available for issuance in the last year of the plan have been issued or
canceled. Options granted are subject to adjustment in the event of a stock
split, stock dividend or other change in the common stock or our capital
structure.
Options are exercisable over such period as determined by the committee.
However, no incentive stock option may be exercised after ten years from the
date of grant. The term of options granted to holders of ten percent or more of
our combined voting power shall not exceed five years from the date of grant.
Options may be exercisable in installments as determined by the committee and
are evidenced by option agreements. No option may be transferred other than by
will or by the laws of descent and distribution. Options generally cannot be
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<PAGE>
exercised after the termination of service. However, under certain
circumstances the committee may consent to such termination of service or due to
retirement, disability or death. In this event, the committee may take any
action it deems equitable or in our best interests. The purchase price of
common stock subject to an incentive stock option cannot be less than 100% of
the fair market value of such common stock on the date of grant. The purchase
price of common stock subject to a nonqualified option may be less than, equal
to or greater than the fair market value of such common stock on the date of
grant. However, if any individual to whom an incentive stock option is granted
is the owner of stock possessing 10% or more of the total combined voting power
of all classes of our stock, then the purchase price per share shall not be less
than 110% of the fair market value of such common stock on the date of grant.
The option price may be due upon exercise of the option. It may be paid in
cash, check, shares of common stock or other consideration acceptable to the
committee. It may also be deferred through a sale and remittance procedure with
a brokerage firm designated by us. Grants can provide for reload option rights
upon the exercise of options. However, the term of any such reload option will
not extend beyond the term of the option originally exercised. During the
fiscal year ended March 31, 1999, options for 5,377,157 shares, vesting over a
three-year period, were granted at fair market value.
APPRECIATION RIGHTS. The committee may also grant appreciation rights in
tandem with an option or freestanding and unrelated to an option. An
appreciation right entitles the participant to receive an amount payable in cash
and/or shares of common stock equal to the positive difference between the fair
market value of a share of common stock on the date of exercise and the
appreciation right grant price. This is subject to any ceiling that may be
imposed by the committee. The committee may specify that a grant of an
appreciation right:
(1) is subject to a waiting period before becoming exercisable;
(2) may be exercised within specified periods of time; or
(3) may be exercised only upon the occurrence of certain events
Additionally, with respect to a tandem appreciation right, the committee
may provide that such right may be exercised only when the related option is
exercisable and the per share market value of our common stock on the date of
exercise exceeds the exercise price of the related option.
PERFORMANCE SHARES AND PERFORMANCE UNITS. Performance shares and
performance units entitle the participant to receive cash and/or shares of
common stock based upon the degree of achievement of pre-established management
objectives over a performance period determined by the committee. The committee
may adjust the management objectives and the related minimum acceptable level of
achievement after the date of grant. This may be necessary to avoid distortion
that would otherwise result from events not related to performance occurring
after the date of grant. The committee may fix management objectives on the
basis of any criteria it so chooses. The committee has sole discretion to
determine the following:
- the participants eligible for performance shares or performance units;
- the duration of each performance period;
- the value of each performance unit; and
- the number of shares or units earned on the basis of our performance
relative to the established objectives
At the end of the performance period, the committee will determine the
number of performance shares and the number of performance units that have been
earned on the basis of performance in relation to the objectives. Generally, a
participant must be an employee at the end of the performance period to receive
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<PAGE>
the performance shares or units. However, if the participant dies, retires,
becomes disabled or ceases to be an employee prior to the end of the period with
the committee's consent, the committee may take any action it deems equitable or
in our best interests.
RESTRICTED STOCK. A grant of restricted stock consists of a specified
number of shares of common stock that is awarded in amounts determined by the
committee and subject to forfeiture under such conditions and at such times as
the committee may determine. An employee who has been awarded restricted shares
may vote and receive dividends on restricted shares. However, he may not sell,
assign, transfer, pledge or otherwise encumber restricted shares during the
restricted period. If a participant's employment ceases prior to the end of the
restricted period either with our consent or upon the occurrence of his death,
disability or retirement, the restrictions may lapse with respect to some
portion or all of the restricted stock. If a participant's employment
terminates prior to the end of the restricted period for any other reason, the
participant's entire restricted shares and restricted units are forfeited.
Grants may be without additional consideration or in consideration of a payment
by the participant that is less than the fair market value of the restricted
stock on the grant date.
DEFERRED SHARES. The committee may grant deferred shares to participants
under the stock incentive plan. Each grant or sale of deferred shares will be
subject to the fulfillment of conditions and a deferral period specified by the
committee. During the deferral period, the participant will have no right to
transfer the award, no right of ownership in the deferred shares, and no right
to vote the deferred shares. However, the committee may authorize payment of
dividend equivalents on the deferred shares in cash or our shares of common
stock on a current, deferred or contingent basis. The participant may make
without additional consideration or in consideration of payment grants that are
less than the fair market value on the grant date.
STOCK OPTIONS FOR NON-EMPLOYEE DIRECTORS. Under the stock incentive plan
as originally adopted, each non-employee director elected or appointed on or
after the effective date of the plan was automatically granted an option to
purchase 10,000 shares of common stock upon election. The price per share to be
paid at the time such option is exercised by a non-employee director is 100% of
the fair market value of the common stock on the date of the grant of the
option. The plan provides that options granted to non-employee directors have a
maximum term of ten years. They are exercisable ratably in annual installments
over three years. The option price is due upon exercise of the option. It may
be paid in cash, check, shares of common stock or other consideration acceptable
to the committee. It may also be deferred through a sale and remittance
procedure with a brokerage firm designated by us. All options granted to a
non-employee director who die or becomes disabled while serving as a director
will become immediately and fully exercisable at the time of such termination of
service as a director. Furthermore, all of his options may be exercised within
twelve months after such cessation of service. If a former non-employee
director should die within six months after cessation of board service, the
personal representative of such former director's estate may exercise those
vested options at the time of death for a twelve-month period following his
death. If a non-employee director's service terminates for any reason other
than those stated above, the options that are not then exercisable will be
canceled. Any options that are then exercisable may be exercised at any time
within six months after the date of such termination. All options granted to
non-employee directors vest immediately upon a change of control. The portion
of the plan applicable to non-employee directors is designed to be
self-executing.
The amendments to the stock incentive plan approved by the stockholders on
November 1, 1995 provide for automatic stock option grants for 10,000 shares
each year to eligible directors. This automatic option grant program would be
limited to those persons who serve as non-employee members of the board and who
40
<PAGE>
do not beneficially own, directly or indirectly, or represent any stockholder
that beneficially owns, directly or indirectly, more than 5% of our outstanding
common stock. Each individual who first becomes an eligible director after the
date of approval of the amendment to the plan by the stockholders would
automatically be granted a nonqualified option to purchase 10,000 shares of
common stock. On every anniversary of initial election or appointment, each
person who is at that time serving as an eligible director would automatically
be granted a nonqualified option to purchase 10,000 shares of common stock.
There would be no limit on the number of automatic option grants that any one
eligible director may receive. In addition to the amendment to the automatic
grant provisions, the amendments to the plan provide that the exercise price of
options granted pursuant to such automatic grants would be reduced to a price
25% below the average trading price of our common stock for the 30 days
immediately prior to the grant date. On December 22, 1998, options were granted
to our three outside directors.
CHANGE OF CONTROL; CORPORATE TRANSACTIONS. The committee has the discretion
to accelerate benefits under the stock incentive plan in the event of a change
of control or a corporate transaction.
Under the stock incentive plan, a change of control is a change in
ownership or control of us effected through either of the following
transactions:
(1) the direct or indirect acquisition by any person or related group of
persons, other than by us or a person that directly or indirectly
controls, is controlled by, or is under common control with, us, of the
beneficial ownership of securities possessing more than 50% of the total
combined voting power of our outstanding securities pursuant to a tender
or exchange offer made directly to our shareholders or other
transaction, in each case which the board does not recommend that our
shareholders accept; or
(2) a change in the composition of the board over a period of 36 consecutive
months or less such that a majority of the board members ceases, by
reason of one or more contested elections for board membership, to be
comprised of individuals who either have been (1) Board members
continuously since the beginning of such period or (2) elected or
nominated for election as board members during such period by at least a
majority of the board members described in clause (1) who were still in
office at the time such election or nomination was approved by the
board.
Under the stock incentive plan, corporate transaction means any of the
following shareholder-approved transactions to which we are a party:
(1) a merger or consolidation in which we are not the surviving entity,
except for a transaction the principal purpose of which is to change the
state in which we are incorporated;
(2) the sale, transfer or other disposition of all or substantially all our
assets in our complete liquidation or dissolution; or
(3) any reverse merger in which we are the surviving entity but in which
securities possessing more than 50% of the total combined voting power
of our outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such merger.
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<PAGE>
TERMINATION, AMENDMENT AND ACCELERATION. The board of directors may amend,
suspend or terminate the stock incentive plan at any time, but no such action
may in any way impair the rights of recipients under any options or shares of
restricted stock previously granted or any agreement executed under the stock
incentive plan. Furthermore, without the approval of a majority of shareholders
of common stock at a duly called special meeting, the board many not make a
material amendment to the plan that:
(1) increases the total number of shares, appreciation rights or performance
units which may be issued under the plan;
(2) reduces the minimum purchase price for shares subject to options;
(3) extends the maximum period during which options may be exercised; or
(4) changes the employees eligible to participate in the plan
LOAN PROGRAM. The committee may,permit us to finance the exercise of our
options and the payment of related taxes by means of loans to the participants.
The committee may also allow participants to pay the exercise price or purchase
price in installments or may authorize the payment of a cash bonus to allow
participants to exercise options and rights under the stock incentive plan.
Each loan will be evidenced by a promissory note to be entered into by the
participant in our favor. Each loan, including extensions, will be on such
terms as determined by the committee. Loans or installment payments may be
authorized with or without security or collateral. The maximum credit available
will be the exercise or purchase price of the acquired shares plus any related
federal, state and local income and employment tax liability, subject to any
applicable margin borrowing limitation. The committee also has the authority to
forgive all or a portion of the borrower's indebtedness in circumstances it
deems appropriate. However, the Committee may not forgive that portion of a
loan owed to cover par value.
RESTRICTIONS ON GRANTS OF OPTIONS. We will not grant options in excess of
20% of the outstanding shares to directors, officers or employees unless
ratified or approved by a majority of the shareholders, excluding directors,
officers, employees and their spouses. Further, we will not grant options to
directors, officers or employees with an exercise price less than 85% of fair
market value on the date of grant unless ratified or approved by a majority of
the shareholders, excluding directors, officers, employees and their spouses.
REGISTRATION. We plan to file a registration statement to register the
shares of common stock reserved for issuance under the stock incentive plan.
Shares issued upon exercise of outstanding stock options and sold after the
effective date of any such registration statement generally will be available
for resale in the public market.
CASH BONUS ARRANGEMENT
Our discretionary cash bonus arrangement is designed to provide a mechanism
to allow specified employees to share in our profits. Our employees who
customarily work at least 35 hours per week and have been employed for at least
12 consecutive months, and have been designated for participation by the
committee are eligible to receive cash bonuses under this arrangement. We
estimate that approximately six employees are eligible to participate. Bonuses
may be based on merit, production or other individualized criteria, or may be
paid based on each eligible employee's assigned portion of a bonus pool
established in the discretion of the committee. If bonuses are to be paid based
on a bonus pool, the committee will determine the criteria upon which the amount
of each year's bonus pool will be based prior to the beginning of any such year.
The committee may also divide eligible employees into classes and may designate
the portion of any bonus pool to be assigned to each such class. Any bonuses
will be paid no later than 45 days after the end of the fiscal year for which
the bonus is awarded. No bonuses have been paid yet under this arrangement.
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1999 STOCK WAGE AND FEE PAYMENT PLAN
Our board of directors adopted a 1999 Stock Wage and Fee Payment Plan on
December 22, 1998. The purpose of this plan is to retain and motivate
participants and to provide them with incentives and rewards more directly
linked to our profitability and increases in stockholder value.
Nine of our employees and three consultants were eligible and elected to
participate in this plan. The participants agreed to receive an aggregate of
13,175,996 shares of our common stock in lieu of certain wage payments or fees.
The number of shares granted to the participants was based upon a price per
share of common stock of $.06. We registered the shares issued under this plan
under the Securities Act of 1933.
2000 STOCK WAGE AND FEE PAYMENT PLAN
Our board of directors adopted a 2000 Stock Wage and Fee Payment Plan on
January 1, 2000. The purpose of this plan is to retain and motivate
participants and to provide them with incentives and rewards more directly
linked to our profitability and increases in stockholder value.
Four of our employees and three consultants were eligible and elected to
participate in this plan. The participants agreed to receive an aggregate of
2,359,530 shares of our common stock in lieu of certain wage payments or fees.
The number of shares granted to the participants was based on a price per share
of common stock of $0.12 as of January 1, 2000 and $0.20 as of January 28, 2000.
We registered 3,500,000 shares under this plan under the Securities Act of 1933.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On June 15, 1999, PricewaterhouseCoopers LLP, our then-independent
accountant, declined to stand for re-election as our independent accountant for
the fiscal year ended March 31, 1998. During the previous year,
PricewaterhouseCoopers LLP did not issue on our behalf any financial statement
that contained an adverse opinion or a disclaimer of opinion, or was qualified
or modified as to uncertainty, audit scope, or accounting principles, except
that their report on the financial statements as of and for the year ended March
31, 1997 included an explanatory paragraph expressing doubt as to our ability to
continue as a going concern. The decision to change accountants was not
recommended or approved by any committee of the board of directors, or by the
board of directors. Additionally, there were no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
On August 18, 1998, we retained Hirsch Silberstein & Subelsky, P.C. as our
independent accountants to audit our financial statements as of, and for the
years ended, March 31, 1998 and March 31, 1999.
On August 27, 1999, our Board of Directors decided to retain the certified
public accounting firm of J.L. Stephan Co., P.C. to replace Hirsch Silberstein &
Subelsky, P.C. as our independent accountants. Hirsch Silberstein & Subelsky,
P.C. has discontinued its audit practice concerning compliance with the
regulations of the SEC. We had no disagreements with Hirsch Silberstein &
Subelsky, P.C. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
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INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders of
The Tracker Corporation of America
We have audited the accompanying consolidated balance sheet of The Tracker
Corporation of America, Inc. and Subsidiary as of March 31, 1999, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the years ended March 31, 1999 and 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of The Tracker Corporation of America, Inc. and Subsidiary
as of March 31, 1997 and 1996 and from inception at May 6, 1993 through March
31, 1997 were audited by other auditors whose reports dated June 24, 1997 and
May 28, 1996 included an explanatory paragraph that described the going concern
uncertainties discussed in Notes 1 and 2 to the consolidated financial
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Tracker Corporation of America, Inc. and Subsidiary as of March 31, 1999, and
the consolidated results of their operations and their cash flows for the years
ended March 31, 1999 and 1998 in conformity with generally accepted accounting
principles.
As discussed in note 15 to the financial statements, certain errors resulting in
overstatement of previously reported prepaid expenses, and overstatement of
loss from discontinued operations/understatement of loss from continuing
operations as of and for the year ended March 31, 1999, were discovered by
management of the Company subsequent to the issuance of the financial statements
for the year ended March 31, 1999. Accordingly, the March 31, 1999 financial
statements have been restated to correct the error.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 1 and
2 to the consolidated financial statements, the Company is in the development
stage and has suffered significant losses since inception. Additionally, the
Company discontinued its telemarketing program for its credit card registration
business. The Company is relying upon affiliated and outside parties to fund
its cash flow deficiencies through debt and equity infusions. Those conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Notes 1 and 2. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
----------------------
Hirsch Silberstein & Subelsky, P.C.
Farmington Hills, Michigan
July 8, 1999 except for note 15, as to which date is July 3, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
( A DEVELOPMENT STAGE COMPANY)
-------------------------------------------
CONSOLIDATED BALANCE SHEET
-------------------------------------
ASSETS
MARCH 31, MARCH 31,
1999 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS
ACCOUNTS RECEIVABLE $ 97,843 $ -
PREPAID EXPENSES AND DEPOSITS -
DEFERRED CHARGES 114,405 1,187,699
------------- -------------
TOTAL CURRENT ASSETS 212,248 1,187,699
DUE FROM SHAREHOLDERS 14,072 14,072
DEFERRED CHARGES 141,600 275,043
PROPERTY AND EQUIPMENT (NET) - -
------------- -------------
TOTAL ASSETS $ 367,920 $ 1,476,814
============= =============
LIABILITIES & SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 458,352 $ 440,835
ACCRUED LIABILITIES 584,823 528,399
DEFERRED REVENUE 197,602 1,798,727
DEBENTURE PAYABLE 31,809 31,809
CONVERTIBLE DEBENTURES 475,790 475,790
------------- -------------
TOTAL CURRENT LIABILITIES 1,748,376 3,275,560
DEFERRED REVENUE 215,244 412,846
COMMITMENTS (NOTE 10) - -
SHAREHOLDERS' DEFICIENCY
COMMON STOCK, $.001PAR VALUE, 50,000,000 SHARES AUTHORIZED,
50,388,579 (26,705,053 - MARCH 31, 1998) SHARES ISSUED AND OUTSTANDING 50,389 19,718
CONVERTIBLE SENIOR PREFERRED STOCK, $.001 PAR VALUE, 6,500,000 SHARES
AUTHORIZED, NIL ISSUED AND OUTSTANDING - -
CLASS B VOTING COMMON STOCK, $0.00000007 PAR VALUE, 20,000,000
SHARES AUTHORIZED, NIL (2,622,484 - MARCH 31, 1998) ISSUED
AND OUTSTANDING - -
PAID-IN CAPITAL 16,657,482 15,371,641
OTHER CAPITAL (424,267) (356,002)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (17,753,036) (17,001,283)
COMPREHENSIVE INCOME (NOTE 3) (126,263) (245,665)
------------- -------------
TOTAL SHAREHOLDERS' DEFICIT (1,595,700) (2,211,591)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 367,920 $ 1,476,814
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
( A DEVELOPMENT STAGE COMPANY)
-------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
FROM INCEPTION (MAY 6, 1993) FOR THE
THROUGH MARCH 31, YEAR ENDED MARCH 31,
1999 1999 1998
--------------- -------------- ------------
<S> <C> <C> <C>
REVENUE $ 433,596 $ 126,875 $ 51,551
COST OF SALES 171,924 71,630 20,660
--------------- ---------------- -------------
GROSS PROFIT 261,672 55,245 30,891
--------------- ---------------- -------------
DEVELOPMENT COSTS
OPERATIONAL 3,110,436 323,560 717,193
INFORMATION SYSTEMS 1,534,590 45,181 313,811
SALES AND MARKETING 4,983,370 126,601 575,926
GENERAL AND ADMINISTRATIVE 12,893,487 903,646 1,797,952
--------------- ---------------- -------------
TOTAL DEVELOPMENT COSTS 22,521,883.00 1,398,988.00 3,404,882.00
LOSS FROM CONTINUING OPERATIONS (22,260,211) (1,343,743) (3,373,991)
DISCONTINUED OERATIONS:
GAIN FROM OPERATION 4,664,263 591,990 3,440,612
GAIN (LOSS) ON DISPOSAL OF CPS SEGMENT (157,088) 0 (157,088)
--------------- ---------------- -------------
4,507,175 591,990 3,283,524
--------------- ---------------- -------------
NET LOSS APPLICABLE TO COMMON STOCK $ (17,753,036) $ (751,753) $ (90,467)
=============== ================ =============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK
LOSS FROM CONTINUING OPERATIONS $ (1.72) $ (0.03) $ (0.00)
GAIN (LOSS) FROM DISCONTINUED OPERATION $ 0.36 $ 0.01 $ 0.16
--------------- ---------------- -------------
NET LOSS $ (1.36) $ (0.02) $ 0.16
=============== ================ =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 12,979,364 39,929,638 21,480,767
=============== ================ =============
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 SHAREHOLDERS' DEFICIT
-----------------------------------------------
SHARES AMOUNTS
--------------------------------- ----------------------------------
Paid-in
Class B Capital in
Preferred Common Common Preferred Common Excess
Stock Stock Stock Stock Stock of Par
--------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued to officers at inception 5,089,286 $ - $ - $ -
(Cash - $Nil)
Shares issued for cash (Cash - $4,714,188) 884,729 4,714,188
Shares issued in lieu of rent 60,871 324,344
(note 9-x) (Cash - $Nil)
Share issue costs (466,142)
Translation adjustment
Net loss
--------------------------------- ----------------------------------
Balance at March 31, 1994 6,034,886 - - 4,572,390
--------------------------------- ----------------------------------
Shares issued for cash (Cash - $1,175,797) 234,517 1,175,797
Shares issued in lieu of rent 5,777 30,121
(note 9-x) (Cash - $Nil)
Reverse merger with The Tracker Corporation
on July 12, 1994 (Cash - $100) 739,219 739 (639)
Shares issued from Regulation S offering
(including 79,658 shares at $7 per share
for consulting services and 3,571 shares
at $5.50 per share for the purchase
of fixed assets) (Cash -$1,505,000) 860,000 860 2,900,840
Share proceeds to be received subsequent (819,459)
to March 31, 1995
Shares issued for consulting and 825,000 78,005 825 2,204,153
marketing services (Cash-$Nil)
Less: consulting and marketing (814,583)* (815)
services not yet received
Shares proceeds received from private
placement on March 15, 1995 500,000 500 349,500
(Cash - $350,000)
Shares issued to employees 25,063 74,409
for employment services
(note 9-x) (Cash-$Nil)
Share issue costs (779,495)
Translation adjustment
Net loss
Balance at March 31, 1995 - 2,109,636 6,378,248 - 2,109 9,707,617
--------------------------------- ----------------------------------
AMOUNTS
------------------------------------------------------------------
Deficit Accumulated
Other During
Other Comprehensive Development
Capital Income Stage Total
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued to officers at inception $ - $ - $ - $ -
(Cash - $Nil)
Shares issued for cash (Cash - $4,714,188) 4,714,188
Shares issued in lieu of rent 324,344
(note 9-x) (Cash - $Nil)
Share issue costs (466,142)
Translation adjustment (129,098) (129,098)
Net loss (2,043,425) (2,043,425)
------------------------------------------------------------------
Balance at March 31, 1994 - (129,098) (2,043,425) 2,399,867
------------------------------------------------------------------
Shares issued for cash (Cash - $1,175,797) 1,175,797
Shares issued in lieu of rent 30,121
(note 9-x) (Cash - $Nil)
Reverse merger with The Tracker Corporation
on July 12, 1994 (Cash - $100) 100
Shares issued from Regulation S offering
(including 79,658 shares at $7 per share
for consulting services and 3,571 shares
at $5.50 per share for the purchase
of fixed assets) (Cash -$1,505,000) 2,901,700
Share proceeds to be received subsequent (819,459)
to March 31, 1995
Shares issued for consulting and 2,204,978
marketing services (Cash-$Nil)
Less: consulting and marketing (2,086,685) (2,087,500)
services not yet received
Shares proceeds received from private
placement on March 15, 1995 350,000
(Cash - $350,000)
Shares issued to employees 74,409
for employment services
(note 9-x) (Cash-$Nil)
Share issue costs (779,495)
Translation adjustment (159,026) (159,026)
Net loss (5,068,583) (5,068,583)
------------------------------------------------------------------
Balance at March 31, 1995 (2,086,685) (288,124) (7,112,008) 222,909
------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
-----------------------------------------------
SHARES AMOUNTS
------------------------------------ --------------------
CLASS B
PREFERRED COMMON COMMON PREFERRED COMMON
STOCK STOCK STOCK STOCK STOCK
--------- ---------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Share proceeds received re Regulation S offering $ - $ -
made before March 31, 1995 (Cash - $225,280)
Consulting services received re shares issued 14,582* 14
before March 31, 1995 (note 9-x) (Cash - $Nil)
Marketing services received re shares issued 266,664* 265
to LL Knickerbocker Co. (Cash - $Nil)
Shares issued to Directors as compensation 98,858 99
(note 9-x) (Cash - $Nil)
Shares issued to Amerasia for marketing 30,000
services (note 9-x) (Cash - $Nil)
Less: services not yet received (12,500)*
Shares cancelled (Cash - $Nil) (171) 1
Shares issued pursuant to S-8 for employees, 770,000 770
consultants and a director (Cash - $Nil)
Less: employment and consulting services (340,939)* (341)
not yet received
Shares issued to R. Zuk (Cash - $83,000) 200,000 200
Less: shares proceeds to be received
Share proceeds received from private 250,000 250
placement (Cash - $250,000)
Shares issued upon exercise of warrants 849,803
at Canadian $1 per share (Cash - $619,166)
Shares issued to officers (note 9-iiii(a)) 630,000 630
(Cash - $Nil)
Shares issued to a consultant (note 9-x) 7,500 8
(Cash - $Nil)
Shares issued for investor relation services 200,000 200
(note 9-v) (Cash - $Nil)
Less: services not yet received (200,000)* (200)
Shares issued to employees for employment 14,176
services (note 9-x) (Cash - $Nil)
Shares exchanged as per exchange 1,133,365 (1,133,365) 1,134
agreement (Cash - $Nil)
Shares issued for conversion 991,434 992
from debenture holders (Cash -$Nil)
Share issue cost from April 1, 1995
to March 31, 1996
Translation adjustment
Net loss from April 1, 1995 to March 31, 1996
Balance as at March 31, 1996 - 6,130,929 6,126,362 $ - $ 6,131
--------- ---------- ------------ ---------- ---------
AMOUNTS
--------------------------------------------------------------------------------
Paid in Deficit Accumulated
Capital in Other During
Excess Other Comprehensive Development
of Par Capital Income Stage Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Share proceeds received re Regulation S offering $ 819,459 $ - $ - $ - $ 819,459
made before March 31, 1995 (Cash - $225,280)
Consulting services received re shares issued 87,486 87,500
before March 31, 1995 (note 9-x) (Cash - $Nil)
Marketing services received re shares issued 666,400 666,665
to LL Knickerbocker Co. (Cash - $Nil)
Shares issued to Directors as compensation 86,402 86,501
(note 9-x) (Cash - $Nil)
Shares issued to Amerasia for marketing 44,496 44,496
services (note 9-x) (Cash - $Nil)
Less: services not yet received (18,630) (18,630)
Shares cancelled (Cash - $Nil) (1) -
Shares issued pursuant to S-8 for employees, 769,230 770,000
consultants and a director (Cash - $Nil)
Less: employment and consulting services (340,598) (340,939)
not yet received
Shares issued to R. Zuk (Cash - $83,000) 199,800 200,000
Less: shares proceeds to be received (117,000) (117,000)
Share proceeds received from private 249,750 250,000
placement (Cash - $250,000)
Shares issued upon exercise of warrants 619,166 619,166
at Canadian $1 per share (Cash - $619,166)
Shares issued to officers (note 9-iiii(a)) 826,245 826,875
(Cash - $Nil)
Shares issued to a consultant (note 9-x) 9,836 9,844
(Cash - $Nil)
Shares issued for investor relation services 262,300 262,500
(note 9-v) (Cash - $Nil)
Less: services not yet received (262,300) (262,500)
Shares issued to employees for employment 22,716 22,716
services (note 9-x) (Cash - $Nil)
Shares exchanged as per exchange (1,134) -
agreement (Cash - $Nil)
Shares issued for conversion 728,537 729,529
from debenture holders (Cash -$Nil)
Share issue cost from April 1, 1995 (214,357) (214,357)
to March 31, 1996
Translation adjustment 47,224 47,224
Net loss from April 1, 1995 to March 31, 1996 (6,090,730) (6,090,730)
--------------------------------------------------------------------------------
Balance as at March 31, 1996 $14,013,062 $(1,954,327) $ (240,900) $ (13,202,738) $(1,378,772)
--------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
SHARES AMOUNTS
------------------------------------ -----------------------------------
Paid in
Class B Capital in
Preferred Common Common Preferred Common Excess
Stock Stock Stock Stock Stock of Par
------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Marketing services received re shares issued
to LL Knickerbocker Co. (Cash - $Nil) 133,336* $ - $ 135 $ (999,600)
Shares issued to Directors as compensation 34,445 34 15,466
(note 9-x) (Cash - $Nil)
Marketing services received from Amerasia 5,000 (11,124)
(note 9-x) (Cash - $Nil)
Employment and consulting services
and Directors' fees received re S-8
(Cash - $Nil) 1,740,938* 1,741 316,054
Shares issued for conversion from debenture 1,433,443 1,434 653,566
holders (note 9-ix) (Cash -$Nil)
Preferred shares issued from private placement 1,050 1 1,049,999
(Cash - $1,050,000)
Common shares issued for conversion (1,050) 4,365,136 (1) 4,364 (4,363)
from preferred stockholder
(Cash - $Nil)
Shares exchanged as per exchange agreement 1,268,825 (1,268,825) 1,269 (1,269)
(Cash - $Nil)
Shares issued to employees for employment 26,000 26 12,474
services (note 9-x) (Cash-$Nil)
Shares issued for consulting services 208,250 208 49,634
(note 9-x) (Cash-$Nil)
Shares issued in lieu of finder fee for debenture 52,906 53 52,853
holders (note 9-x) (Cash -$Nil)
Shares issued in lieu of finder fee for preferred 112,500 113 44,887
stockholders (note 9-x) (Cash -$Nil)
Shares issued pursuant to W.Marches S-8 333,272 332 87,668
stock payment plan (note 9-xii)
Shares issued for office rental expense 615,780 616 153,329
( Cash $Nil)
Less: rental expense not yet amortized (530,255)* (531)
Share issue cost from April 1, 1996 (224,741)
to March 31, 1997
Translation adjustment
Net loss from April 1, 1996 to March 31, 1997
------------------------------------ -----------------------------------
Balance as at March 31, 1997 - 15,925,505 4,862,537 $ - $15,925 $15,207,895
------------------------------------ -----------------------------------
AMOUNTS
-----------------------------------------------------------------
Deficit Accumulated
Other During
Other Comprehensive Development
Capital Income Stage Total
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketing services received re shares issued
to LL Knickerbocker Co. (Cash - $Nil) $1,332,800 $ - $ - $ 333,335
Shares issued to Directors as compensation 15,500
(note 9-x) (Cash - $Nil)
Marketing services received from Amerasia 18,630 7,506
(note 9-x) (Cash - $Nil)
Employment and consulting services
and Directors' fees received re S-8
(Cash - $Nil) 340,598 658,393
Shares issued for conversion from debenture 655,000
holders (note 9-ix) (Cash -$Nil)
Preferred shares issued from private placement 1,050,000
(Cash - $1,050,000)
Common shares issued for conversion -
from preferred stockholder
(Cash - $Nil)
Shares exchanged as per exchange agreement -
(Cash - $Nil)
Shares issued to employees for employment 12,500
services (note 9-x) (Cash-$Nil)
Shares issued for consulting services 49,842
(note 9-x) (Cash-$Nil)
Shares issued in lieu of finder fee for debenture 52,906
holders (note 9-x) (Cash -$Nil)
Shares issued in lieu of finder fee for preferred 45,000
stockholders (note 9-x) (Cash -$Nil)
Shares issued pursuant to W.Marches S-8 88,000
stock payment plan (note 9-xii)
Shares issued for office rental expense 153,945
( Cash $Nil)
Less: rental expense not yet amortized (132,034) (132,565)
Share issue cost from April 1, 1996 (224,741)
to March 31, 1997
Translation adjustment (79,146) (79,146)
Net loss from April 1, 1996 to March 31, 1997 (3,708,078) (3,708,078)
-----------------------------------------------------------------
Balance as at March 31, 1997 $ (394,333) $ (320,046) $ (16,910,816) $(21401,375)
-----------------------------------------------------------------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
Shares Amounts
----------------------------------- --------------------
Class B
Preferred Common Common Preferred Common
Stock Stock Stock Stock Stock
----------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Shares issued pursuant to W.Marches S-8 stock payment plan (note 9-xii) 339,755 $ 341
Shares issued for office rental expense ( note 9-x) ( Cash $Nil) 153,945 $ 153
Shares exchanged as per exchange agreement (Cash - $Nil) 2,240,053 (2,240,053) $ 2,240
Shares issued to employee for employment services 19,303 $ 19
Shares issued for consulting services 539,583 $ 540
Share proceeds received from private placement (Cash - $30,000) 500,000 $ 500
Translation adjustment
Net Profit (loss) from April 1, 1997 to March 31, 1998
----------------------------------- --------------------
Balance as at March 31, 1998 - 19,718,144 2,622,484 $ - $19,718
----------------------------------- --------------------
Shares exchanged as per exchange agreement (Cash - $Nil) 1,549,490 (1,549,490) $ 1,549
Shares issued for office rental expense ( note 9-x) ( Cash $Nil) 672,096 $ 672
Shares issued for consulting services 2,427,478 $ 2,428
Share proceeds received from private placements (Cash - $795,745) 14,244,063 $14,244
Shares issued pursuant to S-8 for employees 13,175,996 $13,176
and consultants (Cash - $Nil)
Less: employment and consulting services not yet received (2,000,000) $(2,000)
Shares issued in prior years as prepayment of rent and consulting
services, written-off in year ended March 31, 1998 601,312 $ 601
Translation adjustment
Net Profit (loss) from April 1, 1998 to March 31, 1999
----------------------------------- --------------------
Balance as at March 31, 1999 - 50,388,579 1,072,994 $ - $50,389
=================================== ====================
Amounts
----------------------------------------------------------------------
Paid In Deficit Accumulated
Capital in Other During
Excess Other Comprehensive Development
of Par Capital Income Stage Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares issued pursuant to W.Marches S-8 stock payment plan
(note 9-xii) $ 69,659 $ 70,000
Shares issued for office rental expense ( note 9-x)
( Cash $Nil) $ 38,331 $ 38,484
Shares exchanged as per exchange agreement (Cash - $Nil) $ (2,240) $ 0
Shares issued to employee for employment services $ 2,617 $ 2,636
Shares issued for consulting services $ 64,210 $ 64,750
Share proceeds received from private placement
(Cash - $30,000) $ 29,500 $ 30,000
Translation adjustment $ 74,381 $ 74,381
Net Profit (loss) from April 1, 1997 to March 31, 1998 $ (90,467) ($90,467)
----------------------------------------------------------------------
Balance as at March 31, 1998 $15,371,641 $(356,002) $ (245,665) $(17,001,283) $(2,211,591)
----------------------------------------------------------------------
Shares exchanged as per exchange agreement (Cash - $Nil) $ (1,549)
Shares issued for office rental expense ( note 9-x)
( Cash $Nil) $ 49,735 $ 50,407
Shares issued for consulting services $ 72,257 $ 74,685
Share proceeds received from private placements
(Cash - $795,745) $ 781,501 $ 795,745
Shares issued pursuant to S-8 for employees 433,633 446,809
and consultants (Cash - $Nil)
Less: employment and consulting services not yet received (118,000) (120,000)
Shares issued in prior years as prepayment of rent and
Consulting services, written-off in year
ended March 31, 1998 601
Translation adjustment 119,398 119,398
Net Profit (loss) from April 1, 1998 to March 31, 1999 (751,753) (751,753)
----------------------------------------------------------------------
Balance as at March 31, 1999 $16,657,482 $(424,267) $ (126,267) $(17,753,036) $(1,595,699)
======================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
----------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------
FROM INCEPTION
(MAY 6, 1993) YEAR ENDED YEAR ENDED
THROUGH MARCH 31 MARCH 31 MARCH 31
1998 1999 1998
------------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET LOSS $ (17,753,036) $ (751,753) ($90,467)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM
OPERATING ACTIVITIES:
DEPRECIATION 380,019 - 12,893
LOSS ON SALE OF LONG-TERM INVESTMENT 13,414 - -
RENT, CONSULTING AND MARKETING SERVICES, EMPLOYEE 571,901 571,901
COMPENSATION SETTLED VIA THE ISSUANCE OF COMPANY
SHARES 5,284,144 - 165,870
CHANGES IN ASSETS AND LIABILITIES:
PREPAID EXPENSES AND DEPOSITS (17,273) 359,526
ACCOUNTS RECEIVABLE (97,843) (97,843) 133,613
SHORT-TERM INVESTMENT - - -
INVENTORY - - 24,338
DEFERRED CHARGES (256,005) 1,206,737 1,673,159
DEFERRED REVENUE 412,846 (1,798,727) (2,910,959)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 1,057,820 73,941 126,783
------------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (10,404,014) (795,745) (505,244)
------------------ ------------ ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
ACQUISITION OF FIXED ASSETS 6,028 - 790,661
LOAN TO SHAREHOLDERS (370,484) - 47,415
REPAYMENT OF LOANS TO SHAREHOLDERS 356,412 - -
NOTE RECEIVABLE (200,317) - -
REPAYMENT OF NOTE RECEIVABLE 200,317 - -
LONG-TERM INVESTMENT (2,301,372) - -
UNWIND OF LONG-TERM INVESTMENT 2,287,958 - -
------------------ ------------ ------------
NET CASH FROM (USED IN) INVESTING ACTIVITIES (21,458) - 838,076
------------------ ------------ ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
ISSUANCE OF COMMON SHARES 9,748,275 795,745 30,000
ISSUANCE OF PREFERRED SHARES 1,050,000 - -
ISSUANCE OF CONVERTIBLE SUBORDINATED DEBENTURES 2,189,529 - -
REPAYMENT OF DEBENTURES AND CONVERTIBLE SUBORDINATED DEBENTURES (297,401) - (167,138)
SHARE ISSUE COSTS (1,684,735) - -
------------------ ------------ ------------
NET CASH FROM (USED IN) FINANCING ACTIVITIES 11,005,668 795,745 (137,138)
------------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES (580,196) 0 (300,907)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING 0 0 (105,213)
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - - 105,213
------------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 0 $ 0 $ 0
================== ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
THE COMPANY ISSUED CERTAIN SHARES OF ITS CLASS B VOTING COMMON STOCK FOR
SERVICE AND FOR NOMINAL VALUES.
SEE CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-8
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF DEVELOPMENT STAGE ACTIVITIES AND CORPORATE HISTORY:
--------------------------------------------------------------------------------
The Tracker Corporation of America has been in the development stage since
its formation. We primarily market, sell and operate a personal property
marking and monitoring system we developed that utilizes advanced bar code and
laser scanning technology to create an identification device that interfaces
with a computer database and scanning network. We also sell, install and
support corporate asset tracking management software.
Our current business originated in July 1994 through a reorganization in
which we acquired all of the issued and outstanding voting shares of Tracker
Canada, an Ontario, Canada corporation, in exchange for approximately 90% of our
total voting shares as of that date. Our predecessor was incorporated as a Utah
corporation in 1986, and changed its state of incorporation to Nevada in 1992
and Delaware in 1994 through change in domicile mergers. Concurrent with the
effective date of the reorganization, we changed our year-end from December 31
to March 31. The reorganization was accounted for as a reverse acquisition.
On July 28, 1998, we settled a lawsuit initiated by the Federal Trade
Commission alleging our violation of Section 5 of the Federal Trade Commission
Act and the FTC Trade Regulator Telemarketing Sales Rule. Following initiation
of the lawsuit, four of our five board members and our Chief Financial Officer
resigned. The settlement, among other things, permanently barred us, and our
Chief Executive Officer from engaging directly or indirectly, in the business of
credit card registration or promotion.
The FTC lawsuit and the cessation of the credit card registration service
resulted in the insolvency and dissolution of Tracker Canada. The liquidation
and dissolution occurred in February 1998.
On February 10, 1998, Global Tracker, a newly formed Ontario, Canada
corporation, acquired substantially all of Tracker Canada's assets at arm's
length in a bankruptcy proceeding. Shortly thereafter, Global Tracker entered
into an agreement with us which permitted the use of personnel retained by
Global Tracker and assets formerly owned or leased by Tracker Canada to continue
the business formerly conducted by Tracker Canada. As a result of this
arrangement, we have continued on a limited basis the business formerly operated
by Tracker Canada.
NOTE 2 - GOING CONCERN:
---------------------------
We have been in a development stage since its inception on May 6, 1993. The
likelihood that we will attain profitability depends on many factors, including
our ability to obtain adequate financing and generate sufficient revenues.
Management is currently working to secure adequate capital through the private
placement of securities. The accompanying consolidated financial statements
have been prepared assuming that we will continue as a going concern, although
the report of our former independent accountant as of and for the year ended
March 31, 1997, and our independent accountant as of and for each of the years
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.
F-9
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES:
----------------------------------------------
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include our accounts and those of our
former wholly owned subsidiary, Tracker Canada, through its date of dissolution
on January 27, 1998. All significant intercompany accounts and transactions
have been eliminated.
DEVELOPMENT COSTS
Development costs are expensed as incurred.
DEFERRED CHARGES
Deferred charges relate primarily to unamortized commissions, net of a 30%
cancellation reserve, and other costs of sales including cost of goods sold;
sales commissions; and telemarketing costs which are amortized on a
straight-line basis over the term of the related agreement.
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue for our services is recognized on a straight-line basis over the
term of the services offered and is shown net of sales discounts and allowances.
Amounts received for which service has not yet been provided, are recorded as
deferred revenue. Typical services provided include assistance with the
recovery of lost and stolen property, cancellation of lost and expired credit
cards as well as continued maintenance of database of all customers' registered
property. The average length of the services agreement varies from monthly to a
five-year period.
STOCK-BASES COMPENSATION
We have elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB No. 25"), and related
interpretations, in accounting for its employee stock options rather than the
alternative fair value accounting allowed by SFAS No. 123, Accounting for
Stock-Based Compensation. APB No. 25 provides that the compensation expense
relative to our employee stock options is measured based on the intrinsic value
of the stock option. SFAS No. 123 requires companies that continue to follow APB
No. 25 to provide a pro forma disclosure of the impact of applying the fair
value method of SFAS No. 123.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of our Canadian operations are translated at the
fiscal year or period end exchange rate while revenues, expenses and cash flows
are translated at average rates in effect for the period.
EARNINGS PER SHARE
F-10
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. We compute basic earnings per share using
the weighted-average number of common shares outstanding during the period. We
compute diluted earnings per share using the weighted-average number of common
and common stock equivalent shares outstanding during the period. We exclude
common equivalent shares from the computation if their affect is anti-dilutive.
COMPREHENSIVE INCOME (LOSS)
As of April 1, 1998 we adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. The
Statement of Shareholder Equity has been restated for all previous years. The
only item of comprehensive income (loss) that we currently report is unrealized
gain on foreign currency translation adjustments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used when accounting for
inventory obsolescence, depreciation and amortization, taxes, and contingencies.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-1 ("SOP 98-1"), Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. SOP 98-1 requires all costs related to
the development of internal use software other than those incurred during the
application development stage to be expensed as incurred. Costs incurred during
the application development stage are required to be capitalized and amortized
over the estimated useful life of the software. Adoption is not expected to
have a material effect on our consolidated financial statements as our policies
are substantially in compliance with SOP 98-1.
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred. Adoption is not expected to have material effect on our consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999 and requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction and, if it is, the type of hedge transaction. We do not expect that
the adoption of SFAS No. 133 will have a material impact on our consolidated
financial statements because we do not currently hold any derivative
instruments.
F-11
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 4 - PREPAID EXPENSES:
------------------------------
We entered into a consulting agreement to provide investor relations services.
The consultant received registered stock valued at $120,000. We disclosed this
prepayment as contra equity pending the completion of the contract services.
This agreement expires April 1, 2001.
NOTE 5 - DUE FROM SHAREHOLDERS:
------------------------------------
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 6 - DEFERRED CHARGES:
-----------------------------
<TABLE>
<CAPTION>
Deferred charges consist of the following:
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Current: $ 80,309 $ 776,055
Deferred sales commission (net of cancellation reserve)
Other 34,096 411,644
---------- ----------
Long term $ 114,405 $1,187,699
---------- ----------
Deferred sales' commission (net of cancellation reserve) $ 52,192 $ 183,041
Other 89,408 92,002
---------- ----------
$ 141,600 $ 275,043
---------- ----------
</TABLE>
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. See Note 1.
NOTE 8 - ACCRUED LIABILITIES:
---------------------------------
<TABLE>
<CAPTION>
Accrued liabilities comprise the following: March 31, March 31,
1999 1998
---------- --------
<S> <C> <C>
Directors fees $ 24,432 $ 24,432
Interest expense for convertible debentures 115,209 58,785
Others 445,182 445,182
---------- --------
$ 584,823 $528,399
========== ========
</TABLE>
Other accrued liabilities include: professional fees, sales commissions, rent,
and various trade payables.
NOTE 9 - CAPITAL STOCK:
---------------------------
F-12
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(i) The Class B voting common stock was held in trust pursuant to the terms
of an exchange agency and voting trust agreement with holders of
exchangeable preference shares in the Canadian subsidiary.
(ii) At March 31, 1997, all outstanding warrants to acquire exchangeable
preference shares of the Canadian subsidiary at Canadian $14 per share
had expired.
(iii) On March 15, 1995, we entered into an agreement and sold, for net
proceeds of $350,000, 500,000 units comprised of 500,000 restricted
common shares and 500,000 warrants to purchase 500,000 restricted common
shares to Kuplen Group Investment ("KGI"). The warrants were exercisable
during the one-year period commencing July 12, 1995 to July 12, 1996 at
a price of $5.00 per share. Since the common stock underlying the
warrants could not be purchased legally on margin at a marginable price,
the exercise period has been extended until the first day that the
common stock becomes marginable. To secure registration rights of the
restricted shares, KGI must exercise the warrants on a 1:1 basis with
the common shares.
(iv) During the year ended March 31, 1995, we adopted a plan that allows for
the granting of options, appreciation rights, restricted stock and
certain other stock-based performance incentives to certain officers
as determined at the discretion of the compensation committee of the
board of directors.
(v) During the year ended March 31, 1999, we amended and restated the Plan
and increased the number of shares reserved for issuance thereunder.
(vi) During the year ended March 31, 1999, we adopted a plan allowing for
the issuance of options to outside directors.
(vii) We have issued the following options and warrants:
<TABLE>
<CAPTION>
FOR YEAR WEIGHTED- GRANT FOR YEAR WEIGHTED- GRANT
ENDED AVERAGE DATE ENDED AVERAGE DATE
MARCH EXERCISE FAIR MARCH EXERCISE FAIR
31, 1999 PRICE VALUE 31, 1998 PRICE VALUE
--------- --------- ------------ --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
OPTIONS:
Opening (*) 1,890,000 40,000 $ 7.95 $ 7.95
Granted during the period (*) 50,000 $ 0.13 $ 0.13
Granted during the period (**) 300,000 $ 0.50 $ 0.50
Granted during the period (**) 2,400,000 $ 0.75 $ 0.75
Granted during the period (***) 5,286,968 $ 0.07 $ 0.07
Granted during the period (****) 400,000 $ 0.10 $ 0.10
Expired/cancelled during period 900,000
--------- ---------
Closing 7,176,968 1,890,000
========= =========
<FN>
(*) 40,000 options were issued in July 1994 and 50,000 options were issued in July 1997 to
non-employee directors and vest proportionately over a period of three years.
F-13
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(**) 2,700,000 options were issued in August 1997 to management at various terms from 4 to
7 years
(***) 5,286,968 options were issued in December 1998 to management vesting over two years.
Exercise rights vary from 5 to 10 years
(****) 400,000 options were issued in January 1999, vesting proportionately over four
years, to management. Exercise rights extend for ten years from date of vesting.
</TABLE>
Grant date fair value is based on the average market price for the five days
preceding the grant date.
The following table summarizes information about options outstanding and
exercisable at March 31, 1999
<TABLE>
<CAPTION>
---------------- ---------------- ------------------- ----------------- ----------- ------------------
Range of Options Weighted-average Weighted-average Options Weighted-average
Exercise Prices Outstanding Remaining Exercise Price Exercisable Exercise Price of
Contractual Life Options Exercisable
---------------- ---------------- ------------------- ----------------- ----------- ------------------
<C> <C> <C> <C> <C> <S>
$ 0.07 -- $0.13 5,736,968 7.7 $ 0.077 3,333 0.13
---------------- ---------------- ------------------- ----------------- ----------- ------------------
$ 0.50 -- $0.75 1,800,000 10.0 $ 0.708 0 N/a
---------------- ---------------- ------------------- ----------------- ----------- ------------------
$ 7.50 -- $7.50 40,000 2.25 $ 7.950 40,000 7.95
================ ================ =================== ================= =========== ==================
---------------- ---------------- ------------------- ----------------- ----------- ------------------
$ 0.07 -- $7.50 7,576,968 8.2 $ 0.269 43,333 4.395
---------------- ---------------- ------------------- ----------------- ----------- ------------------
</TABLE>
Pro Forma Disclosure
We follow the intrinsic value method in accounting for our stock options.
Had compensation costs been recognized based on the fair value at the date of
grant for options granted in 1999, 1998 and 1997, the pro forma amounts of our
net loss per share for the years ended March 31, 1999, 1998 and 1997 would have
been as follows:
YEARS ENDED MARCH 31,
--------------------------
1999 1998
Net loss as reported $ (751,754) $ ( 90,467)
Net loss pro forma $ (751,754) $ ( 90,467)
Basic and diluted loss per share - as reported $ (0.02) $ (0.00)
Basic and diluted loss per share - pro forma $ (0.02) $ (0.00)
The fair value for each option granted was estimated at the date of grant using
a Black-Scholes option-pricing model, assuming the following waited-average
assumptions:
YEARS ENDED MARCH 31,
--------------------------
1999 1998
Average risk-free interest rates 4.7% 6.3%
Average expected life in years 3.5 3.5
Volatility 200% 200%
The weighted-average fair value of options granted during the years 1999 and
1998 was $0.06 and $0.14, respectively.
The pro forma effect of compensation expense on net income and earnings per
share for the 1999 and 1998 grants for stock-based compensation plans in
accordance with provisions of SFAS 123 is immaterial.
F-14
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR YEAR FOR YEAR
ENDED ENDED
MARCH 31, EXERCISE MARCH 31, EXERCISE
1999 PRICE 1998 PRICE
--------- --------- --------- --------
<S> <C> <C> <C> <C>
WARRANTS (COMMON STOCK ):
Opening 750,000 N/A 750,000 N/A
Issued during the period 200,000 $ 0.40 0
Exercised during the period 0 0
Expired during the period 0 0 Cdn$14.00
--------- ---------
Closing 950,000 750,000
========= =========
</TABLE>
(viii) On May 1, 1995, we entered into an agreement and sold, for net
proceeds of $250,000, 250,000 units comprised of 250,000 restricted
common shares and 250,000 warrants to purchase 250,000 restricted
common shares to Reynold Kern. The warrants were exercisable during
the one-year period commencing July 12, 1995 to July 12, 1996 at a price
of $5.00 per share. Since the common stock underlying the warrants
could not be purchased legally on margin at a marginable price, the
exercise period has been extended until the first day that the common
stock becomes marginable.
(ix) In June 1995, we issued 200,000 shares of common stock, restricted as
to transferability for a period of two years from date of issuance, to
Robert Zuk for certain investor relations services for us.
(x) In October 1995, we issued 770,000 shares of common stock pursuant to
the registration statement on S-8 to six key employees and one director
as payment in lieu of prior accrued salaries and fees and as an advance
of their salaries and fees up to September 30, 1996. The shares issued
were all valued at $1.00 per share.
(xi) In November 1995, at its annual general meeting, the shareholders
approved the increase of the authorized number of common shares from
20,000,000 to 30,000,000 shares.
(xii) In December 1998, at our annual general meeting, the shareholders
approved the increase of the authorized number of common shares from
30,000,000 to 50,000,000 shares and the authorization of 6,500,000
shares of blank check Preferred Stock.
(xiii) In January 1999, we issued 13,175,995 shares to employees and
consultants.
(xiv) Other capital
At March 31, 1998, 627,625 common shares have been subscribed for but remain
unissued as the service for which these shares were subscribed for have yet to
be received.
F-15
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
------------------ FROM INCEPTION
MARCH 31, (MAY 6, 1993)
------------------ THROUGH MAR 31,
1999 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
OPENING,
Marketing services not yet received $ 0 $ 0 $ 0
Deferred compensation costs 0 0 0
Deferred consulting costs 262,500 0
Rent 93,502 0
356,00 0
-------- -------- ----------
SHARES SUBSCRIBED BUT NOT ISSUED,
Marketing services not yet received 0 0 999,600
Deferred compensation costs 0 0 2,222,174
Deferred consulting costs 0 0 1,809,224
Rent 0 0 507,794
0 0 5,538,792
-------- -------- ----------
CHARGED TO EXPENSE AS SERVICES ARE
RECEIVED,
Marketing services not yet received 0 0 999,600
Deferred compensation costs 0 0 2,222,174
Deferred consulting costs 0 0 1,546,724
Rent 0 0 410,515
0 0 5,182,790
-------- -------- ----------
CLOSING,
Marketing services not yet received 0 0 0
Deferred compensation costs 0 0 0
Deferred consulting costs 262,500 262,500
Rent 93,502 93,502
-------- -------- ----------
$356,002 $ 356,002
======== ======== ==========
</TABLE>
(xv) In November 1996, all holders of the convertible subordinated
debentures were requested to extend the maturity date from December 1,
1996 to June 1, 1997 on same terms and conditions. No additional
requests for extension have been made thereby placing us in default
under the terms of the convertible subordinated debenture agreement. As
of March 31, 1999 there remains outstanding $475,790 ($475,790 at March
31, 1998) in convertible subordinated debentures with a maturity date
of June 1, 1997. The remaining balance of $ 31,809 ($31,809 at March
31, 1998) has been reclassified as debentures that had a repayment
maturity term of December 1997 at a 4.75% interest rate. Conversion
rights under the convertible subordinated debentures have expired.
(xvi) We have, from inception to present, issued shares in exchange for: (a)
employment services, (b) consulting and marketing services, and (c)
consideration in lieu of rental payments.
(xvii) During the year ended March 31, 1997, we issued 1,050 shares of
$1,000 6% Cumulative Convertible Preferred Stock (the "Convertible
Preferred Stock"). As at March 31, 1997, 4,365,136 common shares were
issued due to the conversion of 1,050 shares of convertible preferred
stock totaling $1,050,000. As at March 31, 1997, no convertible
preferred stock remains outstanding.
F-16
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(xviii) On October 21, 1996, our Prospectus on Amendment No. 4 of the
Registration Statement on Form S-1 was declared effective by the SEC.
(xix) During the year ended March 31, 1997, we issued 1,740,000 shares of
common stock amounting to $658,393 pursuant to the registration
statement on S-8 to five employees and five outside (non-employee)
directors as payment in lieu of salaries and consulting fees.
(xx) In October 1996, we entered into a one-year consulting agreement to
obtain advice concerning our growth strategy, financial public relations
obligations and future capital structure. Under the terms of the
agreement, we agreed to pay the consultant 100,000 shares of our
common stock. Our obligations with respect to options issued to the
consultant for the purchase of 900,000 additional shares expired in
1999.
During the year ended March 31, 1999, we issued 13,175,996 shares of common
stock amounting to $1,600,883 pursuant to the registration statement on
S-8 to eight employees and two consultants as payment in lieu of
salaries and consulting fees.
NOTE 10 - COMMITMENTS:
-------------------------
LEASES
We leased space in Smyrna, Georgia for a three (3) year term commencing May
15, 1997. On November 1, 1997, we discontinued occupancy of the leased premises
and defaulted under the terms of the lease. The lease requires payment of an
annual base rent of $41,772. At March 31, 1999, we had a final settlement
payment obligation in the amount of $10,000, which has been included in other
accrued liabilities.
Rental expense for the year ended March 31, 1999 amounted to $ 64,132 and
$120,196 for the year ended March 31, 1998.
MARKETING AGREEMENT
On March 15, 1995, we entered into an agreement with The L.L. Knickerbocker
Company, Inc., of California ("Knickerbocker"), which provided for a television
and radio marketing campaign to be initially launched in the California
marketplace. As compensation for services to be performed by Knickerbocker, we
paid Knickerbocker a fee of $212,975 and issued 800,000 restricted common
shares, valued at $2.50 per share based on the trading price of our shares on
the date of the agreement. On December 11, 1996, we ended our relationship with
Knickerbocker and received 400,000 of the 800,000 restricted common shares back
from Knickerbocker. These shares were immediately cancelled in treasury.
F-17
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 11 - RELATED PARTY TRANSACTIONS:
------------------------------------------
Prior to the date of incorporation (May 6, 1993), the founder and other key
members of management received 5,089,286 exchangeable preference shares in
consideration for the assignment of international patents covering the Tracker
Canada system and as inducements to join us, respectively. No value has been
assigned to these shares.
We retain certain key management personnel under contract. Included in
expenses are consulting and management fees paid under the aforementioned
contracts totaling, in the aggregate, $ 185,000 for the year ended March 31,
1998 and $648,231 for the year ended March 31, 1997.
Finders fees amounting to Nil for years ended March 31, 1999 and March 31,
1998 and $25,870 for the year ended March 31, 1997 paid to related parties in
connection with our private equity placement are included as a reduction in
paid-in capital.
Our President, Chief Operating Officer and Chief Financial Officer is the
sole shareholder of Global Tracker Corporation. Global Tracker acquired Tracker
Canada's assets at arms length in an insolvency proceeding. Global Tracker
leases all of such assets to us.
NOTE 12 - INCOME TAXES:
---------------------------
The estimated deferred tax asset of $3,987,000 and $3,724,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to March 31, 1999 and March 31, 1998 respectively, has
not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $11,433,000 ($10,681,000
as at March 31,1998) expire starting in 2001; the benefit of these losses has
not been reflected in these consolidated financial statements.
March 31, March 31,
1999 1998
----------- ------------
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses 3,987,000 3,724,000
----------- ------------
3,987,000 3,724,000
Valuation allowance (3,987,000) (3,724,000)
----------- ------------
$ 0 $ 0
=========== ============
The valuation allowance did increase by $263,000 during the year.
NOTE 13 - CONVERTIBLE SUBORDINATED DEBENTURES:
---------------------------------------------------
We have outstanding at March 31, 1999 subordinated debentures in the amount of
$475,790 ($ 475,790 as at March 31, 1998) bearing interest at 15% annually,
which are repayable within one year. Total interest incurred and included in
general and administrative expenses is $ 72,879 and $42,330 for year ended March
31, 1999 and 1998 respectively. At March 31, 1999, we were in default under the
terms of these agreements.
F-18
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 14 - DISCONTINUED OPERATIONS
-------------------------------------
We discontinued our CPS Program in September 1997. All telemarketing rooms
were closed and the Corporate Telemarketing Centers in Toronto, Canada and in
Smyrna, Georgia were abandoned.
The remaining assets and liabilities of the Discontinued Operation consist of:
1999 1998
Assets:
-------
Deferred charge - current portion $ 114,405 $1,187,699
Deferred charges - long term $ 141,600 $ 275,043
---------- ----------
Total deferred charges $ 256,005 $1,462,742
Liabilities:
------------
Deferred revenues - current portion $ 197,602 $1,798,727
Deferred revenues - long term $ 215,244 $ 412,846
---------- ----------
Total revenues charges $ 412,846 $2,211,573
Summary Statement of Operations from discontinued operations
------------------------------------------------------------------
<TABLE>
<CAPTION>
From Inception (May 6, 1993) For the
Through March 31, Year ended March 31,
<S> <C> <C> <C>
1999 1999 1998
Revenue $ 1,576,321 $ 1,798,727 $ 7,567,887
Cost of sales 8,756,728 1,206,737 5,953,944
Gross profit 2,819,593 591,990 1,613,943
Gain (loss) from discontinued operations $ 2,819,593 $ 591,990 $ 1,613,943
============ =========== =============
</TABLE>
F-19
<PAGE>
NOTE 15 - CORRECTION OF ACCOUNTING ERRORS
In order to properly comply with APB-30, gain (loss) from discontinued
operations has been restated and corporate expenses incurred in the fiscal years
ending March 31, 1997 and March 31, 1998 have been reclassified to their
appropriate expense categories as development costs of continuing operations.
The total expenses reclassified were $3,221,893 and $4,534,200 for the years
ending March 31, 1998 and 1997, respectively.
In order to properly comply with Rule 3-04 of Regulation S-X, at March 31, 1999
shares issued as compensation for future investor relations services in the
amount of $120,000 has been reclassified as a reduction in Paid in Capital in
Excess of Par from Prepaid expenses.
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
( A DEVELOPMENT STAGE COMPANY)
----------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
ASSETS
DECEMBER 31 MARCH 31,
1999 1999
------------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 882,970 $ -
ACCOUNTS RECEIVABLE - 97,843
PREPAID EXPENSES AND DEPOSITS 120,000 120,000
DEFERRED CHARGES 114,269 114,405
------------- -------------
TOTAL CURRENT ASSETS 1,117,240 332,248
DUE FROM SHAREHOLDERS 14,072 14,072
DEFERRED CHARGES 51,413 141,600
PROPERTY AND EQUIPMENT (NET) - -
------------- -------------
TOTAL ASSETS $ 1,182,725 $ 487,920
============= =============
LIABILITIES & SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 458,352 $ 458,352
ACCRUED LIABILITIES 605,999 584,823
DEFERRED REVENUE 197,289 197,602
CONVERTIBLE BRIDGE NOTES 1,700,000 -
DEBENTURE PAYABLE 31,809 31,809
CONVERTIBLE DEBENTURES 475,790 475,790
------------- -------------
TOTAL CURRENT LIABILITIES 3,469,240 1,748,376
DEFERRED REVENUE 67,371 215,244
COMMITMENTS (NOTE 10) - -
SHAREHOLDERS' DEFICIENCY
COMMON STOCK, $.001PAR VALUE, 93,400,000 SHARES AUTHORIZED,
53,988,579 (50,388,579 - MARCH 31, 1999) SHARES ISSUED AND OUTSTANDING 53,989 50,389
CONVERTIBLE SENIOR PREFERRED STOCK, $.001 PAR VALUE, 6,500,000 SHARES
AUTHORIZED, NIL ISSUED AND OUTSTANDING - -
CLASS B VOTING COMMON STOCK, $0.00000007 PAR VALUE, 100,000
SHARES AUTHORIZED, NIL (NIL - MARCH 31, 1999) ISSUED
AND OUTSTANDING - -
PAID-IN CAPITAL 16,773,882 16,777,482
OTHER CAPITAL (671,949) (424,267)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (18,383,541) (17,753,037)
COMPREHENSIVE INCOME (126,263) (126,263)
------------- -------------
TOTAL SHAREHOLDERS' DEFICIT (2,353,886) (1,475,700)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT 1,182,725 $ 487,920
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
--------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR 3 MONTHS ENDING FOR 9 MONTHS ENDING FROM INCEPTION (MAY 6,1993)
DECEMBER 31, DECEMBER 31 THROUGH DECEMBER 31
------------------------ ---------------------------------------
1999 1998 1999 1998 1999
---------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 176 $ 20,117 $ 55,061 $ 113,630 $ 488,657
COST OF SALES 102 7,798 5,563 59,222 177,487
---------- ------------ ---------- ------------ -------------
GROSS PROFIT 74 12,319 49,498 54,408 311,171
---------- ------------ ---------- ------------ -------------
DEVELOPMENT COSTS
OPERATIONAL 72,257 43,194 197,833 153,455 2,043,254
INFORMATION SYSTEMS 21,671 3,860 66,027 12,765 1,041,239
SALES AND MARKETING 99,236 40,348 180,774 100,777 3,744,419
GENERAL AND ADMINISTRATIVE 122,976 43,554 293,230 179,241 9,033,106
---------- ------------ ---------- ------------ -------------
TOTAL DEVELOPMENT COSTS $ 316,141 $ 130,956 $ 737,864 $ 446,238 $ 15,862,018
GAIN (LOSS) FROM CONTINUING OPERATIONS (316,066) (118,637) (688,366) (391,830) (15,550,848)
GAIN (LOSS) FROM DISCONTINUED OPERATION 19,262 (5,985) 57,862 373,794 (2,835,693)
---------- ------------ ---------- ------------ -------------
NET PROFIT (LOSS) APPLICABLE TO COMMON STOCK $(296,804) $ (124,622) $(630,504) $ (18,036) $(18,383,541)
========== ============ ========== ============ =============
PROFIT (LOSS) PER SHARE OF COMMON STOCK
LOSS FROM CONTINUING OPERATIONS (0.01) (0.00) (0.01) (0.02) (0.89)
GAIN (LOSS) FROM DISCONTINUED OPERATION 0.00 (0.00) 0.00 0.02 (0.16)
---------- ------------ ---------- ------------ -------------
NET LOSS (0.01) (0.01) (0.01) (0.00) (1.05)
========== ============ ========== ============ =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 52,766,357 23,782,128 52,766,357 23,782,128 17,412,328
========== ============ ========== ============ =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
----------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------
(UNAUDITED)
FROM INCEPTION
(MAY 6, 1993) FOR 9 MONTHS FOR 9 MONTHS
THROUGH ENDED ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1999 1998
-------------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET LOSS ($18,383,541) $ (630,504) ($18,036)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM
OPERATING ACTIVITIES:
DEPRECIATION 380,019 - -
LOSS ON SALE OF LONG-TERM INVESTMENT 13,414 - -
RENT, CONSULTING AND MARKETING SERVICES, EMPLOYEE
COMPENSATION SETTLED VIA THE ISSUANCE OF COMPANY
SHARES 5,976,045 - -
CHANGES IN ASSETS AND LIABILITIES:
PREPAID EXPENSES AND DEPOSITS (137,273) - -
ACCOUNTS RECEIVABLE - 97,843 (23,651)
DEFERRED CHARGES (165,682) 90,323 1,189,576
DEFERRED REVENUE 264,661 (148,186) (1,749,232)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 1,078,995 21,175 98,661
-------------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (10,973,362) (569,348) (502,682)
-------------- ----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
DUE TO GLOBAL TRACKER - - 285,588
ACQUISITION OF FIXED ASSETS 6,028 -
LOAN TO SHAREHOLDERS (370,484) -
REPAYMENT OF LOANS TO SHAREHOLDERS 356,412 - -
LONG-TERM INVESTMENT (2,301,372) - -
UNWIND OF LONG-TERM INVESTMENT 2,287,958 - -
-------------- ----------- -----------
-
NET CASH FROM (USED IN) INVESTING ACTIVITIES (21,458) - 285,588
-------------- ----------- -----------
-
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: -
ISSUANCE OF COMMON SHARES 9,748,275 - 45,282
ISSUANCE OF PREFERRED SHARES 1,050,000 -
ISSUANCE OF CONVERTIBLE SUBORDINATED DEBENTURES 2,189,529 -
REPAYMENT OF DEBENTURES AND CONVERTIBLE SUBORDINATED DEBENTURES (297,401) -
ISSUANCE OF CONVERTIBLE BRIDGE NOTES 1,700,000 1,700,000
SHARE ISSUE COSTS (1,932,417) (247,682) -
----------- -----------
NET CASH FROM (USED IN) FINANCING ACTIVITIES 12,457,986 1,452,318 45,282
-------------- ----------- -----------
-
EFFECT OF EXCHANGE RATE CHANGES (580,196) - 171,812
-
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING 882,970 882,970 -
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - - 171,812
-------------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 882,970 $ 882,970 ($0)
============== =========== ===========
-
(0)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
NOTE 1 - DESCRIPTION OF DEVELOPMENT STAGE ACTIVITIES AND CORPORATE HISTORY:
--------------------------------------------------------------------------------
We develop, market, sell and operate a personal property marking and
monitoring system. Our technology utilizes advanced bar code and laser scanning
technology that interfaces with a computer database and scanning network to
create an identification system.
Our current business began in July 1994 through a reorganization in which
we acquired all of the issued and outstanding voting shares of Tracker Canada in
exchange for approximately 90% of our total voting shares as of that date. Our
predecessor was incorporated as a Utah corporation in 1986, and changed its
state of incorporation to Nevada in 1992 and Delaware in 1994 through change in
domicile mergers. Concurrent with the effective date of the reorganization, the
Company changed its year-end from December 31 to March 31.
On July 28, 1998, we settled a lawsuit with the FTC that alleged we
violated Section 5 of the Federal Trade Commission Act and the FTC Trade
Regulator Telemarketing Sales Rule. Following initiation of the lawsuit, four
of our five members on the board of directors and our Chief Financial Officer
resigned. The settlement, among other things, permanently barred us, and our
current Chief Executive Officer from engaging directly or indirectly, in the
business of credit card registration or promotion.
The FTC lawsuit and the cessation of the credit card registration service
resulted in the insolvency and dissolution of Tracker Canada. The liquidation
and dissolution occurred in February 1998. On February 10, 1998, Global Tracker
acquired substantially all of Tracker Canada's assets in an arm's length
transaction from the bankruptcy trustee. On July 30, 1998 we entered into a
license agreement with Global Tracker. Under the agreement, we have an
exclusive worldwide license to commercially exploit the technology formerly
owned by Tracker Canada.
NOTE 2 - GOING CONCERN:
---------------------------
We have been in a development stage since inception on May 6, 1993. The
likelihood that we will attain profitability depends on many factors, including
our ability to obtain adequate financing and generate sufficient revenues.
Management is currently working to secure adequate capital through the private
placement of securities. The accompanying consolidated financial statements
have been prepared assuming that we will continue as a going concern. However,
the reports of our former independent accountant as of and for the year ended
March 31, 1997, and our current independent accountant as of and for each of the
years ended March 31, 1999 and 1998, express substantial doubt as to our ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES:
----------------------------------------------
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include our accounts and those of our
former wholly owned subsidiary, Tracker Canada, through its date of dissolution
on January 27, 1998. All significant inter-company accounts and transactions
have been eliminated.
DEVELOPMENT COSTS
We expense development costs as incurred.
<PAGE>
DEFERRED CHARGES
Deferred charges relate primarily to unamortized commissions, net of a 30%
cancellation reserve and other costs of sales. The other costs include:
- cost of goods sold
- sales commissions
- telemarketing costs amortized on a straight-line basis over the term
of the related agreement
REVENUE RECOGNITION AND DEFERRED REVENUE
We recognize revenue for our services on a straight-line basis over the
term the services are offered. It is shown net of sales discounts and
allowances. We record amounts received for services not yet provided as
deferred revenue. The average length of the services agreement varies from
monthly to a five-year period.
STOCK-BASES COMPENSATION
We elected to follow fair value accounting allowed by SFAS No. 123 in
accounting for our employee stock options.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of Tracker Canada are translated at the fiscal
year or period end exchange rate. Revenues, expenses and cash flows are
translated at average rates in effect for the period.
EARNINGS PER SHARE
Basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. We compute basic earnings per share using
the weighted-average number of common shares outstanding during the period. We
compute diluted earnings per share using the weighted-average number of common
and common stock equivalent shares outstanding during the period. We exclude
common equivalent shares from the computation if their affect is antidilutive.
COMPREHENSIVE INCOME (LOSS)
As of April 1, 1998 we adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. The only
item of comprehensive income (loss) that we currently report is unrealized gain
on foreign currency translation adjustments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used when accounting for
inventory obsolescence, depreciation and amortization, taxes, and contingencies.
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This requires all costs related to the
development of internal use software other than those incurred during the
application development stage to be expensed as incurred. Costs incurred during
the application development stage are required to be capitalized and amortized
over the estimated useful life of the software. Adoption is not expected to
have a material effect on our consolidated financial statements as our policies
are already substantially in compliance.
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, Reporting on the Costs of Start-Up Activities. This requires
costs of start-up activities and organization costs to be expensed as incurred.
Adoption is not expected to have material effect on our consolidated financial
statements.
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designed as
part of a hedge transaction and, if it is, the type of hedge transaction. We do
not expect that the adoption of SFAS No. 133 will have a material impact on our
consolidated financial statements because we do not currently hold any
derivative instruments.
NOTE 4 - PREPAID EXPENSES AND DEPOSITS:
---------------------------------------------
Prepaid expenses and deposits comprise the following:
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------- ------------
<S> <C> <C>
Consulting contract 120,000 $120,000
------------- ------------
TOTAL: 120,000 $120,000
</TABLE>
The consulting agreement relates to investor relations services. The
contract expires on December 31, 2000.
NOTE 5 - DUE FROM SHAREHOLDERS:
------------------------------------
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
<PAGE>
NOTE 6 - DEFERRED CHARGES:
-----------------------------
<TABLE>
<CAPTION>
Deferred charges consist of the following:
Dec. 31, March 31,
1999 1999
--------- ----------
<S> <C> <C>
Current:
Deferred sales commission (net of cancellation reserve) $ 80,309 $ 80,309
Other 33,960 34,096
--------- ----------
$ 114,269 $ 114,405
--------- ----------
Long term:
Deferred sales' commission (net of cancellation reserve) $ 29,177 $ 52,192
Other 22,236 89,408
--------- ----------
$ 51,413 $ 141,600
--------- ----------
</TABLE>
NOTE 7 - PROPERTY AND EQUIPMENT:
-------------------------------------
We currently lease all of our equipment from Global Trackerunder short-term
agreements classified as operating leases. Lease payments are expensed as
incurred. See Note 1.
NOTE 8 - ACCRUED LIABILITIES:
---------------------------------
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------- ----------
<S> <C> <C>
Directors fees $ 24,432 $ 24,432
Interest expense for convertible debentures 255,508 115,209
Others 350,467 445,182
------------- ----------
$ 605,999 $ 528,399
============= ==========
</TABLE>
Other accrued liabilities include: professional fees, sales commissions,
rent, and miscellaneous trade payables.
NOTE 9 - COMMITMENTS:
------------------------
LEASES
We leased space in Smyrna, Georgia for a three (3) year term commencing May
15, 1997. On November 1, 1997, we discontinued occupancy of the leased premises
and defaulted under the terms of the lease. The lease requires payment of an
annual base rent of $41,772. At March 31, 1999, we had a final settlement
payment obligation in the amount of $10,000, which we include in other accrued
liabilities.
Rental expense for the year ended March 31, 1999 amounted to $ 64,132 and
$120,196 for the year ended March 31, 1998.
<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 $25,870 for the year ended March 31, 1997 paid to related parties in
connection with our private equity placement are included as a reduction in
paid-in capital.
Our President, Chief Operating Officer and Chief Financial Officer is the
sole shareholder of Global Tracker Corporation. Global Tracker acquired Tracker
Canada's assets at arms' length in an insolvency proceeding. Global Tracker
leases all of such assets to us.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to our bylaws, we may indemnify, purchase indemnity insurance, or
pay and advance expenses to our directors, officers and other persons who are
eligible or entitled to such indemnification, payments or advances. Any such
indemnification or payment must be expressly authorized by our board of
directors and in accordance with the provisions of the laws of Delaware. Our
right to indemnify such persons shall include our authority to enter into
written agreements for indemnification with such provisions.
Subject to the provisions of the laws of Delaware, our directors shall not
be liable to the company or our shareholders for monetary damages for an act or
omission in the director's capacity of a director, as long as the director acted
in good faith.
Indemnification of officers or persons controlling us for liabilities
arising under the Securities Act of 1933 is held to be against public policy by
the SEC and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Other expenses in connection with this registration that we will pay are
estimated to be substantially as follows:
Item Amount (in US$)
---- -----------------
SEC Registration Fee $ 1,788.93
State Securities Laws (Blue Sky) Fees and Expenses $ 500.00
Printing and Engraving Fees $ 500.00
Legal Fees $ 65,000.00
Accounting Fees and Expenses $ 0.00
Transfer Agent's Fees $ 3,000.00
Miscellaneous $ 4,081.80
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
We have issued the following securities within the past three years without
registering the securities under the Securities Act and without the aid of any
underwriters:
1. VEE LTD. Date issued:
5/1/98 Title of securities:
Common stock Amount:1,000,000 shares
Consideration: $30,000.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
<PAGE>
2. BRUCE LEWIS
Date issued: 5/11/98
Title of securities: Common stock
Amount: 4,252,222 shares
Consideration: $127,566.66
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
3. PRUTA SECURITIES LTD.
Date issued: 5/11/98
Title of securities: Common stock
Amount: 480,000 shares
Consideration: $14,400.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
4. MAHLER OIL COMPANY
Date issued: 5/11/98
Title of securities: Common stock
Amount: 124,000 shares
Consideration: $3,720.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
5. BARNABY J. HOWARD
Date issued: 5/11/98
Title of securities: Common stock
Amount: 312,500 shares
Consideration: $9,375.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
6. RICHARD W. PRESNER
Date issued: 5/11/98
Title of securities: Common stock
Amount: 100,000 shares
Consideration: $3,000.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
<PAGE>
7. KAY STARR
Date issued: 5/11/98
Title of securities: Common stock
Amount: 750,000 shares
Consideration: $37,500.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
8. ELAINE MARCHES
Date issued: 6/9/98
Title of securities: Common stock
Amount: 250,000 shares
Consideration: $15,000.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
9. FRANK PHALEN
Date issued: 6/9/98
Title of securities: Common stock
Amount: 250,000 shares
Consideration: $15,000.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
10. WILLIAM FOLLETT
Date issued: 6/22/98
Title of securities: Common stock
Amount: 300,000 shares
Consideration: $9,000.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
Date issued: 8/24/98
Title of securities: Common stock
Amount: 125,000 shares
Consideration: $3,750.00
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
<PAGE>
11. FRAN DANIELS
Date issued: 9/30/99
Title of securities: Common stock
Amount: 100,000 shares
Consideration: stock issued in lieu of consulting services valued at
$18,000,000 regarding investor relations.
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued stock was restricted from
being sold for at least one year, pursuant to Rule 144 of the
Securities Act of 1933.
12. SOVEREIGN CAPITAL ADVISORS, LLC.
Date issued: 8/18/99
Title of securities: warrant
Amount: 50,000 shares
Consideration: additional commission due under placement agent
agreement.
Securities Act exemption: 4(2) - these securities were issued to
institutional investors pursuant to a private placement pursuant to
Rule 506 of Regulation D.
Date issued: 10/15/99
Title of securities: warrant
Amount: 17,500 shares
Consideration: additional commission due under placement agent
agreement.
Securities Act exemption: 4(2) - these securities were issued to
institutional investors pursuant to a private placement pursuant to
Rule 506 of Regulation D.
Date issued: 12/7/99
Title of securities: warrant
Amount: 17,500 shares
Consideration: additional commission due under placement agent
agreement.
Securities Act exemption: 4(2) - these securities were issued to
institutional investors pursuant to a private placement pursuant to
Rule 506 of Regulation D.
13. SOVCAP EQUITY PARTNERS, LTD.
Date issued: 8/18/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $1,000,000 in convertible notes, $1,000,000 worth of callable
warrants and 200,000 shares of purchase warrants
Consideration: $1,700,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
Date issued: 12/7/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $200,000 in convertible notes, $200,000 worth of callable
warrants and 40,000 shares of purchase warrants
Consideration: $200,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
<PAGE>
14. CORRELLUS INTERNATIONAL, LTD.
Date issued: 10/15/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $150,000 in convertible notes, $150,000 worth of callable
warrants and 30,000 shares of purchase warrants
Consideration: $150,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
Date issued: 12/7/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $50,000 in convertible notes, $50,000 worth of callable
warrants and 10,000 shares of purchase warrants
Consideration: $200,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
15. ARAB COMMERCE BANK, LTD.
Date issued: 10/15/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $150,000 in convertible notes, $150,000 worth of callable
warrants and 30,000 shares of purchase warrants
Consideration: $150,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
16. ENRICO BONETTI
Date issued: 10/15/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $50,000 in convertible notes, $50,000 worth of callable
warrants and 10,000 shares of purchase warrants
Consideration: $50,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
17. FRUTOSE - MARKETING & INVESTORS INTERNACIONAIS LDA
Date issued: 12/7/99
Title of securities: convertible notes, callable warrants and purchase
warrants
Amount: $100,000 in convertible notes, $100,000 worth of callable
warrants and 20,000 shares of purchase warrants
Consideration: $100,000
Securities Act exemption: 4(2) - these securities were issued to
institutional investors from a private placement pursuant to Rule 506
of Regulation D.
<PAGE>
18. TRADEWELL, LLC
Date issued: 4/12/99
Title of securities: warrant
Amount: 500,000 shares
Consideration: warrant issued in lieu of consulting services valued at
$43,500 regarding investor relations.
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued warrant is restricted from
being distributed unless an effective registration statement is filed.
Date issued: 12/17/99
Title of securities: warrant
Amount: 150,000 shares
Consideration: warrant issued in lieu of consulting services valued at
$18,000 regarding investor relations.
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued warrant is restricted from
being distributed unless an effective registration statement is filed.
19. STEVEN CUNNINGHAM
Date issued: 12/17/99
Title of securities: warrant
Amount: 150,000 shares
Consideration: stock issued in lieu of attorneys fees valued at
$18,000.
Securities Act exemption: 4(2) - this was an isolated sale to an
individual with a close relationship with us and was not part of any
public offering or distribution. The issued warrant is restricted from
being distributed unless an effective registration statement is filed.
ITEM 27. EXHIBITS
NUMBER DESCRIPTION
------ -----------
2.1 Reorganization Agreement Among Ultra Capital Corp. (the predecessor of the
Registrant), Jeff W. Holmes, R. Kirk Blosch and the Tracker Corporation
dated May 26, 1994, as amended by Amendment Number One dated June 16, 1994,
Amendment Number Two dated June 24, 1994, and Amendment Number Three dated
June 30, 1994, Extension of Closing dated June 23, 1994, and July 11, 1994
letter agreement.
2.2 Agreement and Plan of Merger dated July 1, 1994 between Ultra Capital Corp.
(the predecessor of the Registrant) and the Registrant
3.1 Certificate of Incorporation, as corrected by Certificate of Correction of
Certificate of Incorporation dated March 27, 1995, and as amended by
Certificate of Amendment to the Certificate of Incorporation dated November
1, 1995, and Certificate of Designation of Rights, Preferences and
Privileges of $1,000.00 6% Cumulative Convertible Preferred Stock of the
Registrant dated April 19, 1996
<PAGE>
3.2 Bylaws
4.1 Specimen Common Stock Certificate
5.1 Legal Opinion of Arkin Merolla LLP
9.1 Agreement dated December 21, 1993 among 1046523 Ontario Limited, Gregg C.
Johnson and Bruce Lewis
9.2 Right of First Refusal, Co-Sale and Voting Agreement dated March 14, 1994
between The Tracker Corporation of America, Stalia Holdings B.V., I. Bruce
Lewis, MJG Management Accounting Services Ltd., Spire Consulting Group,
Inc., 1046523 Ontario Limited, Mark J. Gertzbein, Gregg C. Johnson and
Jonathan B. Lewis, as confirmed by letter dated June 22, 1994 and Agreement
dated July 1994
10.2 Discretionary Cash Bonus Arrangement of The Tracker Corporation of America
10.3 Form of Indemnification Agreement entered into between the Registrant and
each of its Directors
10.10Right of First Refusal, Co-Sale and Voting Agreement dated March 14, 1994
between The Tracker Corporation of America, Stalia Holdings B.V., I. Bruce
Lewis, MJG Management Accounting Services Ltd., Spire Consulting Group,
Inc., 1046523 Ontario Limited, Mark J. Gertzbein, Gregg C. Johnson and
Jonathan B. Lewis, as confirmed by letter dated June 22, 1994 and Agreement
dated July 1994 (contained in Exhibit 9.2)
10.11Stock Option Agreement dated March 14, 1994 between The Tracker
Corporation of America and Stalia Holdings B.V., as confirmed by letter
dated June 22, 1994
10.18Letter agreement dated October 5, 1993 between The Tracker Corporation of
America and Symbol Technologies, Inc., as amended by letter from The
Tracker Corporation of America to Symbol Technologies Canada, Inc. dated
November 23, 1995, and letter from Symbol Technologies Canada, Inc. to The
Tracker Corporation dated November 27, 1995
10.19Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis to the
Tracker Corporation of America
10.30Letter agreement dated March 22, 1996 between The Tracker Corporation of
America and Sony of Canada Ltd.
10.36Agreement dated May 22, 1997 between The Tracker Corporation of America
and Schwinn Cycling & Fitness Inc.
<PAGE>
10.37Modification Agreement dated May 27, 1997 between The Tracker Corporation
of America, Saturn Investments, Inc., I. Bruce Lewis, Mark J. Gertzbein,
and Jonathan B. Lewis
10.38Agreement dated July 1, 1998 between The Global Tracker Corporation and
Warrantech Additive, Inc.
10.39License Agreement dated as of July 30, 1998 between The Global Tracker
Corporation and the Tracker Corporation of America
10.41Employment Agreement dated December 18, 1998 between Bruce I. Lewis and
The Tracker Corporation of America
10.42Employment Agreement dated December 18, 1998 between Jay S. Stulberg and
The Tracker Corporation of America
10.43Letter Agreement dated May 18, 1999 between Symbol Technologies, Inc. and
The Tracker Corporation of America
10.44 Purchase and Security Agreement dated August 18, 1999
10.45 1994 Amended and Restated Stock Option Plan
10.46Placement Agreement dated August 18, 1999 with Sovereign Capital Advisors,
LLC.
10.47Stock Option Award Agreement dated December 22, 1998 between Bruce Lewis
and The Tracker Corporation of America
10.48Stock Option Award Agreement dated December 22, 1998 between Jay Stulberg
and The Tracker Corporation of America
10.49Non-Qualified Stock Option Award Agreement dated December 31, 1999 between
Bruce Lewis and The Tracker Corporation of America
10.50Non-Qualified Stock Option Award Agreement dated December 31, 1999 between
Jay Stulberg and The Tracker Corporation of America
10.51Incentive Stock Option Award Agreement dated December 31, 1999 between
Christopher Creed and The Tracker Corporation of America
10.52Incentive Stock Option Award Agreement dated December 31, 1999 between
Tizio Panara and The Tracker Corporation of America
10.53 2000 Stock Wage and Fee Payment Plan
21.1 List of subsidiaries of the Registrant
23.1 Consent of Hirsch Silberstein & Subelsky, P.C.
23.2 Consent of Arkin Merolla LLP (included in Exhibit 5.1)
<PAGE>
24.1 Power of Attorney
--------
Incorporated by reference from the Registrant's Registration Statement
on Form S-1 (No. 33-99686).
Incorporated by reference from the Registrant's Annual Report on Form
10-K dated March 31, 1996 (filed July 15, 1996).
Incorporated by reference from the Registrant's Annual Report on Form
10-K dated March 31, 1997 (filed July 3, 1997).
Incorporated by reference from the Registrant's Annual Report on Form
10-K dated March 31, 1998 (filed November 4, 1998).
Incorporated by reference from the Registrant's Annual Report on Form
10-K dated March 31, 1999 (filed August 17, 1999).
Incorporated by reference from the Registrant's Amended Quarterly
Report on Form 10-QSB dated September 30, 1999 (filed January 11,
2000)
Incorporated by reference from the Registrant's Registration Statement
on Form S-8 concerning the 1994 Amended and Restated Stock Option Plan
(filed March 28, 2000)
Incorporated by reference from the Registrant's Registration Statement
on Form S-8 concerning the 2000 Stock Wage and Fee Payment Plan (filed
March 28, 2000)
ITEM 28. UNDERTAKINGS
The undersigned hereby undertakes:
(a) Rule 415 Offering.
(1) During any period in which we make offers or sales, to file to a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
<PAGE>
(iii)Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities being offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(e) Request For Acceleration of Effective Date.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit it to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned thereunto duly authorized.
THE TRACKER CORPORATION OF AMERICA,
a Delaware corporation
By: /s/ Bruce I. Lewis
--------------------------------------------------------------
Bruce I. Lewis, Chairman of the Board and Chief
Executive Officer
Dated: June 28, 2000
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
By: /s/ Bruce I. Lewis
----------------------
Bruce I. Lewis
Chairman of the Board and Chief Executive Officer
Dated: June 28, 2000
<PAGE>
