UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 333-49388
I-TRACK, INC.
(Name of small business issuer in its charter)
NEVADA 91-1966948
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3031 COMMERCE DRIVE, BUILDING B, FORT GRATIOT, MICHIGAN 48059
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (810) 385-2061
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.001 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- -----
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $74,359
Aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant
as of April 12, 2002: $618,849
Number of shares outstanding of registrant's common stock, $0.001 par value,
as of April 12, 2002: 23,696,900
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
Exhibit index on consecutive page 16 Page 1 of 44 Pages
PART I
FORWARD LOOKING STATEMENTS
Under the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995 (the "PSLRA"), we caution readers regarding forward looking
statements found in this report and in any other statement made by, or on our
behalf, whether or not in future filings with the Securities and Exchange
Commission. Forward looking statements are statements not based on historical
information and which relate to future operations, strategies, financial results
or other developments. Forward looking statements are necessarily based upon
estimates and assumptions that are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond our control and many of which, with respect to future business decisions,
are subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward looking statements made by or on our behalf. We disclaim any
obligation to update forward looking statements.
ITEM 1. DESCRIPTION OF BUSINESS.
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INTRODUCTION
Unless the context otherwise requires, the terms "we", "our" and "us" refers to
i-Track, Inc.
BACKGROUND
We are a development stage company that was incorporated by AVL Information
Systems Ltd. and its principal officers and directors. AVL Information Systems
Ltd. is a Canadian public company that owns and licenses certain technology and
automatic vehicle location systems. AVL Information Systems Ltd. has incurred
significant operating losses over the past six fiscal years and has a working
capital deficiency which casts doubt upon its ability to continue as a going
concern. AVL Information Systems Ltd. and its principal officers and directors
incorporated us in an effort to start anew and to take advantage of what they
perceived to be the benefits of a United States publicly traded company. They
believe that a U.S. publicly traded company will provide a level of credibility
in the automatic vehicle location system industry, access to additional funding
in the U.S. markets, and the ability for us to enter into strategic alliances
for the development, manufacturing and sale of automatic vehicle location
systems.
Effective September 30, 2001, we entered into a Worldwide Exclusive Distribution
Agreement with AVL Information Systems Ltd., covering all of the products
manufactured by AVL Information Systems Ltd., including the Spryte System(TM)
and the Chaperone Personal Tracking Unit. These products are automatic vehicle
location systems that integrate Global Positioning System technology,
cellular-wireless communications and the Internet to enable companies to
efficiently manage their mobile resources with location-relevant and
time-sensitive information. These products are designed to enable customers to
use the Internet to track the movement of their vehicles, employees, and goods
and services. While there are several ways to transmit information from a
vehicle to a central location, we believe these products provide significant
value to customers by reducing their costs of doing business and increasing the
productivity of their mobile resources.
INDUSTRY BACKGROUND
GLOBAL POSITIONING SYSTEM TECHNOLOGY. Most location-aware applications today
rely upon Global Positioning System (GPS) technology. GPS technology is based on
a system of more than 24 satellites that transmit longitude, latitude, altitude
and time information to GPS receiving and processing devices anywhere in the
world. Because of improvements in GPS receiver technology and reductions in the
cost of GPS enabling components, there has been a proliferation of GPS devices
for commercial applications. We believe the significant areas of growth include
vehicle positioning and navigation, mobile computing devices, and wireless
telephones and portable recreational
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receivers. Due to the worldwide automotive industry, we expect vehicle location
and navigation to be one of the most promising areas of future deployment of GPS
technology.
CELLULAR-WIRELESS COMMUNICATIONS. Rapid technology advances in wireless
communications are enabling companies and individuals to efficiently manage
their mobile resources with location-relevant and time-sensitive information.
Wireless communications has grown due to declining usage costs, the
proliferation of wireless telephones and mobile computing devices, expanding
network coverage and the integration of enhanced features such as voice and text
messaging. We believe that as global wireless coverage increases and broadband
wireless transmission technologies are deployed, more users will be able to
access more data over wireless networks, which will facilitate their access to
information and business applications on the Internet.
INTERNET. The Internet has emerged as a global communications medium to deliver
and share information and to conduct business electronically. The growth in the
number of Internet users has led to the proliferation of information and
services available on the Internet, including e-commerce, e-mail and other
content. Businesses and individuals are using the Internet as a medium for
managing business-critical functions, household items, finances, customer
relationships and communication. We expect businesses and individuals to conduct
an increasing amount of activity over the Internet.
THE SPRYTE SYSTEM(TM)
The Spryte System(TM) is an automatic vehicle location system owned by AVL
Information Systems Ltd. The Spryte System(TM) is designed for the commercial
carrier, and allows a fleet manager, at its base station, to simultaneously view
the location, operational status and event-based indicators of each fleet
vehicle on a digitized computer map display. The information is displayed in
real-time. The platforms of the Spryte System(TM) include a menu of status
indicators which represent the event-based nature of the system. The status or
event-based indicators include a variety of vehicle conditions, such as the
ignition, speed, sirens, emergency lights, excessive speed, collision, vehicle
problems and duress. We believe that event-based indicators will allow a fleet
manager to assemble and adapt its vehicle resources for optimum deployment as
well as respond in a timely manner to delay and unforeseen situations.
The Spryte System(TM) has three software modules: the listener, mapping and
server modules, which collaborate with one another to analyze and present the
status of a vehicle to the fleet manager. The listener module collects data
transmission from various vehicles in a fleet, interprets the information, and
delivers the information to the server module. The mapping module consists of
commercially available software that displays the most current maps of the fleet
manager's area of activity, including roads, highways, street names and address
locations. The mapping module also accommodates map edits and updates, as well
as geographic analyses such as point-to-point distance and distance traveled.
With the assistance of the listener and mapping modules, the server module
displays, in real-time, the location of each vehicle on the map, together with
the current status of the event-based indicators. The Spryte System(TM) also
allows the customer to store and archive the information. This allows a fleet
manager to analyze historical vehicle movement patterns to achieve more
efficient results and/or to use the information to calculate performance
metrics.
The Spryte System(TM) accommodates all three traditional mediums of
communication from a vehicle to the base station: satellite, mobile radio and
cellular. The Spryte System(TM) has the ability to switch automatically from one
medium to another if the signal strength of a medium degrades. We believe the
communication redundancy capability should provide added assurance for our
potential customers.
We believe that the event-based approach will give customers an advantage over
the conventional method of polling each vehicle periodically according to a
routine schedule. We believe the conventional method is cost prohibitive,
ineffective, and fails to report critical events. We believe the event-based
communication uses airtime for data transmission more efficiently, and will
accommodate four times more vehicles than the standard polling approach. Also,
the event-based communication appears to have the ability to combine polling
functions, if needed, with event-based monitoring to meet the demand of our
potential customers.
3
THE CHAPERONE PERSONAL TRACKING UNIT
The Chaperone Personal Tracking Unit is designed for consumers who do not
require real-time tracking or event-based communication, but instead desire to
know where a vehicle is at any point in time. The Chaperone Personal Tracking
Unit utilizes similar technologies as the Spryte System(TM), but only identifies
location-relevant information. We believe that the simplicity and lower price of
the Chaperone Personal Tracking Unit will be ideal for a family or individual
consumer.
The platform of the Chaperone Personal Tracking Unit is designed to be equipped
with a GPS receiver as well as a Cellemetry modem. The Cellemetry communications
network is a low-cost form of cellular communication that currently provides
coverage for 98% of North America. Cellemetry provides low-cost cellular
communication by using the overhead control channels of the cellular networks to
convey short, data messages.
The Chaperone is 4 x 2 x 1.2 inches in size and contains a 12-channel GPS
satellite receiver and a proprietary communications transceiver. The unit can be
installed by placing on the dashboard of a vehicle and plugging it into the
lighter socket. Alternatively, it can be installed to a vehicle hotwire. The GPS
receiver and transceiver components acquire the location, speed, and direction
of the unit being tracked. This information is then transmitted wirelessly and
logged into the Online Vehicle Tracking system for further use. The user can
locate the vehicle via the Internet by logging onto www.whereismycar.com. The
Chaperone currently works in the United States, Canada, and parts of Mexico and
South America.
Recent enhancements to the Chaperone include the implementation of an emergency
button, geo-fencing, crash sensor, and power control management. We expect to
have a monitoring center, operating 24 hours a day, 7 days a week, operational
during the second quarter of this year.
A unique trailer tracking version of the Chaperone unit is under prototype
development. This version would allow a company to track its trailers while they
are hooked to the tractors and, more importantly, while they are sitting idle
without a tractor power supply. We expect to release the prototype for testing
to a fleet in April 2002 and announce results 30 days thereafter. The radio
modem being used for testing has been supplied by Infea Corp.
WORLDWIDE EXCLUSIVE DISTRIBUTION AGREEMENT WITH AVL INFORMATION SYSTEMS LTD.
We do not own any proprietary or technological right to the Spryte or Chaperone
products. Effective September 30, 2001, we entered into an exclusive worldwide
distribution agreement with AVL Information Systems Ltd. Under the agreement, we
are licensed to market and distribute all of the products manufactured by AVL
Information Systems Ltd.
PROTECTION OF TECHNOLOGY
Under the distribution agreement, we are required to protect the proprietary
information licensed to us. We will rely on a combination of trade secret,
trademark and copyright laws, and nondisclosure and other contractual
agreements. We intend to enter into nondisclosure agreements with our employees,
consultants, distributors and corporate partners and limit access to and
distribution of all proprietary information. It may be possible for a third
party to misappropriate or infringe on the proprietary information licensed to
us. Third parties may also independently discover or invent competing
technologies or reserve engineer our trade secrets, software or other
technology. In addition, foreign countries may treat the protection of
proprietary rights differently from, and may not protect proprietary rights to
the same extent as, the laws of the U.S. Therefore, the measures we take to
protect the proprietary rights licensed to us may not be adequate.
KEY ALLIANCES AND RELATIONSHIPS
At this time, our only key alliance is with AVL Information Systems Ltd. AVL
Information Systems Ltd. is an affiliate of our company and became our
controlling shareholder by accepting shares of common stock in exchange for
funds advanced. Some of our officers and directors are also officers and
directors of AVL Information Systems
4
Ltd. AVL Information Systems Ltd. and a common director have provided
substantially all of our funding, and they are assisting us in discussions with
third parties concerning possible strategic alliances.
At this time, we rely entirely upon our relationship with AVL Information
Systems Ltd. and our distribution agreement with AVL Information Systems Ltd.
Our dependence upon AVL Information Systems Ltd. has made us vulnerable to
changes in its operations. AVL Information Systems Ltd. has incurred significant
operating losses over the past six fiscal years and has a working capital
deficiency which casts doubt upon its ability to continue as a going concern.
The financial position of AVL Information Systems Ltd. and its prior operating
history may have a negative effect on our intended operations. If we are unable
to develop other key relationships, we may suffer material and adverse
consequences.
We intend to establish relationships with a number of other companies to
facilitate the implementation of the distribution agreement and to accelerate
the marketing and sale of the Spryte and Chaperone products. We believe that
establishing other strategic relationships will facilitate our business and
provide access to emerging technologies and customers. We intend to establish
relationships with existing companies engaged in the automatic vehicle location
industry, wireless carriers, manufacturers, distributors, and Internet
companies. One such company that we have signed as a distributor is Vision
Wireless of Beaumont, Texas, a cell phone activation company. We cannot give you
any assurance that we will be able to develop or maintain other strategic
alliances.
RESEARCH AND DEVELOPMENT
At this time, we do not develop automatic vehicle location systems and related
technology. We have not spent any money on research and development.
MANUFACTURING
At this time, we do not manufacture the Spryte or Chaperone products and related
technology. AVL Information Systems is responsible for all manufacturing
functions. AVL has recently reached an agreement with Numerex Corp. of Atlanta,
Georgia, which owns the Cellemetry communications system used by the Chaperone
units. Since Numerex has an interest in having Chaperone units sold, it agreed
to advance the funds necessary for manufacturing by Swemco Inc. of New Jersey,
with repayment to come after sale of the units. After delivery of the units from
Swemco, AVL programs and tests the units.
SALES AND MARKETING
We will market the Spryte and Chaperone products in the U.S. and internationally
to shipping and delivery companies, other fleet operators, rental car companies,
railroad and transportation companies, government agencies and municipalities,
and private motor vehicle owners. We anticipate using marketing activities to
establish and build and our name recognition. We intend to use a variety of
target marketing communications techniques to achieve this, such as public
relations programs, advertising, industry and consumer promotions, Internet
advertising, and co-marketing and co-branding with wireless carriers. We
anticipate achieving our marketing objective by establishing a network of
strategic partners. We may also develop a direct sales force to call on
potential customers with large fleets and work with wireless carrier partners
and independent sales agents to increase our customer base.
We estimate that Vision Wireless has purchased 500 units through April 15, 2002.
We are trying to obtain other distributors.
COMPETITION
We compete with companies that offer the ability to obtain location-relevant
information about their mobile resources. We also compete with alternative means
of communication between vehicles and their managers or owners, including
wireless telephones, two-way radios, and pagers. We expect competition to
increase.
5
Within each of our markets, we face competition from public and private
companies as well as our potential customers' in-house design efforts. OmniTRACS
is a service from Qualcomm that uses satellite communications technology to
manage fleets of trucks that travel extended distances between urban areas,
referred to as long-haul trucking. Other potential competitors include wireless
Internet companies, such as Aether Systems, Phone.com and Research in Motion,
companies working on emergency working on emergency-911 solutions, such as
TruePosition, companies with solutions that integrate locations, wireless
communications, and call centers, such as General Motors, and companies that
provide wireless, location-relevant applications such as SignalSoft and At Road
Inc.
We compete primarily on the basis of price, ease of use, functionality, quality
and geographic coverage. Due to our small size, it can be assumed that most if
not all of our competitors have significantly greater financial, technical,
marketing and other competitive resources. Our competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements than we can. In addition, our current and potential competitors may
bundle their products in a manner that may discourage users from purchasing our
products. Also, our competitors and potential competitors may have greater name
recognition and more extensive customer bases that could be leveraged, for
example, to position themselves as being more experienced, having better
products, and being more knowledgeable than us. To compete, we may be forced to
offer lower prices and narrow our marketing focus, resulting in reduced
revenues, if any.
EMPLOYEES
We have no employees at this time. AVL Information Systems provides us with
manpower through a Management Services Agreement. We intend to implement the
distribution agreement with AVL Information Systems Ltd. through the services of
our officers and directors, and by retaining consultants and independent
contractors. We intend to create relationships and retain consultants and
contractors with established connections in the telecommunication and
application service provider industries. We foresee that compensation would be
commission based. Depending upon the market acceptance of the Spryte and
Chaperone products, we may hire employees in the foreseeable future.
ITEM 2. DESCRIPTION OF PROPERTY
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We do not own properties and at this time have no agreements to acquire any
properties.
Our corporate headquarters are located in Fort Gratiot, Michigan, where we
occupy these offices pursuant to an agreement with our affiliate, AVL
Information Systems Ltd. We believe that our current facilities are adequate to
meet our needs at this time. See Item 12. Certain Relationships and Related
Transactions.
ITEM 3. LEGAL PROCEEDINGS.
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None.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
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None.
6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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Our common stock was approved for trading on the over-the-counter bulletin board
("OTCBB") under the symbol "ITRK" on August 7, 2001. The following table sets
forth the range of high and low closing bid quotations of our common stock for
each fiscal quarter since August 2001:
BID OR TRADE PRICES
2001 FISCAL YEAR
----------------
HIGH LOW
---- ---
Quarter Ending 09/30/01........................ $1.00 $1.00
Quarter Ending 12/31/01........................ $1.50 $0.60
As of December 31, 2001, there were 45 record holders of our common stock.
On April 12, 2002, the closing price for our common stock on the OTCBB was
$0.21.
The above quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.
During the last two fiscal years, no cash dividends have been declared on our
common stock and we do not anticipate that dividends will be paid in the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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SELECTED FINANCIAL DATA
Our selected financial data for the year ended December 31, 2001 shown below is
derived from our consolidated audited financial statements. The financial data
derived from the statements should be read in conjunction with our consolidated
financial statements and the notes included elsewhere in this report.
BALANCE SHEET DATA: DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------------------------------------------
Current assets.............................. $ 31,446 $ 4,479 $ 471
Total assets................................ $ 1,321,207 $ 4,479 $ 471
Current liabilities......................... $ 3,779 $ 20,895 $ 3,500
Stockholders' equity (deficiency)........... $ 1,317,428 $ (16,416) $ (3,029)
Working capital (deficiency)................ $ 27,667 $ (16,416) $ (3,029)
STATEMENT OF OPERATIONS DATA: MARCH 8, MARCH 8, 1999
YEAR ENDED YEAR ENDED 1999 THROUGH THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999 2001
---------------------------------------------------------------------
Revenues.................................... $ 74,359 $ -- $ -- $ 74,359
Net loss.................................... $ (16,251) $ (32,087) $ (3,029) $ (51,367)
Net loss per share.......................... $ (0.00) $ (0.00) $ (0.00)
7
OVERVIEW
We were incorporated in the state of Nevada on March 8, 1999 by AVL Information
Systems Ltd. and its principal officer and directors. AVL Information Systems
Ltd. is a Canadian public company that owns and licenses certain technology and
automatic vehicle location systems. Effective September 30, 2001, we entered
into an exclusive worldwide distribution agreement with AVL Information Systems
Ltd. Under the agreement, we are licensed to market and distribute all of the
products manufactured by AVL Information Systems Ltd.
We are in the development stage and have generated minimal revenues. We have a
deficit accumulated during the development stage of $51,367 as of December 31,
2001. We have suffered losses from operations and require additional financing.
Moreover, we are dependent upon AVL Information Systems Ltd. and its subsidiary
to provide all of our products and management services. Because of the
uncertainty of AVL Information Systems Ltd. to continue as a going concern to
supply these products and services, and to generate sufficient cash flow to
repay the $1,289,761 of notes receivable, there is substantial doubt about our
ability to continue as a going concern. While we are investigating the
acquisition of the U.S. subsidiary of AVL Information Systems in partial
satisfaction of the debt, we cannot assure you that this acquisition will occur
or that it will eliminate this doubt about our ability to continue.
RESULTS OF OPERATIONS
We generated our first revenues of $74,359 during fiscal 2001. Cost of goods
sold, as a percentage of revenues, was 85.2%. General and administrative
expenses increased slightly from $32,087 in 2000 to $34,164 in 2001, an increase
of 6.5%. In addition, we incurred management fees of $7,500 in 2001 that were
not incurred in 2000. As a result, we incurred a net loss of $16,251 for the
year ended December 31, 2001, as compared to $32,087 for the year ended December
31, 2000.
LIQUIDITY AND FINANCIAL CONDITION
For the year ended December 31, 2001, we used cash of $42,141 in our operations,
which was offset by net cash provided by financing activities of $40,334. Our
public offering and the exercise of warrants resulted in net proceeds of
$250,095. In comparison, during fiscal 2000, we used cash of $29,992 in
operations, which was offset by $34,000 provided by financing activities.
At December 31, 2001, we had cash of $2,672, and working capital of $31,446.
However, $14,415 of our current assets at December 31, 2001 was accrued interest
receivable from related parties. As described in Note 4 of the Notes to
Financial Statements, $1,289,761 is owed by AVL Information Systems Ltd. and its
subsidiary. Each of these entities received a going concern opinion on the audit
of its financial statements.
We loaned funds to AVL Information Systems and its subsidiary to enable those
entities to get the Chaperone units to market more quickly. Through December 31,
2001, we had orders for approximately 5,000 units of the Chaperone unit, and
through March 31, 2002, we had orders for approximately 9,500 units. We estimate
sales of approximately $175,000 for the quarter ended March 31, 2002. However,
sales at these levels are not sufficient to cover our operating expenses or to
engage in the type of marketing campaign that we need to pursue. We are not
expecting repayment from AVL during the current fiscal year. Accordingly, we
will have to pursue funding from external sources through a line of credit
arrangement and/or the sale of debt and/or equity securities. We cannot assure
you that we will be successful in these pursuits.
PLAN OF OPERATION
At this time, we intend to establish relationships with a number of other
companies to accelerate the implementation of the distribution agreement and the
sale of the Spryte and Chaperone Systems(TM). We believe that our status as a
U.S. publicly traded company will assist us in establishing strategic alliances
because of our perceived level of credibility and access to capital in the U.S.
markets. We intend to establish relationships with existing companies engaged in
the automatic vehicle location industry, wireless carriers, manufacturers,
distributors, and Internet
8
companies. We intend to create relationships and to retain consultants and
contractors with established connections in the telecommunication and
application service provider industries. We foresee that the compensation would
be commission based. Depending upon the market acceptance of the Spryte and
Chaperone Systems(TM), we may hire employees in the foreseeable future.
We believe that establishing a network of alliances, while not a small task, can
be accomplished in a shorter period of time and at less cost than building a
comparable direct sales infrastructure. It is our priority to establish a
channel partner network in the U.S. and Canada, and recruit international
channel partners as opportunities present themselves.
We expect to generate revenues by selling the Spryte and Chaperone Systems(TM)
at cost plus margin. We believe the amount of margin will vary depending on the
time, expense, and size of sale.
We do not expect to purchase any significant equipment during the next twelve
months, nor do we expect to hire a significant number of employees during that
time period. We expect to finance our objectives through the proceeds of this
offering.
ITEM 7. FINANCIAL STATEMENTS.
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Please refer to the pages beginning with F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
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Effective October 5, 2001, we changed our independent auditors from Stark Winter
Schenkein & Co., LLP, f/k/a Stark Tinter, & Associates, LLC, Denver, Colorado,
to Edward, Melton, Ellis, Koshiw & Company, P.C., Troy, Michigan. The change
was not related to the competence, practices and procedures of Stark Winter
Schenkein & Co., LLP.
We believe that it will be more convenient and cost effective for us to retain
auditors with offices located in the State of Michigan. Stark Winter Schenkein &
Co, LLP does not maintain offices in the State of Michigan, and we identified
Edward, Melton, Ellis, Koshiw & Company, P.C. as independent auditors with
offices in Troy and Ann Arbor, Michigan. Our board of directors has approved the
engagement of Edward, Melton, Ellis, Koshiw & Company, P.C.
Stark Winter Schenkein & Co., LLP audited our financial statements for the
period March 9, 1999 (inception) to December 31, 1999 and the year ended
December 31, 2000. Stark Winter Schenkein & Co., LLP's reports for such periods
did not contain an adverse opinion or disclaimer of opinion, nor were the
reports qualified or modified as to uncertainty, audit scope or accounting
principles, except for our ability to continue as a going concern. There were no
disagreements with Stark Winter Schenkein & Co., LLP on any matter of accounting
principles or practices, financial statements disclosure, or auditing scope
procedure, which disagreements, if not resolved to the satisfaction of Stark
Winter Schenkein & Co., LLP, would have caused such firm to make reference to
the subject matter of the disagreements in connection with its report on our
financial statements. In addition, there were no such events as described under
Item 304 of Regulation S-B during the period March 9, 1999 (inception) to
December 31, 1999 and the year ended December 31, 2000, or through and to
October 5, 2001.
9
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
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DIRECTORS AND EXECUTIVE OFFICERS
Our officers and directors are as follows:
NAME AGE POSITION
Barbara Castanon 48 President, Vice President of Sales and
Marketing, and Director since inception.
Peter W. Fisher 54 Secretary, Treasurer and Chairman of the
Board of Directors since April 2000.
Bernd Luwe 53 Vice President of Operations and Chief
Technology Officer since April 2000.
Thomas O. Cook 70 Director since January 2002
The term of office of each director ends at the next annual meeting of our
stockholders or when such director's successor is elected and qualifies. The
term of office of each officer ends at the next annual meeting of our board of
directors, expected to take place immediately after the next annual meeting of
stockholders, or when such officer's successor is elected and qualifies. Since
our inception, we have not had an annual meeting of our stockholders.
BARBARA CASTANON, DIRECTOR, PRESIDENT, AND VICE PRESIDENT OF SALES AND
MARKETING. Since 1995, Ms. Castanon has been the director of business
development and program manager for international programs/advanced analysis at
GRC International, Inc., an information service provider located in Vienna,
Virginia. In this capacity, Ms. Castanon is responsible for business
development. From 1993 to 1995, she was a private consultant in the fields of
international finance and business development. From 1990 to 1993, Ms. Castanon
was a manager in the international finance and marketing division at Hughes
Network Systems in Germantown, Maryland. During this time, she was also a member
of the board of directors for Sunwize Energy Systems, Inc., in Chicago,
Illinois.
From 1988 to 1990, Ms. Castanon was the senior marketing manager for Amoco
Technologies, Solarex Corp., the solar energy research division in Rockville,
Maryland. During 1985 to 1988, she was the corporate finance, risk and cash
manager for Atlantic Research Corp., an information technology service provider
located in Alexandria, Virginia. From 1980 to 1985, Ms. Castanon was a manager
in the leasing division of Moriah Data Corp., a computer hardware and software
leasing company located in Chantilly, Virginia. Ms. Castanon received a Bachelor
of Science in Business, with emphasis in finance and marketing from the
University of Maryland, College Park, Maryland.
PETER W. FISHER, DIRECTOR, SECRETARY AND TREASURER. Since 1992, Mr. Fisher has
been the chairman and chief executive officer of AVL Information Systems Ltd.,
Ontario, Canada, a Canadian public company listed over-the-counter in Toronto.
AVL Information Systems Ltd. develops and markets automatic vehicle location
systems. From 1987 to 1992, Mr. Fisher was the president and chief executive
officer of Tyrae Resources, Sarnia, Ontario, a junior capital pool corporation
listed on the Alberta Stock Exchange. In that capacity, Mr. Fisher assisted in
the development of stolen vehicle recovery technology. From 1982 to 1987, he was
the president of Par Sar Investment Limited, Sarnia, Ontario, a Canadian private
company which provided consulting services relating to funding and structuring
of private and public companies. From 1979 to 1982, Mr. Fisher was a registered
representative with Richardson Securities of Canada, and from 1974 to 1979, he
was an account manager and registered representative for Midland Doherty Inc. of
Canada, in Sarnia, Ontario.
10
In 1970, Mr. Fisher received a Bachelor of Arts with a major in psychology and a
minor in mathematics from Simon Fraser University, Burnaby, British Columbia. He
subsequently completed several Canadian securities courses and in 1980, he
became a Fellow of the Canadian Securities Institute. Mr. Fisher is also a
Registered Options Principal and a Registered Commodity Principal.
BERND LUWE, VICE PRESIDENT OF OPERATIONS AND CHIEF TECHNOLOGY OFFICER. Since
June 2000, Mr. Luwe has been the operations manager for AVL Information Systems
Ltd. From 1996 to 2000, Mr. Luwe was the operations manager for Vasogen Inc.,
Toronto, Canada, a public company listed on the American Stock Exchange and the
Toronto Stock Exchange. Vasogen, Inc. is a medical device manufacturer that
focuses on sterile disposables. From 1990 to 1995, he was the vice president of
engineering of Surface Mount Technology Centre, Ontario, Canada, a public
company that specializes in the assembly of surface mounted components for
computer circuit boards. From 1981 to 1989, Mr. Luwe was the founder, president
and chief executive officer of Microart Services Inc., Ontario, Canada, a
company engaged in the business of printed circuit design.
From 1975 to 1980, Mr. Luwe was a senior printed circuit designer with Motorola
Canada, in Toronto, Ontario. From 1973 o 1975, he was a mechanical product
designer for ITT Cannon, Whitby, Ontario. From 1968 to 1973, Mr. Luwe was a
mechanical designer and hybrid/printed circuit designer for Collins Radio in
Rockwell, New Mexico. Mr. Luwe has attended several management courses at
Centennial College, in Toronto, Ontario, but did not receive a degree.
THOMAS O. COOK, DIRECTOR. Mr. Cook has been the vice president and a director of
Trillium Industries, St. Louis, Missouri, since January 1998. Trillium
manufactures electronic components. From January 1995 to September1996, he was
the chairman and chief executive officer of 1st Technology, Louisville,
Kentucky, a company engaged in electronic consulting. Mr. Cook has held senior
management positions with Motorola (1992-94 as vice president and general
manager of field service), Timeplex/Unisys (1987-92 as vice president and
general manager of global service), SCI Systems (1984-87 as senior vice
president for worldwide marketing), Data General (1977-83 as vice president and
general manager of worldwide service), and IBM Corporation (1956-77 as a member
of senior management in field engineering, manufacturing, and world trade). He
received his Masters degree in Business Administration from Pepperdine
University in 1979.
CONFLICTS OF INTEREST
Our officers and directors are associated with other firms involved in a range
of business activities. Consequently, there are potential inherent conflicts of
interest in their acting as our officers and directors. Insofar as our officers
and directors are engaged in other business activities, we anticipate they will
devote only a minor amount of time to our affairs.
Our officers and directors are now and may in the future become shareholders,
officers or directors of other companies which may be formed for the purpose of
engaging in business activities similar to those conducted by us. Accordingly,
additional direct conflicts of interest may arise in the future with respect to
such individuals acting on our behalf or other entities. Moreover, additional
conflicts of interest may arise with respect to opportunities which come to the
attention of such individuals in the performance of their duties or otherwise.
We do not currently have a right of first refusal pertaining to opportunities
that come to our attention insofar as such opportunities may relate to our
business operations.
Our officers and directors are subject to the restriction that all opportunities
contemplated by us which come to their attention, either in the performance of
their duties or in any other manner, will be considered opportunities of, and be
made available to us and the companies that they are affiliated with on an equal
basis. A breach of this requirement will be a breach of the fiduciary duties of
the officer or director. If we or the companies in which the officers and
directors are affiliated with both desire to take advantage of an opportunity,
then said officers and directors would abstain from negotiating and voting upon
the opportunity. However, all directors may still
11
individually take advantage of opportunities if we should decline to do so.
Except as set forth above, we have not adopted any other conflict of interest
policy with respect to such transactions.
We do not have any standing audit, nominating, or compensation committees of our
board of directors.
ITEM 10. EXECUTIVE COMPENSATION.
--------------------------------------------------------------------------------
The following table sets forth information the remuneration of our chief
executive officer for the last three completed fiscal years.
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
AWARDS PAYOUTS
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL COMPENSA- AWARD(S) OPTIONS/ PAYOUTS COMPENSA-
POSITION YEAR SALARY ($) BONUS ($) TION ($) ($) SARS (#) ($) TION($)
---------------------------------------------------------------------------------------------------------------------
Barbara Castanon 2001 -0- -0- -0- -0- -0- -0- -0-
2000 -0- -0- -0- 100(1) -0- -0- -0-
1999 -0- -0- -0- -0- -0- -0- -0-
---------------------------------------------------------------------------------------------------------------------
------------------
(1) On April 26, 2000, we issued 100,000 shares of common stock to Ms. Castanon, at a price of $0.001 per share, in
exchange for services valued at $100.
We have not granted any stock options or stock appreciation rights.
On April 26, 2000, we issued 750,000 shares of common stock to Mr. Fisher, at a
price of $0.001 per share, in exchange for services valued at $750, and 100,000
shares of common stock to Mr. Luwe, at a price of $0.001 per share, in exchange
for services valued at $100.
We have a Management Services Agreement with AVL Systems Ltd. made as of January
1, 2002. Under that agreement, AVL provides us with our premises, manpower, and
supplies for $2,500 per month. Manpower includes the services of all the current
employees of AVL Information Systems when and if needed.
Other than the above transactions, we do not pay monetary compensation to our
officers and directors, nor do we compensate our directors for attendance at
meetings. We reimburse our officers and directors for reasonable expenses
incurred during the course of their performance. There are no employment
agreements with any of our executive officers, and we have no long-term
incentive or medical reimbursement plans. We anticipate offering some form of
incentive-based monetary compensation in the future.
STOCK OPTION PLAN
On February 15, 2002, the board of directors adopted the 2002 Stock Plan, which
provides for the direct awarding or sale of shares and the granting of both
qualified and non-qualified stock options, to officers, directors, employees,
and independent contractors. The shareholders must still adopt this plan. The
total number of shares of common stock that may be issued under this plan shall
not exceed 15% of shares outstanding.
The board of directors or a committee designated by the board administers this
plan, and has the authority and discretion to do the following:
o interpret the plan and apply its provisions;
o adopt, amend, or rescind rules, procedures, and forms relating to the
plan;
o authorize persons to execute, on our behalf, any instrument required
to carry out the purposes of the plan;
o determine when shares are to be awarded or offered for sale and when
options are to be granted under the plan;
o select the offerees and optionees;
12
o determine the number of shares to be offered to each offeree or to be
made subject to each option;
o prescribe the terms and conditions of each award or sale of shares;
o prescribe the terms and conditions of each option;
o amend any outstanding stock purchase agreement or stock option
agreement;
o prescribe the consideration for the grant of each option or other
right under the plan and determine the sufficiency of such
consideration; and
o take any other actions deemed necessary or advisable for the
administration of the plan.
We may award or offer shares for sale at not less than 85% of the then current
bid price, subject to special forfeiture conditions, rights of repurchase,
rights of first refusal, and other transfer restrictions as may be determined by
the board or committee. Any offers for sale are nontransferable and must be
exercised within 30 days after the grant of such right.
We may grant qualified stock options with the exercise price being 100% of the
bid price on the date of grant, and non-qualified stock options with the
exercise price being not less than 85% of the bid price on the date of grant.
The options are subject to any vesting, special forfeiture conditions, rights of
repurchase, rights of first refusal, and other transfer restrictions as may be
determined by the board or committee. Options granted to any optionee in a
single calendar year cannot exceed 5% of the outstanding shares and cannot
exceed a term of 5 years. The options terminate upon the earliest of (1) the
stated expiration date, (2) 30 days after the termination of the optionee's
service for any reason other than total and permanent disability, (3) 90 days
after the termination of the optionee's service by reason of total and permanent
disability, (4) 6 months after the optionee's death, or (5) immediately if the
optionee voluntarily terminates his/her employment.
Outside directors may participate in the plan only to be extent of receiving
non-qualified stock options with the exercise price being 100% of the bid price
on the date of grant. These options would terminate upon the earliest of (1) the
fifth anniversary from date of grant, or (2) two months after the termination of
the director's service for any reason.
Unless earlier terminated by the board of directors, this plan will terminate
February 19, 2007. We have awarded or offered any shares or granted any options
under this plan as of April 15, 2002.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------------------------------
The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
common stock of the Company, as of December 31, 2001:
--------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) AMOUNT AND NATURE OF PERCENT OF CLASS (2)
BENEFICIAL OWNERSHIP
--------------------------------------------------------------------------------------------------------
AVL Information Systems (3) 15,000,000 63.3%
2323 Passingham Drive
Sarnia, Ontario N7T 7H4 Canada
--------------------------------------------------------------------------------------------------------
Peter Fisher 2,750,000 (4) 11.6%
232 Passingham Drive
Sarnia, Ontario N7T 7H4 Canada
13
--------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) AMOUNT AND NATURE OF PERCENT OF CLASS (2)
BENEFICIAL OWNERSHIP
--------------------------------------------------------------------------------------------------------
Nelson Precision Casting Co. Ltd. 1,600,000 6.8%
3F No 172 Sec 2
Nanking E Rd
Taipei, Taiwan
--------------------------------------------------------------------------------------------------------
Robert S.C. Wang 1,199,998 5.1%
3F No 132 Sec 2
Nanking E Rd
Taipei, Taiwan
--------------------------------------------------------------------------------------------------------
Barbara M. Castanon 100,000 0.4%
25445 Morse Drive
South Riding, VA 20152
--------------------------------------------------------------------------------------------------------
Bernd Luwe 100,000 0.4%
86 Havelock Gate
Markham, Ontario L3S 3P6 Canada
--------------------------------------------------------------------------------------------------------
Thomas O. Cook 0 --
P.O. Box 1440
Thornton, NH 03223
--------------------------------------------------------------------------------------------------------
All officers and directors as a group (4 persons) 2,950,000 12.4%
--------------------------------------------------------------------------------------------------------
-------------------
(1) To our knowledge, except as set forth in the footnotes to this table and
subject to applicable community property laws, each person named in the
table has sole voting and investment power with respect to the shares set
forth opposite such person's name.
(2) This table is based on 23,696,900 shares of Common Stock outstanding as
of December 31, 2001.
(3) Peter Fisher is an officer and director of AVL Information Systems Ltd.
and Bernd Luwe is also an officer of AVL Information Systems Ltd. Mr.
Fisher owns approximately 22.6% of the outstanding shares of AVL
Information Systems and is the controlling principal of the company.
Mr. Luwe owns approximately 2% of the outstanding shares.
(4) Includes 750,000 shares of common stock owned by Tyler Fisher, a
relative of Peter Fisher.
AVL Information Systems Ltd., Ms. Castanon, Mr. Fisher and Mr. Luwe may be
deemed to be our "parents", as that term in defined in the Securities Exchange
Act of 1934.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
--------------------------------------------------------------------------------
AVL INFORMATION SYSTEMS LTD.
AVL Information Systems Ltd., Ontario, Canada, is a Canadian public company that
owns and licenses certain technology and automatic vehicle location systems. AVL
Information Systems Ltd. is our controlling shareholder.
On March 20, 2000, AVL Information Systems Ltd. advanced $15,000 for working
capital. On August 2, 2000, we repaid AVL Information Systems Ltd. by issuing
15,000,000 shares of common stock at $0.001 per share. The
14
price per share was determined arbitrarily by us and did not necessarily bear
any relationship to the assets, book value or net worth of our company.
Peter Fisher, an officer and director of our company, is also an officer and
director of AVL Information Systems Ltd. Tyler Fisher, a relative of Peter
Fisher and a shareholder of our company, is a director of AVL Information
Systems Ltd. Bernd Luwe, an officer of our company, is also an officer of AVL
Information Systems Ltd. Peter Fisher owns approximately 22.6% of the
outstanding shares of AVL Information Systems Ltd., and is the controlling
principal of that company. Mr. Luwe owns approximately 2% of the outstanding
shares.
AVL Information Systems Ltd. and Peter Fisher have provided substantially all of
our funding, and they are assisting us in discussions with third parties
concerning possible strategic alliances. At this time, we rely entirely upon our
relationship with AVL Information Systems Ltd. Our dependence upon AVL
Information Systems Ltd. has made us vulnerable to changes in the operations of
AVL Information Systems Ltd. If we are unable to develop other key relationships
or fail to maintain and enhance our existing relationship with AVL Information
Systems Ltd., we will suffer material and adverse consequences.
On January 7, 2001, we entered into a non-exclusive worldwide distribution
agreement with AVL Information Systems Ltd. We entered into an exclusive
worldwide distribution agreement effective September 30, 2001. The agreement
shall continue so long as we are making a best efforts approach to securing
market share. We believe that the terms and conditions of this license agreement
are consistent with industry standards.
We have a management services agreement with AVL Information Systems Ltd. dated
as of January 1, 2002. We pay $2,500 per month to AVL Information Systems Ltd.
and receive manpower, equipment, and premises from AVL Information Systems.
Management fee under this arrangement were $7,500 for the year ended December
31, 2001.
PETER W. FISHER
On April 26, 1999, Mr. Fisher advanced $3,500 as an operating advance. There are
no written terms or conditions for repayment, and the loan is without interest.
On March 20, 2000, Mr. Fisher advanced $15,000 for working capital. On August 2,
2000, we signed a promissory note to repay Mr. Fisher by March 31, 2001. Under
the promissory note, we are not required to pay interest on the money and we may
prepay Mr. Fisher in whole or in part at any time prior to March 31, 2001,
without penalty. On March 31, 2001, we amended the promissory note and extended
the due date to March 31, 2002.
On April 26, 2000, we issued 750,000 shares of common stock to Mr. Fisher, at a
price of $0.001 per share, in exchange for services valued at $750. There was no
written agreement between ourselves and Peter Fisher, and the price per share
was determined arbitrarily by us and did not necessarily bear any relationship
to the assets, book value or net worth of our company.
Peter Fisher is an officer and director of AVL Information Systems Ltd. Mr.
Fisher owns approximately 22.6% of the outstanding shares of AVL Information
Systems Ltd., and is the controlling principal of that company.
Tyler Fisher, a shareholder of our company, is related to Peter Fisher. On April
26, 2000, we issued Tyler Fisher 250,000 shares of common stock, at a price of
$0.001 per share, in exchange for services valued at $250. There was no written
agreement between ourselves and Tyler Fisher, and the price per share was
determined arbitrarily by us and did not necessarily bear any relationship to
the assets, book value or net worth of our company.
15
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------------------------------------------------------
(A) EXHIBITS:
REGULATION CONSECUTIVE
S-B NUMBER EXHIBIT PAGE NUMBER
2.1 Articles of Incorporation (1) N/A
2.2 Bylaws (1) N/A
2.3 Certificate of Amendment to Articles of Incorporation (1) N/A
10.1 Promissory Note dated August 20, 2000, in the amount of
$15,000, payable to Peter Fisher (1) N/A
10.2 International Distribution Agreement dated January 7, 2001 (2) N/A
10.3 Worldwide Exclusive Distribution Agreement dated September
30, 2001(3) N/A
10.4 Management Services Agreement dated January 1, 2002 -----
10.5 2002 Stock Plan -----
16.1 Letter from Stark Winter Schenkein & Co., LLP f/k/a Stark
Tinter & Associates, LLC. (4) N/A
--------------------------
(1) Incorporated by reference from the exhibits to the Registration
Statement on Form SB-1 filed on November 6, 2000, File No. 333-49388.
(2) Incorporated by reference from the exhibits to the Registration
Statements on Form SB-1/A-1 filed on January 17, 2001, File No.
333-49388.
(3) Incorporated by reference from the exhibits to the Quarterly Report on
Form 10-QSB filed on December 6, 2001, File No. 333-49388.
(4) Incorporated by reference from the exhibits to the Current Report on
Form 8-K filed on October 17, 2001, File No. 333-49388.
(B) THE FOLLOWING REPORTS ON FORM 8-K WERE FILED DURING THE LAST QUARTER OF
THE FISCAL YEAR ENDED DECEMBER 31, 2001:
On October 17, 2001, the registrant filed a Current Report on Form 8-K,
effective October 5, 2001, reporting under Item 4, Changes in
Registrant's Certifying Accountant, the change of independent auditors
from Stark Winter Schenkein & Co., LLP, Denver, Colorado, to Edward,
Melton, Ellis, Koshiw & Company, PC, Troy Michigan. No financial
statements were required to be filed.
16
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
I-TRACK, INC.
Dated: April 12, 2002 By: /s/ Barbara Castanon
------------------ -----------------------------------
Barbara Castanon, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/s/ Peter W. Fisher Chairman, Secretary, Treasurer April 12, 2002
------------------------------- and Director -------------------
Peter W. Fisher
Director and President (Principal
/s/ Barbara Cantanon Executive, Financial and Accounting April 12, 2002
------------------------------- Officer) ------------------
Barbara Castanon
/s/ Thomas O. Cook April 12, 2002
------------------------------- Director ------------------
Thomas O. Cook
17
i-TRACK, INC.
F/K/A AVL SYS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
YEAR ENDED DECEMBER 31, 2001
WITH
INDEPENDENT AUDITORS' REPORT
F-1
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
December 31, 2001
CONTENTS
Independent auditors' report F-3
Financial Statements:
Balance sheet F-5
Statements of operations F-6
Statement of changes in stockholders' equity (deficit) F-7
Statement of cash flows F-8
Notes to financial statements F-9
F-2
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
i-Track, Inc.
Fort Gratiot, Michigan
We have audited the accompanying balance sheet of i-Track, Inc. (a development
stage company) as of December 31, 2001, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
December 31, 2001 and the periods March 8, 1999 (inception) to December 31,
2001. 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 i-Track, Inc. as of
December 31, 2000 and for the year ended December 31, 2000 and the periods March
8, 1999 (inception) to December 31, 2000, were audited by other auditors whose
report dated January 21, 2001, on those financial statements included an
explanatory paragraph describing conditions that raised substantial doubt about
the Company's ability to continue as a going concern.
Except as discussed in the following paragraph, we conducted our audit in
accordance with U.S. 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 by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As more fully discussed in Note 4 to the financial statements, the Company has
loans of $1,289,761 at December 31, 2001 to related corporations that will
receive going concern opinions on the audit of their December 31, 2001 financial
statements. We were unable to satisfy ourselves as to the collectibility of
those loans at December 31, 2001.
In our opinion, except for the effects on the 2001 financial statements of such
adjustments, if any, as might have been determined if we had been able to
satisfy ourselves about the collectibility of the loans receivable of $1,289,761
at December 31, 2001 as discussed in the third paragraph and the effects on the
2001 financial statements, the financial statements referred to in the first
paragraph present fairly, in all material respects, the financial position of
i-Track, Inc. as of December 31, 2001 and the results of its operations and its
cash flows for the year ended December 31, 2001 and the periods March 8, 1999
(inception) to December 31, 2001 in conformity with U.S. generally accepted
accounting principles.
F-3
Shareholders and Board of Directors
i-Track, Inc.
Page 2
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company is dependent upon AVL Information Systems,
Ltd. and AVL Information System, Inc. for purchase of materials it sells,
provision of management services and the repayment of amounts loaned at December
31, 2001. Those conditions raise substantial doubt about its ability to continue
as a going concern. Management's plans regarding those matters are also
described in Note 7. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Edwards, Melton, Ellis, Koshiw & Co., P.C.
March 7, 2002
F-4
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 2001
ASSETS
Current assets:
Cash $ 2,672
Accounts receivable 14,359
Accrued interest receivable from
related parties 14,415
-------------
Total current assets 31,446
Notes receivable from related parties 1,289,761
-------------
$ 1,321,207
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,779
Operating advances-related parties -
-------------
Total current liabilities 3,779
Stockholder's equity:
Preferred stock, 1,000,000 shares
authorized, $0.01 par value, none
issued or outstanding -
Common stock, 50,000,000 shares
authorized, $0.001 par value,
23,696,900 issued and outstanding 23,697
Additional paid-in capital 1,493,453
Stock issuance costs (148,355)
Deficit accumulated during the
development stage (51,367)
-------------
1,317,428
-------------
$ 1,321,207
=============
The accompanying notes are an integral part of the financial statements.
F-5
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Statement of Operations
For the period
Year ended Year ended March 8, 1999 (inception)
December 31, December 31, through
2001 2000 December 31, 2001
------------- ------------- -------------------------
Revenue $ 74,359 $ - $ 74,359
Operating expenses:
Cost of goods sold 63,360 - 63,360
General and administrative expenses 34,165 32,087 69,281
Management fees to related party 7,500 - 7,500
------------- ------------- --------------
Total costs and expenses 105,025 32,087 140,141
============= ============= ==============
Operating loss (30,666) (32,087) (65,782)
Other income (expense):
Interest income from related parties 14,415 - 14,415
------------- ------------- --------------
Net (loss) $ (16,251) $ (32,087) $ (51,367)
============= ============= ==============
Weighted average number of common
shares outstanding 20,569,863 18,700,000 19,363,085
============= ============= ==============
Net (loss) per common share $ - $ - $ -
============= ============= ==============
The accompanying notes are an integral part of the financial statements.
F-6
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity (Deficit)
For the period March 8, 1999 (inception) to December 31, 2001
Common Stock
--------------------------------------------
Deficit
Additional Accumulated
Paid Stock During the Total
Number of In issuance Development Stockholders'
Shares Par Value Capital Costs Stage equity (deficit)
---------- --------- ---------- ----------- ----------- ----------------
March 8, 1999 (inception) - $ - $ - $ - $ - $ -
Net (loss) for the period
March 8 through December 31, 1999 - - - - (3,029) -
---------- ---------- ----------- ------------ ----------- --------------
December 31, 1999 Balance - $ - $ - $ - $ (3,029) $ (3,029)
---------- ---------- ----------- ------------ ----------- --------------
Issuance of stock for services 1,200,000 1,200
($.001 per share)
Issuance of stock to satisfy debt 15,000,000 15,000
($.001 per share)
Issuance of stock for cash 2,500,000 2,500
($.001 per share)
Net (loss) for the year ended
December 31, 2000 - - - - (32,087) -
---------- ------------ ----------- ------------ ----------- -------------
December 31, 2000 balance 18,700,000 $ 18,700 $ - $ - $ (35,116) $ (16,416)
---------- ------------ ----------- ------------ ----------- -------------
Net (loss) for the year
ended December 31, 2001 - - - - (16,251) -
Issuance of stock and
warrants
($.10 per share) 2,500,000 2,500 247,500 - - -
Exercise of stock warrants
($.50 per share) 2,496,900 2,497 1,245,953 - - -
Stock Issuance costs - - - (148,335) - -
---------- ------------ ----------- ------------ ----------- --------------
December 31, 2001 balance 23,696,900 $ 23,697 $1,493,453 $ (148,335) $ (51,367) $ 1,317,428
========== ============ =========== ============ =========== ==============
The accompanying notes are an integral part of the financial statements.
F-7
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Statements of Cash Flows
Year ended Year ended March 8, 1999 (inception)
December 31, December 31, through
2001 2000 December 31, 2001
-------------- -------------- -------------------------
Cash flows from operating activities:
Net loss $ (16,251) $ (32,087) $ (51,367)
Adjustments to reconcile net (loss)
to net cash used in operating activities:
(Increase) decrease in assets:
Accounts receivable (14,359) - (14,359)
Accrued interest receivable (14,415) - (14,415)
Increase (decrease) in liabilities:
Accounts payable 2,884 895 3,779
Issuance of stock for services - 1,200 1,200
-------------- -------------- ------------------
(25,890) 2,095 (23,795)
-------------- -------------- ------------------
Net cash (used in) operating activities (42,141) (29,992) (75,162)
Cash flows from investing activities - - -
Cash flows from financing activities:
Proceeds (repayments) of operating
advance-related party (20,000) 31,500 15,000
Proceeds from stock issuance 398,450 2,500 400,950
Stock issuance costs (148,355) - (148,355)
Advances to related party (189,761) - (189,761)
-------------- -------------- ------------------
Net cash used in financing activities 40,334 34,000 77,834
============== ============== ==================
Net increase (decrease) in cash (1,807) 4,008 2,672
Beginning cash 4,479 471 -
-------------- -------------- ------------------
Ending cash $ 2,672 $ 4,479 $ 2,672
============== ============== ==================
Supplemental disclosure of noncash
financing and investing activities:
Issuance of 15,000,000 shares of
stock to satisfy debt $ - $ 15,000 $ 15,000
============== ============== =================
Issuance of 1,200,000 shares of
stock for service rendered $ - $ 1,200 $ 1,200
============== ============== =================
Net cash from stock proceeds
received by a related corporation
in exchange for note receivable
from that related corporation $ 1,100,000 $ - $ 1,100,000
============== ============== =================
The accompanying notes are an integral part of the financial statements.
F-8
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. NATURE OF BUSINESS
i-Track, Inc. (formerly AVL SYS International, Inc.), "the Company"
was incorporated under the laws of the state of Nevada on March 8,
1999. The Company has been in the development stage since its
formation. The Company is primarily engaged in the marketing and
distribution of an automatic vehicle location system which integrates
global positioning system technology, cellular-wireless
communications and the internet to enable companies to manage their
mobile resources with location relevant and time sensitive
information. The automatic vehicle location system has been developed
by AVL Information System, Ltd., and its wholly owned subsidiary AVL
Information System, Inc. AVL Information Systems, Ltd. is the
majority shareholder of the Company and determines the prices of the
products purchased by the Company.
b. REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
The Company grants credit to customers and does not require
collateral for credit granted. The Company recognizes revenue when
its products are delivered or services are provided. The Company had
two sales of products purchased from AVL Information Systems, Inc. to
two customers in 2001. Based upon an analysis of the collectibility
of accounts receivable at the balance sheet date, the Company does
not consider an allowance for doubtful accounts to be necessary at
December 31, 2001.
c. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
d. FINANCIAL INSTRUMENTS
Fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
December 31, 2001. The respective carrying value of certain
on-balance-sheet financial instruments approximated their fair
values. These financial instruments include cash, accounts receivable
and accounts payable. Fair values were assumed to approximate
carrying values for these financial instruments because they are
short term in nature and their carrying amounts approximate fair
values or they are receivable or payable on demand. As discussed in
Note 4, the fair value of the notes receivable from related parties
of $1,289,761 at December 31, 2001 is dependent upon the future
ability of AVL Information Systems, Ltd. and AVL Information Systems,
Inc. to continue as going concerns and generate sufficient future
cash flows to repay the notes receivable.
F-9
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e. NET INCOME (LOSS) PER COMMON SHARE
The Company calculates net income (loss) per share as required by
SFAS No. 128, "Earnings per Share." Basic earnings (loss) per share
is calculated by dividing net income (loss) by the weighted average
number of common shares outstanding for the period. Diluted earnings
(loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares and dilutive common stock
equivalents outstanding. During the periods presented common stock
equivalents were not considered as their effect would be
anti-dilutive.
Common shares issued for nominal consideration have been considered
outstanding for the historical period presented in the computation of
earnings per share.
f. 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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
As discussed in Note 4, the Company made loans during the year ended
December 31, 2001 to AVL Information Systems, Ltd. and AVL
Information Systems, Inc. It is reasonably possible the carrying
amount of these loans could be materially reduced in the near term if
these companies are unable to repay the loans. If the notes
receivable are not repaid then the Company would incur a loss of the
notes receivable amount of $1,289,761 and accrued interest of $14,415
at December 31, 2001.
g. BASIS FOR ASSIGNING AMOUNTS TO EQUITY SECURITIES ISSUED FOR OTHER
THAN CASH
Shares of common stock issued for other than cash have been assigned
amounts equal to the fair value of the services or assets received in
exchange.
2. COMMON STOCK OFFERING
During 2001, the Securities and Exchange Commission approved Form SB-1/A to
offer 2,500,000 units of 2,500,000 shares of common stock and 2,500,000
common stock purchase warrants for $.10 per unit. The offering resulted in
the 2,500,000 units being issued for $250,000. 2,496,900 of the common
stock warrants to purchase common stock for $.50 per share were exercised
in 2001. The common stock proceeds of $1,498,450 were used by the common as
follows:
Payment of expenses for commissions
and fees associated with the stock issuance $ 148,355
Loans to AVL Information Systems, Ltd. 971,678
Loans to AVL Information Systems, Inc. 88,450
Working capital 289,967
-----------
Total stock proceeds $1,498,450
===========
F-10
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2001
2. COMMON STOCK OFFERING (CONTINUED)
A portion of the proceeds for working capital was used to make additional
loans to AVL Information Systems, LTD. and AVL Information Systems, Inc.
3. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes",
which requires use of the liability method. FAS 109 provides that deferred
tax assets and liabilities are recorded based on the differences between
the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes, referred to as temporary differences.
Deferred tax assets and liabilities at the end of each period are
determined using the currently enacted tax rates applied to taxable income
in the periods in which the deferred tax assets and liabilities are
expected to be settled or realized. The deferred tax asset of $17,300 is
offset by a valuation allowance of $17,340 at December 31, 2001.
The provision for refundable income taxes differs from the amount computed
by applying the statutory federal income tax rate to the loss before
provision for income taxes. The Company's estimated effective tax rate of
34% is offset by a reserve due to the uncertainty regarding the realization
of the deferred tax asset. The valuation allowance increased by
approximately $5,525 for the year ended December 31, 2001.
As of December 31, 2001 the Company has a net operating loss carry forward
of approximately $51,000, which will be available to offset future taxable
income. If not used, this carry forward will expire through 2021. The
deferred tax asset relating to the operating loss carry forward has been
fully reserved at December 31, 2001.
4. RELATED PARTY TRANSACTIONS
The Company has a note receivable of $986,378 due from AVL Information
System, Ltd. At December 31, 2001. The note receivable is unsecured with
interest at 8% per annum and is due on demand.
The Company also has a note receivable of $303,383 due from AVL Information
Systems, Inc. at December 31, 2001. The note receivable is unsecured with
interest at 8% per annum and is due on demand.
The accrued interest receivable on these notes receivable was $14,415 at
December 31, 2001.
AVL Information Systems, Ltd., a publicly traded Canadian company, and AVL
Information Systems, Inc., its 100% owned subsidiary, each received a going
concern opinion for the audit of their financial statements for the year
ended December 31, 2000 and anticipate receiving going concern opinions for
the audit of their December 31, 2001 financial statements. Because the
financial conditions of AVL Information Systems, Ltd. and AVL Information
Systems, Inc. at December 31, 2001 indicate and inability to repay the
notes payable within one year, the notes receivable are considered
long-term.
Management has not included an adjustment in the accompanying financial
statements in the event that the $1,289,761 notes receivable are
uncollectible.
F-11
i-Track, Inc.
F/K/A AVL SYS International, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2001
5. MANAGEMENT SERVICES AGREEMENT
The Company has a management services agreement with AVL Information
Systems, Ltd. for the provision of services including manpower, supplies
and premises for $2,500 per month. The agreement can be cancelled by either
party with 30 days written notice. Management fees under this agreement
amounted to $7,500 for the year ended December 31, 2001. Since the Company
has no employees and all management decisions concerning sales, purchases
and operations are controlled by individuals who are stockholders and
employees of AVL Information Systems, there is a potential conflict of
interest.
6. DISTRIBUTION AGREEMENTS
The Company has a worldwide exclusive distribution agreement for products
manufactured by AVL Information Systems, Inc. that is effective for as long
as the Company meets certain performance criteria.
7. GOING CONCERN
The Company has been a development stage company since its inception on
March 8, 1999. The Company is dependent upon AVL Information Systems, Ltd.
and its subsidiary to provide all of its products sold and to supply
management services. Because of the uncertainty of AVL Information Systems,
Ltd. to continue as a going concern to supply these products and services
and to generate sufficient cash flow to repay the $1,289,761 of notes
receivable, there is substantial doubt about the Company's ability to
continue as a going concern. Management is investigating the acquisition of
the U.S. subsidiary, AVL Information Systems, Inc. from AVL Information
Systems, Ltd.
The accompanying financial statements do not include an adjustment that
might result from the outcome of this uncertainty.
8. SUBSEQUENT EVENT
The Board of Directors adopted a Stock Plan in February, 2002 to grant
stock options to officers, directors, employees and independent
contractors. The stockholders of the company have not approved adoption of
the Plan.
F-12