ITEM 1. DESCRIPTION OF BUSINESS
General
2-Track Global, Inc. (referred to as “2-Track,” the “Company” or “we” or “our”) is a Nevada corporation which was originally incorporated in the state of Nevada on March 12, 2002. Upon the liquidation of 2-Track Limited in early 2009, our primary business operations are now conducted through 2-Track USA, Inc., a New York corporation. During 2011 the Company’s business focus was on technologies for the tracking, monitoring and security of remote assets from any point in the world, whether static (such as pipelines or wells) or mobile (such as vehicles, vessels and containers).
Business
Our business plan focuses on three specific telematics business segments - Vehicle Tracking, Personnel Tracking (Executive Protection), and Asset Tracking. We continue to specialize in combining radio frequency identification devices (RFID) where opportunities exist.
Technology Based Solutions
Vehicle Fleet Management - CONDOR FMS
We currently support a multi-functional tracking and status monitoring system for operators of both small and large vehicle fleets called Condor FMS. This system is presently offered on any Triband GSM Network for Worldwide haulage and vehicle rental markets.
In September 2006 we also launched our own General Packet Radio System (GPRS) version which will extend its tracking applications to worldwide customers.
The 2-Track Vehicle Fleet Management System (Condor FMS) performs a combination of management functions which can be handled simultaneously on a single PC, laptop and Internet. Our fleet management applications, currently available Worldwide include:
· Real-time tracking · Reporting
· Navigation · Control
· Communication · Safety and Security
· Information
The Condor FMS system is now in full commercial practice with sales on 4 continents. We continue to focus on US as well as emerging markets which have (i) a large customer base and potential, and (ii) a large security / monitoring need. This includes Africa and India and will be pursued through VAR / Agency partnerships in those countries.
A significant value added reseller (VAR) of the Condor FMS software, TrakTag (Nigeria), has been appointed in Lagos, Nigeria and to date has sold 6 copies of the Condor FMS software which are in operation. This represents worldwide sales of the Condor FMS software. Following successful launch with ALC (Abuja Leasing Company), we now have Bayelsa Government, Cross River Government, and Skye Bank as our clients in Nigeria. We launched our own hardware in the first quarter of 2007 and since then our units have been sold all around the world. We have also launched demonstration internet based solutions to many potential customers in the USA however no sales were recorded in the US during 2010. In January 2008, we launched our own ASP services to support the Condor FMS and in 2009 we added new hardware to support the Condor FMS. In 2011 we made enhancements to the ASP service to better support our customers.
2-Track is planning on expanding its business through new ventures in India and Africa because of potential observed in these markets. In addition, a new value-added relationship has been established with a US company, “2-Track Solutions”.
2-Track is seeking more VAR relationships around the world. A new channel partner has been established with companies in New York and Israel. These partners focus on providing asset and personnel protection for worldwide travelers and companies. Their names have been omitted for security reasons.
In 2010 we began discussions with an auto manufacturer. While talks are continuing we are hopeful that this can turn into a significant business to increase sales volumes.
Personal Tracking Systems
In March 2007 we commercially launched our own personnel tracking system at the 2007 CeBIT Exhibition. The Condor FMS mTrac and iTrac products were originally developed for one of our clients, and now has been developed further for the general security market. It has SIEMEN’s quadraband GSM module to work all around the world. It has 7 days standby battery life and a GSM module to determine locations. Highly sophisticated hardware with customer programmable functions allows units to protect business people traveling in hazardous environments as well as for a single worker. We also have clients in Nigeria interested in protecting expatriates at oil and construction sites.
At the end of 2009, management determined that the Triple combination cards and eUnit tags (which were specially designed for Lehman Brothers, which entered bankruptcy in September 2008) were not likely to be able to be sold to Lehman or any other customers. Accordingly, these products were discontinued and existing inventory written-off.
At the end of 2010, management determined that the iTrac 2 devices, iTrac 3 devices, (which were specially designed for certain customers) were not likely to be sold to any other customers due to being obsolete. Accordingly, these products were discontinued and existing inventory written-off in 2010 and 2011.
mTrac was launched in the first quarter of 2007. During 2011 we sold 465 units of 2-Track’s personal and vehicle tracking devices.
Commercial Marine Fleet Management
The 2-Track commercial marine solution was based upon a combination of direct fleet management reporting via low earth orbit (“LEO”) satellites combined with RFM/RFID-based data relay for cargo and other wireless alarm systems. Due to market conditions 2-Track has decided not to pursue the marine tracking business.
2-Track, through its wholly-owned subsidiary 2-Track USA, owns the patent rights to PRISMS™ which stands for Positional Real-time Integrity and Status Monitoring System. This is a logistics-oriented technology which is intended to combine a stand-alone data capture and radio frequency identification (RFID) transmission device with a relay station for access to a low-earth satellite network. The intended market for PRISMS™ units was high volume freight transport assets such as cargo containers.
In addition, PRISMS™ was designed address the International Maritime Organization ISPS Code (A) changes relating to the installation of ship security alert systems (SSAS) by providing a point of relay for 2-Track’s wireless alarm triggers (P-SSAS) - whether deck mounted or carried as a mobile unit - giving each and every crew member a distinct alarm identity. Single alarm activation will provide a shore-based control room with all the details of the ship’s position, SOG, COG and other important data at the point the alarm was activated and monitored thereafter.
Although PRISMS has been approved by Korean Patent Agency as an IP, 2-Track is not pursuing this market due to the global economic slowdown and lack of interest in this space.
RFID Solutions
Active RFID
With its capability, we are developing a real time asset tracking system. Many businesses have high value assets kept in the office and venerable to theft. Our hardware, with simple installation and network capability, will allow clients to monitor and track assets 24/7. 2-Track maintains expertise in this field but is not actively pursuing direct RFID sales. Instead, 2-Track is using RFID as an add-on to vehicle tracking systems.
Mobile Video Solutions
iView
2-Track has been experimenting with several mobile video products internally named “iView”. Our goal is to provide full motion video in vehicles and other remote locations. We have been testing various products in an attempt to find the right combination of product/price for the markets.
Future Business Development
The primary business development targets for 2012 continue to be focused on expansion of distributor networks. Also, 2-Track will continue its focus on the Personal Tracking System Development. First products will be BlackBerry Based Tracking System, Android Phone Based Tracking System, and Iphone based Tracking System.
Territorially there will be a strong emphasis on developing emerging markets in Africa, the Middle East, Asia, and India markets characterized by a strong security need and being underserved through lack of GIS mapping technology, poor wireless network infrastructure, or political risk.
Marketing
Our vehicle-based fleet management system (FMS) is in operation with a small number of vehicle rental companies. With the launch of tri-band GSM/GPRS Condor hardware, we can now actively supply and market our product worldwide.
Approximate Global Markets:
·UK - 11,000 Freight Transport Association members; 425,000 commercial vehicles
·EU - over 2 million commercial vehicles
·India, Pakistan, China, Middle East, Africa, and ASEAN - some of the world’s fastest growing freight forwarding/road haulage industries with huge potential for satellite based systems.
2-Track’s strategy has focused on channel partners (resellers). We will continue to develop this indirect sales force in geographically distinct markets. To enhance its marketing partnerships, 2-Track may grant certain exclusive territory rights to its products and technologies.
To more effectively address our U.S. marketing and technology support efforts in January 2007, we formed 2-Track USA (“2-Track USA”) which is a wholly-owned subsidiary of the Company in the state of New York. The initial officer of 2-Track USA is Mike Jung who is CEO and President of the Company. In December, 2010, all of the assets and business previously carried on at 2-Track’s Korean facility was transferred to 2-Track USA.
In early 2011 we commenced using 2 Track Solutions LLC, a New Jersey limited liability company, as the US distributor of our products. 2 Track Solutions is independently owned and operated.
Customers
Where we had experienced a high concentration of sales with three major customers in the international market through 2009. Since 2009 our marketing strategies have sought to diversify our sales to many customers in the retail and wholesale areas selling products to several resellers who in turn sell to their customers. While we had no sales during 2010, one customer accounted for 52% of our sales during 2011.
Competition
We face competitive environments in all our target markets, but of a very mixed and often complex kind.
In most commercial fleet management solution markets, we compete head-to-head with many other systems using the same or similar components and utilizing identical wireless telephone networks - whether GSM or GPRS format. With commoditization, inevitable in mature markets, we have focused on creating software solutions for significant emerging markets where competition is less developed and the security need is large. By partnering directly with established resellers with appropriate GIS mapping technology credentials and often political connections, we are confident of making major inroads in these markets without the need for major marketing expense.
Intellectual Property Rights
We own all the intellectual property for our PRISMS™ technology for container monitoring. This includes all the requirements, firmware and software design and planning, and other copyright encompassed in the technical specification for the communications architecture and its specific deployment for the business applications stated in this document, and subject to a PCT Application through the Korean Patent Office in November 2004. We have not obtained IP on PRISM and waiting for approval from USA, Japan, India, China, and EU and may pursue this business in the future.
Research and Development Expenditures
During fiscal years 2011, 2-Track USA spent no funds on product research and development compared to $248,800 of research and development expenditures in 2010. Most of the 2010 research and development costs were incurred to develop FMS related products at the Seoul, Korea R&D facility which closed in December, 2010. Due to financial constraints, no product research and development could be funded during 2011.
Employees
During 2011, we had one full-time employee. We are also leveraging technical and sales contractors in select markets where opportunities arise.
ITEM 1A.
ITEM 1A. RISK FACTORS
We have incurred operating losses since inception. As a result of the historic losses and negative cash flows from operations, our ability to continue operations will depend on our ability to generate increased revenues and the availability of equity/debt financing for working capital. If we are unable to generate sufficient revenues in the near future or obtain outside capital to cover operating expenses, we may be unable to establish or maintain desired levels of business operations.
The audit report of our independent accounting firm includes a “going concern” explanation. In the independent accounting firm’s opinion, our limited operating history and accumulated net deficit as of December 31, 2011, raise substantial doubt about our ability to continue as a going concern.
2-Track USA, and before it 2-Track Limited, are development stage companies and are in the process of fully implementing their business plan and technologies. 2-Track Limited commenced its business operations as a private limited company in 2002 and has generated only limited revenues. 2-Track USA commenced its business operations in January 2007 and has also generated only limited revenues. As our primary operating subsidiary, 2-Track USA has only a limited operating history upon which an evaluation of our future performance can be made. Our future prospects must be considered in light of the risks and difficulties encountered by developing companies which have not yet established an operating track record.
The success of our technology based business will depend on several factors including:
·Our ability to maintain competitive prices which provide desired profit margins and expanding our product line;
·Our success in further developing our Condor product lines for US and other markets as well as commercial industry. We also intend to partner with a major car manufacturer to develop and supply OEM telematics solutions;
·Our ability to increase consumer awareness of our products and services;
·Our ability to provide comprehensive solutions which satisfy current and future anti-terrorism government regulation applicable to national and international commerce.
The development and marketing of our technology products requires significant amounts of capital. To date, both 2-Track and its subsidiary have relied on the sale of equity securities, loans, and limited sales revenue to meet their operational and capital requirements. Because we have limited revenues, it will be necessary to fund our ongoing operations by selling additional equity or debt securities, secure lines of credit or obtain other third-party financing. The timing and amount of such capital requirements cannot be determined at this time and will depend on a number of factors, including demand for our products and technologies. There can be no assurance that additional financing will be available on satisfactory terms when needed, if at all. Failure to raise additional capital, secure other sources of financing or enter into other collaborative business transactions would have a material adverse effect on our ability to achieve our intended business objectives. Any future equity financing will result in dilution to current stockholders. Future debt financing will result in interest expense and the risk that we cannot repay such debt when due.
We are competing in the global tracking and monitoring market, a market characterized by intense competition from both established companies and start-up companies. Since the market demands both competitive prices and capabilities, our success depends in part on our ability to enhance existing products and introduce new technologies. This requires us to accurately predict future customer demands, technology development and pricing trends. Unexpected changes in technological standards, the rate of technology adoption, customer demand and pricing of competitive products could adversely affect our operating results if we are unable to respond effectively to such changes.
Our current manufacturing structure is particularly subject to various risks associated with its use of offshore contract manufacturers, including changes in costs of labor and materials, reliability of sources of supply and general economic conditions in foreign countries. Unexpected changes in foreign manufacturing or sources of supply, and changes in the availability, capability or pricing of foreign suppliers could adversely affect our business and results of operations. The impact of these risks on our operations is difficult to measure, but the inability to alter our strategic marketing, or react properly to changing economic conditions could have an adverse effect on our financial position.
Our target markets include end-users, resellers, systems integrators, major accounts and original equipment manufacturers. Due to the relative size of some customers, sales in any one market segment could fluctuate dramatically on a quarter-to-quarter basis. Fluctuations in major accounts and the OEM segment could materially adversely affect our financial condition and results of operations. Additionally, our revenues and results of operations could be adversely affected if we were to lose certain key distribution or development partners.
In summary, our net sales and operating results in any particular quarter may fluctuate as a result of a number of factors, including competition in the markets for our products; delays in new product introductions by us; market acceptance of new products and technologies by us or our competitors; changes in product pricing, material costs or customer discounts; the size and timing of customer orders; fluctuations in channel inventory levels; variations in the mix of product sales; manufacturing delays or disruptions in sources of supply; and the pace of the current economic recovery. Our future operating results will depend, to a large extent, on our ability to anticipate and successfully react to these and other factors. Failure to anticipate and successfully react to these and other factors could adversely affect our business and financial condition.
In addition to the above, we are also susceptible to other factors that generally affect the market for stocks of technology companies. These factors could affect the price of our stock and could cause such stock price to fluctuate significantly over short periods of time.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
In early 2011 we relocated our US corporate office from New York to Lincroft, New Jersey. The NY office was subleased from the current lessor without rental payment. The New Jersey office is also used on a rent free basis and is located at 716 Newman Springs Road, Suite 307 in Lincroft NJ.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business, including claims of alleged infringement, misuse or misappropriation of intellectual property rights of third parties. As of the date of this report, we are not a party to any business related litigation which we believe would have a material adverse effect on us.
Subsequent to the fiscal year end, on March 29, 2012 the SEC initiated an Administrative Proceeding against six companies including 2-Track, seeking to deregister each company’s class of stock registered under Section 12 of the Securities Exchange Act of 1934 (the “1934 Act”) due to the number of delinquent reports not filed by each company. After two Prehearing Conferences with the SEC, the second being held on July 16, 2012 at which time 2-Track was unable to bring all of its 1934 Act reports current, the SEC issued an Initial Decision dated July 24, 2012 revoking 2-Track’s common stock registration under Section 12 of the 1934 Act. The Initial Decision is expected to become final on August 15, 2012.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock was listed and traded on the NASDAQ Electronic Bulletin Board (OTCBB) under the symbol “TOTG” until May 18, 2010 at which time our common stock was delisted from the OTCBB due our delinquent filings under the Securities Act of 1934. After May 18, 2010 our common stock has traded in the “Pink Sheet” Market. The following chart sets forth the known high and low price on a bid basis for our stock for each quarter during the last two fiscal years. The prices listed through the First Quarter of 2010 were based on OTCBB quotations while prices quoted after the First Quarter of 2010 were based on Pink Sheet quotations. The quotations set forth below reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions. Share prices do not reflect a 1-for-70 reverse stock split which occurred in October, 2011 except for the Fourth Quarter of 2011.
Footnote * denotes quotes taken from the OTCBB Market
Footnote ** reflects the 1-for-70 reverse stock which occurred on October 14, 2011
Subsequent to the 2011 year end, as a result of an Administrative Proceeding brought by the US Securities and Exchange Commission on March 29, 2012 seeking to revoke the registration of 2-Track’s common stock under Section 12 of the 1934 Act, on March 29, 2012 trading of 2-Track’s common stock on the OTC-Link Pink Sheets was suspended. Consequently, unless and until 2-Track submits a new Form 211 to re-establish its trading on the OTC-Link or OTCBB, there is no current publicly traded market for 2-Track’s common stock.
As of December 31, 2011, there were approximately 300 holders of record of our Common Stock. This amount does not include shares held in street name.
Dividend Policy
We have never paid any cash dividends on our common stock. We currently anticipate that we will retain all future earnings for use in our business. Consequently, we do not anticipate paying any cash dividends in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
On January 31, 2006, the Board approved and stockholder’s ratified an Employee Stock Incentive Plan and a Non-Employee Directors and Consultants Retainer Stock Incentive Plan.
The Employee Stock Incentive Plan is a qualified plan authorizing the issuance of up to 42,858 (3,000,000 pre-split) shares pursuant to the Plan. Awards would be in the form of incentive stock options or restricted stock awards and will be administered by a compensation committee or, in the absence of such committee, by the Board of Directors. The Plan has a term of ten (10) years. 1,457 (102,000 pre-split) options were granted to employees in 2006. No options were granted in 2010.
The Non-Employee Directors and Consultants Retainer Stock Incentive Plan is a non-qualified plan authorizing the issuance of up to 42,858 (3,000,000 pre-split) shares pursuant to the Plan. Awards would be in the form of stock options or restricted stock awards and will be administered by a compensation committee or, in the absence of such committee, by the Board of Directors. The Plan has a term of ten (10) years. 2,829 (198,000 pre-split) options were granted in 2006 and 7,143 (500,000 pre-split) shares were granted in 2007. No options were granted in 2010.
Of the stock options issued pursuant to any equity compensation plan. No options were exercised in 2010.
Recent Sales of Unregistered Securities
During the fiscal year ended December 31, 2011, 2-Track did not issue any equity securities pursuant to exemption from registration under the Securities Act of 1933 (the “Securities Act”).
During the fiscal year ended December 31, 2010, 2-Track issued the following equity securities pursuant to exemption from registration under the Securities Act.
On October 5, 2010, 2-Track issued 71,429 (5,000,000 pre-split) shares of restricted common stock to a consulting firm for services rendered to 2-Track valued at $10,000. The issuance of stock was made without any public solicitation to one entity and was acquired for investment purposes only. The principals of the entity had access to complete information about 2-Track and was deemed capable of evaluating the merits and risks of acquiring shares in 2-Track. The securities were issued pursuant to the private placement exemption provided by Section 4(2) of the Securities Act. These shares are deemed to be “restricted securities” as defined in Rule 144 under the 1933 Act.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
For more detailed financial information, please refer to the audited December 31, 2011 Financial Statements included in this Form 10-K.
Caution about forward-looking statements
This Form 10-K includes “forward-looking” statements about future financial results, future business changes and other events that haven’t yet occurred. For example, statements like we “expect,” we “anticipate” or we “believe” are forward-looking statements. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties about the future. We do not undertake to update the information in this Form 10-K if any forward-looking statement later turns out to be inaccurate. Details about risks affecting various aspects of the Company’s business are discussed throughout this Form 10-K and should be considered carefully.
Plan of Operation for the Next Twelve Months
Our plan of operation during 2012 is set forth below.
Our budget for fiscal 2012 is predicated on an aggregate cash requirement of $500,000, of which $100,000 is anticipated from operational revenues, with the balance of $400,000 is expected to be met from financing activities.
The majority of our operating costs are short-term in nature and can be reduced substantially in the event that the business falls behind in either its core research and development program, or underperforms in its sales and marketing activities or finance raising.
As a minimum we need to raise $500,000 during fiscal 2012 from debt/equity finance activities. If however such expectations are not met then in these circumstances our expenditures or payments for liabilities will be curtailed significantly.
Technical Roll-Out
Barring unexpected occurrences, management anticipates the following schedule of roll-outs for its family of products during 2012:
Condor FMS -
BB Tracking
Condor FMS -
Calamp Integration
Condor FMS -
Android Tracking
Business Development
The primary business development targets for 2012 will be the continued expansion of distributor networks and OEM partners for the Condor FMS vehicle fleet management solution, the iTrac personal tracking system and the Starfish vessel fleet management solution. Condor, which currently sells in the UK and Africa in a GPRS format, will be expended through the addition of LEO + GPRS as well as higher spec hardware for the US market during the summer of 2009.
Territorially there will be a strong emphasis on developing emerging markets in Africa, the Middle East, Asia, and India markets characterized by a strong security need and being underserved through lack of GIS mapping technology, poor wireless network infrastructure, or political risk.
The arrival of the Starfish marks 2-Track’s first satellite equipped product. Starfish is targeted principally at the leisure marine market in the USA (east coast initially with some Caribbean markets), the Mediterranean, and Australasia. This market is characterized by fast growing consumer expenditure on marine products, equipment and services, and 2-Track anticipates good support within the distribution and dealership communities once working models are available to demonstrate.
Results of Operations
Operating Results for the Fiscal Year Ended December 31, 2010 and 2011.
Fiscal year 2011 as used in this section refers to the 12 month period ended December 31, 2011.
We had revenues of $76,902 for fiscal year 2011 compared to no revenues for the year ended December 31, 2010. While we were aggressively marketing our various products, we consummated sales during 2011 primarily to new customers in Nigeria and India.
Cost of sales increased from zero in 2010 to $41,769 in 2011 due primarily to the increase in sales during 2011. Despite the limited sales in 2011, we had gross profits of $31,623 for 2011 compared to loss of $(35,050) in 2010. The loss in 2010 was due to a lack of sales revenue and a $35,050 write-down in our inventory.
Operating expenses continued to decrease from $289,991 in 2010 to $49,658 in 2011 indicative of 2-Track’s cost-cutting measures primarily in the expenditures for research and development.
Operating Expenses included the following:
oSelling, general and administrative expenses increased to $49,536 for fiscal year 2011 as compared to $29,600 for the same period a year earlier. Most of these operating expenses represent travel expenses related to marketing our products in several countries during fiscal year 2011and 2010.
oDue primarily to the closure of 2-Track’s R&D facility in Seoul, South Korea in late 2010, research and development expenses were eliminated for fiscal year 2011 compared to $248,800 of R&D expenses in 2010. R&D for 2010 was focused on software and enhancements related to FMS and Starfish products.
o2-Track reported a $11,235 charge in 2010 for abandoned property and equipment relating to closing down its R&D facility in Seoul, South Korea.
o2-Track incurred no professional fees or consulting expenses for fiscal year 2011 reflecting 2-Track’s cost-cutting efforts during 2011.
We had a net loss of $30,645 for fiscal year 2011, or $0.04 per share, compared to a net loss of $332,590 for 2010, or $ 0.41 loss per share. The decrease in net loss in 2011 was primarily due to increased sales revenue and the elimination of research and development expenses in 2011.
No provision was made for income taxes for the years ended December 31, 2011 and 2010.
Liquidity and Capital Resources
2-Track has historically incurred operating losses which has resulted in an accumulated stockholders’ deficiency of $3,075,214 as of the end of fiscal year 2011. At December 31, 2011, we had cash of only $170 and a negative net working capital of $3,077,532. Since the inception of its business in March 2002, 2-Track has been dependent on borrowed or invested funds in order to finance its ongoing operations.
Capital Financing
During 2011 we did raise any outside capital.
During 2010 we raised $228,672 in loans to 2-Track from an outside lender. The terms of the loan are 2% annual interest rate and is payable on demand.
During 2010 we issued 71,429 shares (5,000,000 pre-split) of restricted common stock valued at $10,000 to a financial consulting firm in payment for consulting services relating to investor relations and fund raising efforts.
We anticipate requiring a minimum of $500,000 in additional working capital during the current year to fund our business development and growth. It is our intention to pursue equity and debt-based funding strategies through the issue of additional stock and/or long-term borrowing commensurate with a responsible level of debt service commitments.
Due to our limited cash flow, operating losses and limited assets, it is unlikely that we could obtain financing through commercial or banking sources. Consequently, we are dependent on continuous cash infusions from our major stockholders or other outside sources. If these investors were unwilling or unable to provide necessary working capital to us, we would probably not be able to sustain our full range of operations. There is no current written agreement or contractual obligation, which would require any investors to fund our operations up to a certain amount or indeed continue to finance our operations at all.
Management of 2-Track believes that it will need to raise additional capital to continue to develop, promote and conduct its technology business. Such additional capital may be raised through public or private financing as well as borrowing from other sources. 2-Track may also issue its restricted common stock to various service providers in lieu of cash when acceptable to the service provider. Although 2-Track believes that its current investors will continue to fund 2-Track’s expenses based upon their significant equity interest in 2-Track, there is no assurance that such investors will continue to invest in 2-Track. If adequate funds are not otherwise available, 2-Track would not be able to sustain its planned operations.
Critical Accounting Policies
The discussion and analysis of our financial conditions and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. On an on-going basis, management evaluates its estimates, including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. We believe that the critical accounting policies set forth in Note 2 to the consolidated financial statements affect our more significant judgments and estimates in the preparation of our consolidated financial statements.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
Michael T. Studer CPA PC
18 East Sunrise Highway, Suite 311
Freeport, NY 11520
Phone: (516) 378-1000
Fax: (516) 546-6220
Email: mts@studercpapc.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
2-Track Global, Inc.
I have audited the accompanying consolidated balance sheets of 2-Track Global, Inc. and subsidiaries (the Company) as of December 31, 2011 and 2010 and the related consolidated statements of operations and comprehensive loss, stockholders' deficiency, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I 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. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of 2-Track Global, Inc. and subsidiaries as of December 31, 2011 and 2010 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company's present financial situation raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Michael T. Studer CPA P.C.
Freeport, New York
August 29, 2012
2-TRACK GLOBAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Expressed in US Dollars)
See notes to consolidated financial statements
2-TRACK GLOBAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in US Dollars)
See notes to consolidated financial statements
2-TRACK GLOBAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Deficiency
For the Years Ended December 31, 2011 and 2010
(Expressed in US Dollars)
See notes to consolidated financial statements
2-TRACK GLOBAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Expressed in US Dollars)
See notes to consolidated financial statements
2-TRACK GLOBAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2011
Note 1. ORGANIZATION AND BUSINESS OPERATIONS
2-Track Global, Inc. ("TOTG") was incorporated in the state of Nevada on March 12, 2002 under the name ECP Ventures, Inc. From March 12, 2002 (inception) to November 30, 2004, TOTG pursued mineral exploration activities. Since November 30, 2004, TOTG has been a holding company.
On November 30, 2004, TOTG acquired 2-Track Limited ("Limited"), a British corporation formed in October 2002, in exchange for 18,000,000 shares of TOTG's common stock (representing 60% of TOTG's issued and outstanding common stock after the exchange transaction). Until November 17, 2008, Limited sold computer applications primarily used by customers for vessel and vehicle fleet management. On November 17, 2008, the Company decided to liquidate Limited and transferred certain assets, liabilities, and operations to 2-Track U.S.A., Inc. ("TTNY"), another wholly owned subsidiary of TOTG, which was incorporated in the state of New York on January 4, 2007. TTNY sells devices and software applications primarily used by business customers for security purposes.
The accompanying consolidated financial statements include the accounts of TOTG and its wholly owned subsidiaries Limited and TTNY (collectively, the "Company"). All inter-company accounts and transactions have been eliminated in consolidation.
Effective October 14, 2011, TOTG effected a 1-for-70 reverse stock split which reduced the number of issued and outstanding shares of TOTG common stock from 61,177,850 shares to 873,970 shares. The consolidated financial statements have been retroactively adjusted to reflect this reverse stock split.
Going Concern
These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America applicable to a going concern which assumes that the Company will realize its assets and discharge its liabilities in the normal course of business. The Company has incurred losses of $5,573,098 since inception and has a working capital deficiency of $ (3,077,532) as at December 31, 2011. These factors create substantial doubt as to the ability of the Company to continue as a going concern. Realization values may be substantially different from the carrying values as shown in these financial statements should the Company be unable to continue as a going concern. Management is in the process of identifying sources for additional financing to fund the ongoing development of the Company's business.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of TOTG and its subsidiaries Limited and TTNY (collectively, the "Company"). All inter-company accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying consolidated financial statements of 2-Track Global, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP).
Use of Estimates
The preparation of financial statements in conformity with US GAAP 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 dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers short-term, highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at lower of cost (first-in, first out method) or market. Where there is evidence that the utility of inventories, in their disposal in the ordinary course of business, will be less than cost, whether due to physical deterioration, obsolescence, changes in price levels, or other causes, a provision is accrued for the difference with charges to cost of sales.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. The Company depreciates its furniture, fixtures and equipment using the straight-line method over the assets' estimated useful lives.
Long-lived Assets
Long-lived assets are reviewed annually for impairment and whenever events or changes in circumstances indicate that the carrying amount of the asset in question may not be recoverable. The Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the fair value of the assets.
Revenue Recognition
The Company enters into agreements to sell products (hardware and software), services, and other arrangements that include combinations of products and services. Revenue from product sales, net of trade discounts and allowances, is recognized provided that persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. Revenue is reduced for estimated product returns and distributor price protection, when appropriate. For sales that include customer-specified acceptance criteria, revenue is recognized after the acceptance criteria have been met. Revenue from services is deferred and recognized over the contractual period or as services are rendered and accepted by the customer. When arrangements include multiple elements, the Company uses objective evidence of fair value to allocate revenue to the elements and recognize revenue when the criteria for revenue recognition have been met for each element. The amount of product revenue recognized is affected by judgments as to whether an arrangement includes multiple elements and if so, whether vendor-specific objective evidence of fair value exists for those elements. Changes to the elements in an arrangement and the ability to establish vendor-specific objective evidence for those elements could affect the timing of the revenue recognition. Most of these conditions are subjective and actual results could vary from the estimated outcome, requiring future adjustments to revenue.
Research and Development
Research and development costs, which covered all expenses incurred in Korean Research Centre, are expensed as incurred.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for the current period and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in Accounting Standards Codification (“ASC”) topic no. 740, “Income Taxes”. As changes in tax laws or rate are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.
Basic and Diluted Net Loss Per Share
The Company computes net income (loss) per share in accordance with ASC topic no. 260, "Earnings per Share". ASC topic no. 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Disclosure about Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments at December 31, 2011 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. The estimated fair value amounts have been determined by using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that could be realized in a current market exchange.
Comprehensive Income
Except for foreign currency translation adjustments, the Company has no items that represent other comprehensive income (loss).
Foreign Currency Translation
The functional currency of TOTG and TTNY is the United States dollar. The functional currency of Limited is the United Kingdom pound sterling ("GBP"). The reporting currency of the Company is the United States dollar. Limited assets and liabilities are translated into United States dollars at year-end exchange rates ($1.5686 and $ 1.5468 at December 31, 2011 and 2010, respectively). Limited revenues and expenses are translated into United States dollars at weighted average exchange rates for the period ($ 1.6040 and $1.5458 for the years ended December 31, 2011 and 2010, respectively). Resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders' equity.
At the date a foreign currency transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction is measured initially in the functional currency of the recording entity by use of the exchange rate in effect at that date. The increase or decrease in expected functional currency cash flows upon settlement of a transaction resulting from a change in exchange rates between the functional currency and the currency in which the transaction is denominated is recognized as foreign currency transaction gain or loss that is included in determining net income for the period in which the exchange rate changes. At each balance sheet date, recorded balances that are denominated in a foreign currency are adjusted to reflect the current exchange rate.
Stock-based Compensation
The Company accounts for stock-based compensation in accordance with ASC topic no. 718, “Compensation - Stock Compensation”. ASC 718 requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost is expensed over the period during which an employee is required to provide service in exchange for the award - the requisite service period (usually the vesting period).
Note 3. INVENTORIES
Inventories consist of:
Effective December 31, 2010, management determined that iTrac 2 devices, iTrac 3devices, and other inventory (which were specially designed for certain customers) were not likely to be available for sale to any other customers due to obsolescence. Accordingly, a $35,050 impairment charge was recorded (increasing cost of sales and decreasing inventories) in the year ended December 31, 2010.
Effective December 31, 2011, management determined that iTrac 2 devices were not likely to be available for sale to any other customers due to internal batteries being fully drained. Accordingly, a $3,510 impairment charge was recorded (increasing cost of sales and decreasing inventories) in the year ended December 31, 2011.
Note 4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consist of:
In February 2010, the Company closed its New Jersey Office due to the lease expiration and abandoned all property and equipment at the location. Accordingly, a $11,235 abandonment charge was recorded to write-off the remaining undepreciated property and equipment.
Note 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES PAYABLE
Accounts payable and accrued expenses payable consist of:
The Company believes that the liabilities relating to 2-Track Limited were effectively discharged as a result of its liquidation on February 17, 2009. As statutory time periods for objections run, the Company will reduce the respective liabilities and recognize other income.
Note 6. RELATED PARTY TRANSACTIONS
Amounts due to Related Parties
Amounts due to related parties consist of:
Other Transactions
Total compensation costs incurred to the Chief Executive Officer and his brother included in research and development expenses in the Statement of Operations for the years ended December 31, 2011 and 2010 were $0 and $141,323, respectively.
In June 2011, pursuant to a contemplated sale of 31,349,277 pre-split shares of common stock by 10 stockholders of the company’s common stock, $100,000 was deposited into escrow along with the shares being sold pursuant to an Escrow Agreement. The Escrow Agreement provided that $25,000 of the $100,000 escrowed for distribution to the stockholders on the sale was to be held for payment of the Company’s independent registered public accounting firm. While the stock sale transaction contemplated was never completed, $10,000 was disbursed from the escrow account on June 29, 2011, resulting in a reduction of previously accrued audit fees at that date and an increase in Company additional paid in capital at that date (since the stockholders paid the $10,000 in audit fees on behalf of the Company).
Note 7. LOANS PAYABLE
Loans payable consist of:
Note 8. INCOME TAXES
No provision for income taxes was recorded in the years ended December 31, 2011 and 2010 since TOTG, TTNY and Limited had taxable losses in these periods.
Based on management's assessment, the Company has not yet determined it to be more likely than not that a deferred tax asset attributable to the future utilization of the United States net operating loss carry forwards as of December 31, 2011 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred tax asset in the financial statements at December 31, 2011. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carry forwards expire in varying amounts from year 2022 to 2031.
Current United States income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
Note 9. PENSION AND EMPLOYMENT LIABILITIES
The Company does not have liabilities as at December 31, 2011 for pension, post-employment benefits or post-retirement benefits. The Company does not have a pension plan.
Note 10. COMMON STOCK
Common Stock
On October 11, 2010, the Company issued 71,429 (5,000,000 pre-split) shares of its common stock to Curing Capital Inc. for investor relations services rendered. Accordingly, $10,000 service compensation has been recorded in the Selling, General and Administrative expenses in the year ended December 31, 2010. The value of the $10,000 is based on 71,429 post-split shares of common stock at October 11, 2010 adjusted closing trading price of $0.14 per share.
Effective October 14, 2011 (see Note 1), the Company effected a 1-for-70 reverse stock split.
Preferred Stock
On October 13, 2011, the Company amended its Articles of Incorporation to authorize 5,000,000 shares of Preferred Stock, par value $0.001 per share. The Preferred Stock is issuable in one or more series with designations of each such series of Preferred Stock as to their rights, voting powers, preferences, privileges, limitations, dividend rights, dividend rates, conversion rights, terms of redemption, redemption prices, and liquidation preferences
Stock Options
In January 2006, the Company adopted a stock incentive plan in order to provide an incentive to eligible employees and officers of the Company. The Employee Stock Incentive Plan is a qualified plan authorizing the issuance of up to 42,857 (3,000,000pre-split) shares pursuant to the Plan. Awards are in the form of incentive stock options or restricted stock awards and are to be administered by a compensation committee or, in the absence of such committee, by the Board of Directors. The Plan has a term of ten years.
The Non-Employee Directors and Consultants Retainer Stock Incentive Plan is a non-qualified plan authorizing the issuance of up to 42,857 (3,000,000 pre split) shares pursuant to the Plan. Awards are in the form of stock options or restricted stock awards and are to be administered by a compensation committee or, in the absence of such committee, by the Board of Directors. The Plan has a term of ten years.
Stock option transactions under the 2006 Plans for the years ended December 31, 2011 and 2010 are summarized as follows:
The exercise price of the remaining 729 (51,000 pre-split) outstanding options at December 31, 2011, which expire March 24, 2014, is $14.70 per share ($0.21 pre-split per share). The aggregate intrinsic value of the outstanding options at December 31, 2011 and 2010 is $0 and $0, respectively.
For the years ended December 31, 2011 and 2010, stock options expense charged to operations was $8,464 and $8,464, respectively. At December 31, 2011, the unrecognized compensation expense was $497.
Note 11. COMMITMENTS AND CONTINGENCIES
Lease Agreements
TTNY subleased its New Jersey office on a month to month basis pursuant to a sublease which term was from February 20, 2009 to February 19, 2010. The monthly rent was $975.
TTNY leased its Korea office under a two year agreement expiring December 29, 2011. The agreement provided for monthly rent of 1,500,000 South Korea Won ($1,340 at the December 31, 2010 exchange rate). On December 31, 2010, the Company closed its Korean Office and vacated the facilities. In December 2010, the Company’s security deposit of $11,990 was seized by a governmental authority as payment toward delinquent Company Korean payroll taxes withheld by it. There were no other exit costs associated with vacating the facilities for the Korean Office other than the seizure of the lease deposit by the government to pay delinquent withholding taxes.
Rent expense for the years ended December 31, 2011 and 2010 was $0 and $19,451, respectively.
Note 12. BUSINESS CONCENTRATIONS
One customer (NDPHC) accounted for 52% of consolidated net sales in the year ended December 31, 2011. Another customer accounted for 28% of consolidated net sales in the year ended December 31, 2011.
The Company had no sales in 2010.
In the year ended December 31, 2011, the Company purchased over 90% of its inventory from 2-Track Solutions, a New Jersey company controlled by the Company’s technical director.
Note 13. SUBSEQUENT EVENTS
On March 29, 2012 the SEC initiated an Administrative Proceeding against six companies including 2-Track, seeking to deregister each company’s class of stock registered under Section 12 of the Securities Exchange Act of 1934 (the “1934 Act”) due to the number of delinquent reports not filed by each company. After two Prehearing Conferences with the SEC, the second being held on July 16, 2012 at which time 2-Track was unable to bring all of its 1934 Act reports current, the SEC issued an Initial Decision dated July 24, 2012 revoking 2-Track’s common stock registration under Section 12 of the 1934 Act. The Initial Decision became final on August 15, 2012.
On August 12, 2012, World Capital Market (“Buyer”) and Woosun (Mike) Jung, TOTG’s chief executive officer, (“Jung”) and 10 other TOTG stockholders (“Other Sellers”, and with Jung collectively, the “Sellers”) entered into a Stock Purcjase Agreement (the “Agreement”). The Agreement provides for the Sellers’ sale of a total of 519,281 shares of TOTG common stock, representing approximately 59% of the 874,500 issued and outstanding shares of TOTG common stock, to the Buyer for a total of $130,000 cash. The $130,000 is to be disbursed as follows: $35,000 to the Sellers, $10,000 to Octagon Investment S.A. for the Assignment of Indebtedness of $100,000 debt owed by the Company to Octagon (see Note 7) to Buyer, $30,000 to the Company’s law firm (of which $5,000 has already been paid), $20,000 to the Company’s independent registered public accounting firm (of which $5,000 has already been paid), and $35,000 to pay other transaction expenses designated by Buyer. Closing of the Agreement is subject to satisfaction on or before August 15, 2012 (extended to August 23, 2012 in an Amendment No. 1 to Agreement dated August 15, 2012 and extended verbally to August 29, 2012) of certain conditions precedent to closing, including TOTG’s filing of certain periodic reports with the Securities and Exchange Commission.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A.(T) CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15 (e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are intended to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b) we carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act 15d-14 as of the end of the year covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are not effective in timely alerting them to material information relating to us that is required to be included in our periodic SEC reports and to ensure that information required to be disclosed in our periodic SEC reports is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure as a result of any deficiency detected in our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for 2-Track Global in accordance with and as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our management periodically assesses the effectiveness of 2-Track's internal control over financial reporting. Based on this assessment, including testing, our management determined that as of the year ended December 31, 2011 our internal controls over financial reporting were not effective in timely alerting management to material information relating to 2-Track that is required to be included in its periodic SEC reports and to ensure that information required to be disclosed in its periodic SEC reports is accumulated and communicated to its management, including 2-Track’s CEO/CFO, to allow timely decisions regarding required disclosure as a result of any deficiency detected in 2-Track’s internal control over financial reporting.
Management identified the following continuing material weaknesses in 2-Track’s financial reporting for its 2011 operations:
1.Deficiencies in segregation of duties. The Company lacked adequate segregation of duties in our financial reporting process, as we have only one officer currently serving in all officer positions who is not a certified public accountant, yet is responsible for performing substantially all internal accounting and financial reporting functions as CFO.
2.2-Track Global utilizes an outside, part-time bookkeeper to prepare its financial statements which sometimes results in delayed financial reports and often significant revisions by 2-Track’s accounting firm to bring such financial reports up to SEC standards.
3.Deficiencies in 2-Track’s written financial reporting procedures. We have insufficient written policies and procedures in place for accounting and financial reporting which resulted in inconsistent preparation and review of account reconciliations and analyses on a timely basis.
4.2-Track does not have an Audit Committee which would normally independently monitor and review 2-Track’s financial reporting process.
The above material weaknesses, along with a lack adequate cash flow, has resulted in 2-Track’s inability to record, process, summarize and file business and financial information within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
To address and remediate these material weaknesses discussed above, we will strive to implement the following changes to our internal controls over financial reporting during the period covered by this report:
For the material weakness concerning deficiencies in segregation of duties and part time bookkeeper, we intend to raise sufficient funds during the current (2012) fiscal year to hire an additional experienced accounting person to better monitor, maintain and assist in our internal accounting and financial reporting functions and increase the frequency of reconciliation of significant accounts and generation of financial reports. If financially possible, such person would serve as 2-Track’s CFO.
For the material weakness concerning deficiencies in the financial reporting process, we will strive to but have not yet developed and implemented sufficient written policies and procedures to better insure timely decisions can be made regarding required disclosures.
For the material weakness concerning our Audit Committee, we will attempt to recruit additional independent members of our Board of Directors who could serve on the Audit Committee to carry out its financial review functions and interact with 2-Track’s independent public accounting firm more effectively and timely. We expect these remedial actions to be pursued and, if financially feasible, implemented during the current fiscal year to allow our controls and procedures over financial reporting to be effective by the end of our current (2012) fiscal year.
Notwithstanding our assessment that our internal controls over financial reporting were not effective and that there were material weaknesses as identified in this report, we believe that our financial statements contained in this Annual Report on Form 10-K for the fiscal year ended December 31, 2011 accurately present our financial condition, results of operations and cash flows in all material respects.
This annual report does not include an attestation report of 2-Track’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by 2-Track’s registered public accounting firm pursuant to temporary rules of the SEC that permit 2-Track to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting.
There was no change in our internal control over financial reporting that occurred during the last fiscal quarter ended December 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B.OTHER INFORMATION
On October 13, 2011, 2-Track amended its Articles of Incorporation to authorize 5,000,000 shares of Preferred Stock, par value $0.001 per share. The Preferred Stock is issuable in one or more series with designations of each such series of Preferred Stock as to their rights, voting powers, preferences, privileges, limitations, dividend rights, dividend rates, conversion rights, terms of redemption, redemption prices, and liquidation preferences.
Effective October 14, 2011, 2-Track effected a 1-for-70 reverse stock split which reduced the number of issued and outstanding shares of 2-Track common stock from 61,177,850 shares to 874,500 shares. The consolidated financial statements have been adjusted to reflect this reverse stock split.
PART III
ITEM 10.
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth information about the directors and executive officers of 2-Track together with the principal positions and offices with 2-Track held by each:
Name of Person
Age
Position and Office Presently Held With 2-
Track
Director Since
Woo Sun Mike Jung
Chief Executive Officer, Chairman, President and Chief Financial Officer
11/30/04
Woo Sun Mike Jung became a Director and President on November 30, 2004. On April 24, 2005 he also assumed the position of Chief Financial Officer. He is a Korean national and has been the managing director of 2-Track Limited since October 2002. He previously served as the Technical Director for Tiger Telematics for hardware purchase from February 2002 to July 2002. He was the European representative for Techway Inc. from September 2000 to January 2002.
The current Director will serve and hold office until the next annual shareholders' meeting or until his respective successors have been duly elected and qualified. Our executive officers are appointed by the Board of Directors and serve at the discretion of the Board
Family Relationships
There are no family relationships between any director and executive officer.
Board Meetings and Actions
The Board of Directors of the Company held no meetings and acted by written consent on three occasions during the year ended December 31, 2011. The sole director during the year 2011 participated in 100% of meetings of the Board held or action by written consent taken during the year 2011.
Corporate Governance
We do not currently have a standing Nominating Committee due to the fact that the Board currently consists of one Director which makes having such a committee unnecessary at this time. The Board does not currently have separately-designated Audit, Executive or Compensation Committees nor does the Board have a designated audit committee financial expert. The functions of these committees are performed by the Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who own more than 10% of our common stock to file reports of ownership on Form 3 and changes in ownership on Form 4 with the Securities and Exchange Commission (the "SEC"). Such executive officers, directors and 10% stockholders are also required by SEC rules to furnish us with copies of all Section 16(a) forms they file. Based solely upon our review of copies of such forms received by us, or on written representations from certain reporting persons that no other filings were required for such persons, we believe that, during the fiscal year ended December 31, 2010, our executive officers and directors and 10% stockholders complied with all applicable Section 16(a) filing requirements.
We have adopted a Code of Ethics applicable to our Chief Executive Officer and Chief Financial Officer. We will provide by mail to any person without charge, upon request, a copy of such code of ethics if we receive the request by e-mail at “www.2-TrackGlobal.com” or in writing by mail to: 2-Track Global, Inc., 716 Newman Springs Road, Suite 307, Lincroft, NJ 07738, Attn: Corporate Secretary
ITEM 11.
ITEM 11.EXECUTIVE COMPENSATION
The following table sets forth the compensation of 2-Track’s Principal Executive Officer during the last two most recently complete fiscal years. No other officer or director received annual compensation in excess of $100,000 during the last completed fiscal year.
SUMMARY COMPENSATION TABLE
(1)While Mr. Jung was paid no salary during 2011 however he was repaid $8,188 of previous advances made to 2-Track.
(2)Amount included compensation paid by 2-Track USA (a wholly-owned subsidiary).
Employment Agreements
There are no employment agreements with any officer or employee of 2-Track.
Incentive and Stock Option Plans
The 2-Track 2006 Employee Stock Incentive Plan was adopted by our Board of Directors and approved by our stockholders on January 31, 2006. This Plan will allow us to grant stock or options as compensation to officers and employees. The Plan is authorized to grant stock or options of up to 42,858 (3,000,000 pre-split) shares. Options to purchase 1,457 (102,000 pre-split) shares of 2-Track common stock were granted under this Plan during 2006. No options were granted during 2010.
OUTSTANDING EQUITY AWARDS AT FISCAL 2011 YEAR-END
(*) Amounts adjusted to reflect October 14, 2011 1-for-70 reverse stock split.
Employee Pension, Profit Sharing or Other Retirement Plans
We do not have a defined benefit pension plan or profit sharing or other retirement plan.
Objectives and Philosophy of our Executive Compensation Program
We do not have a standing compensation committee. Our Board of Directors as a whole makes the decisions as to employee benefit programs and officer and employee compensation. The primary objectives of our executive compensation programs are to:
·attract, retain and motivate skilled and knowledgeable individuals;
·ensure that compensation is aligned with our corporate strategies and business objectives;
·promote the achievement of key strategic and financial performance measures by linking long-term cash and equity incentives to the achievement of measurable corporate performance goals; and
·align executives’ incentives with the creation of stockholder value.
To achieve these objectives, our Board of Directors evaluates our executive compensation program with the objective of setting compensation at levels it believes will allow us to attract and retain qualified executives. We also generally provide a portion of our executive compensation in the form of stock options, which we believe helps us retain our executives and align their interest with those of our stockholders by allowing the executives to participate in our longer term success as reflected in asset growth and stock price appreciation.
Components of our Executive Compensation Program
At this time, the primary elements of our executive compensation program are base salaries and option grant incentive awards, although the Board of Directors has the authority to award cash bonuses, benefits and other forms of compensation as it sees fit.
We do not have any formal or informal policy or target for allocating compensation between short-term and long-term compensation, between cash and non-cash compensation or among the different forms of non-cash compensation. Instead, we have determined subjectively on a case-by-case basis the appropriate level and mix of the various compensation components. Similarly, we do not rely extensively on benchmarking against our competitors in making compensation relation decisions, although we may consider industry compensation trends as one of many factors in our determination of proper compensation.
Base salaries
Base salaries are used to recognize the experience, skills, knowledge and responsibilities required of our named executive officers. Base salary, and other components of compensation, may be evaluated by our Board of Directors for adjustment based on an assessment of the individual’s performance and compensation trends in our industry. In light of the level of the Company’s performance during fiscal year 2010, 2-Track’s President was not expected to be paid any compensation during 2011 compared to $141,323 earned in 2010 and $120,000 base salary in 2009. Due to the current financial position of the Company any compensation to be paid to the Company’s sole executive officer during fiscal year 2012, will depend on 2-Track’s performance and cash flow during 2012.
Equity Awards
Our stock option award program is the primary vehicle for offering long-term incentives to our executives. Our equity awards to executives have typically been made in the form of shares or stock options issued from the 2-Track 2006 Employee Stock Incentive Plan. We believe that equity grants in the form of stock or options provide our executives with a direct link to our long-term performance, create an ownership culture, and align the interests of our executives and our stockholders. Due to the performance of 2-Track during 2011 no stock or stock options were granted to any officer of 2-Track during fiscal year 2011.
Cash Bonuses
Our Board of Directors has the discretion to award cash bonuses based on our financial performance and individual objectives. The corporate financial performance measures (revenues and profits) will be given the greatest weight in this bonus analysis. We have not yet granted any cash bonuses to any named executive officer nor have we yet developed any specific individual objectives while we wait to attain revenue and profitability levels sufficient to undertake any such bonuses. No bonuses were granted during fiscal year 2011.
Benefits and Other Compensation
Our named executive officers are permitted to participate in such health care, disability insurance, retirement and other employee benefit plans as may be in effect with the Company from time to time to the extent the executive is eligible under the terms of those plans. As of the end of fiscal year 2011, we have not implemented any such employee benefit plans.
Compensation of Directors
We currently have a policy of paying $1,000 - $3,000 per month to our non-employee directors as compensation for their services as members of the Board of Directors. Since we have not had non-employee directors during the last three fiscal years, no director payments have been made.
Effective January 31, 2006, we adopted the 2-Track Global, Inc.’s 2006 Non-Employee Directors and Consultants Retainer Stock Incentive Plan. This Plan will allow us to grant stock or options as compensation to non-employee directors and consultants. The Plan is authorized to grant stock or options of up to 42,858 (3,000,000 pre-split) shares. Options to purchase 2,829 (198,000 pre-split) shares of 2-Track common stock were granted under this Plan during 2006. During 2007 Mr. Snortheim was granted 7,143 (500,000 pre-split) shares of common stock under this Non-Employee Director Plan upon his appointment to the Board of Directors. These shares vested in January, 2008 upon the first anniversary date from the date of issuance. No shares or options were granted from this Plan during 2011.
Objectives and Philosophy of our Director Compensation Program
We do not have a standing compensation committee. Consequently, our Board of Directors as a whole makes the decisions as to director benefit programs and compensation. Directors who are full or part time employees of 2-Track are not eligible for compensation or benefits as a director. The primary objectives of our director compensation program are to:
·attract and retain experienced and knowledgeable individuals to serve as directors;
·reimburse directors for the time and expenses incurred in serving as a director;
·allow directors to participate in our longer term asset growth and stock appreciation.
Components of our Director Compensation Program
At the present time, the primary elements of our director compensation program are a base monthly compensation for a director’s services to the Company and stock or option awards.
Monthly Payment
At the present time we offer a monthly stipend of between $1,000 and $3,000 for services rendered by each non-employee member of the Board. The precise amount is determined by the Board based on various factors including the level of Board activity, the level of experience and recognition each member brings to the Board, the length of service of the member, Company’s financial position and such other factors as deemed relevant to such member’s participation on the Board. Due to the absence of non-employee Board members during 2011, the Company did not pay any monthly stipend payment during 2011.
Equity Awards
Our stock and stock option award program is the primary vehicle for offering long-term compensation to Board members. Our current policy is to grant an initial stock award of 500,000 shares to each non-employee director upon joining the Board. The shares typically vest over a one-year period. We may grant additional shares of stock or options to non-employee Board members depending on various factors including the level of Board activity, the level of experience and recognition each member brings to the Board, the overall performance of the Company, and such other factors as deemed relevant to such member’s participation on the Board. Due to the absence of non-employee Board members during fiscal year 2011, no additional stocks or stock options were awarded in 2011.
Limitation of Liability and Indemnification Matters
Our Articles of Incorporation provide that we will indemnify our officers and directors, employees and agents and former officers, directors, employees and agents unless their conduct is finally adjudged as involving intentional misconduct, fraud or a knowing violation of the law and were material to the cause of action. This indemnification includes expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by these individuals in connection with such action, suit, or proceeding, including any appeal thereof, subject to the qualifications contained in Nevada law as it now exists. Expenses (including attorneys’ fees) incurred in defending a civil or criminal action, suit, or proceeding will be paid by us in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he or she is entitled to be indemnified by us as authorized in the Articles of Incorporation. This indemnification will continue as to a person who has ceased to be a director, officer, employee or agent, and will benefit their heirs, executors, and administrators. These indemnification rights are not deemed exclusive of any other rights to which any such person may otherwise be entitled apart from the Articles of Incorporation. Nevada law generally provides that a corporation shall have the power to indemnify persons if they acted in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. In the event any such person is judged liable for negligence or misconduct, this indemnification will apply only if approved by the court in which the action was pending. Any other indemnification shall be made only after the determination by our Board of Directors (excluding any directors who were party to such action), by independent legal counsel in a written opinion, or by a majority vote of stockholders (excluding any stockholders who were parties to such action) to provide such indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of 2-Track pursuant to the foregoing provisions, or otherwise, 2-Track has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, enforceable.
ITEM 12.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth the number of shares of 2-Track’s Common Stock beneficially owned as of December 31, 2011 by, (i) each executive officer and director of 2-Track; (ii) all executive officers and directors of 2-Track as a group; and (iii) owners of more than 5% of 2-Track’s Common Stock.
(1)Amount includes 729 (51,000 pre-split) shares issuable under stock options exercisable within 60 days of December 31, 2011. Amount adjusted to reflect the October 14, 2011 1-for-70 reverse stock split.
(2)Amount retroactively adjusted to reflect the October 14, 2011 1-for-70 reverse stock split.
Equity Compensation Plan Information
Information in the table below is as of December 31, 2011.
(*) Amounts adjusted to reflect the October 14, 2011 1-for-70 reverse stock split.
Changes of Control of Company
Subsequent to the end of the 2011 fiscal year, a Letter of Intent to Purchase Stock of 2-Track Global, Inc. was entered into on July 3, 2012 between World Capital Market (as Buyer) and eleven 2-Track stockholders (as Sellers) who together own approximately 519,281 common shares representing approximately 59% of 2-Track’s total shares outstanding. On August 12, 2012, World Capital Market (“Buyer”) and Woosun (Mike) Jung, TOTG’s chief executive officer, (“Jung”) and 10 other TOTG stockholders (“Other Sellers”, and with Jung collectively, the “Sellers”) entered into a Stock Purchase Agreement (the “Agreement”). The Agreement provides for the Sellers’ to sell a total of 519,281 shares of TOTG common stock, representing approximately 59% of the 874,500 issued and outstanding shares of TOTG common stock, to the Buyer for a total of $130,000 cash, of which a total of $45,000 is to be paid in satisfaction of accounts payable due TOTG’s law firm and independent registered public accounting firm. Closing of the Agreement is subject to satisfaction on or before August 15, 2012 (as extended to August 29, 2012) of certain conditions precedent to closing, including TOTG’s filing of certain periodic reports with the Securities and Exchange Commission.
ITEM 13.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTION, AND DIRECTOR INDEPENDENCE
The President of 2-Track has made loans to the Company of which $8,188 was repaid during 2011 leaving a balance of $1,098,689 outstanding as of December 31, 2011. These loans bear no interest, are unsecured and due on demand.
In the year ended December 31, 2011, the Company purchased over 90% of its inventory from 2-Track Solutions LLC, a New Jersey company controlled by the Company’s technical director.
The President of 2-Track is among ten stockholders who have entered into a Letter of Intent to sell their common shares owned in 2-Track to a third party.
Director Independence
As of March 31, 2012, the sole current 2-Track Director would not be deemed “independent” under the applicable NASDAQ definition. 2-Track anticipates appointing one or more directors to its Board during the current fiscal year who would be deemed independent directors.
ITEM 14.
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
For 2-Track’s fiscal years ended December 31, 2010 and December 31, 2011, 2-Track agreed to pay the following aggregate fees to Michael T. Studer CPA PC (“Studer”).
Audit Fees.
The aggregate fees to be paid Studer by 2-Track for professional services rendered for the audit of 2-Track’s financial statements for the last two fiscal years and for reviews of the financial statements were $10,000 for the fiscal year 2010 and $12,500 for the fiscal year 2011.
Audit Related Fees
None
Tax Fees
None
All Other Fees.
None
All of the services performed by Studer during 2011 were pre-approved by 2-Track’s Board of Directors.
Pre-Approved Policies and Procedures
Prior to retaining Studer to provide services in any fiscal year, the Board of Directors first reviews and approves the accountant’s fee proposal and engagement letter. In the fee proposal, each category of services (Audit, Audit Related, Tax and All Other) is broken down into subcategories that describe the nature of the services to be rendered, and the fees for such services. 2-Track’s pre-approval policy provides that the Board of Directors must specifically pre-approve any engagement of Studer for services outside the scope of the fee proposal and engagement letter.
PART IV
ITEM 15.
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) Incorporated by reference to the Registrant’s Registration Statement on Form SB-2 filed with the SEC on May 27, 2002
(2)Incorporated by reference to Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005 filed with the SEC on April 21, 2006.
* Included with this Form 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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.