UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

 

FORM 10-Q

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

EXCHANGE ACT FOR THE TRANSITION PERIOD FROM

_______________ to _______________

 

Commission File Number       333-89208

 

2-TRACK GLOBAL, INC.

(Exact name of small business issuer as specified in its charter)

 

NEVADA		41-2036671
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
716 Newman Springs Road, Ste.307 Lincroft, New Jersey		07738
(Address of Principal Executive Offices)		(Zip Code)
Issuer's telephone number:		(646) 450-6260

 

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:                        Yes ¨   No x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes

¨

No

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (Check one):

 

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company x

 

The number of shares of the issuer’s common stock outstanding as of August 29, 2012 was 874,500.

 

 

INDEX

 

PART I - FINANCIAL INFORMATION		3
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
ITEM 4.	CONTROLS AND PROCEDURES	19
PART II - OTHER INFORMATION		22
ITEM 1A.	RISK FACTORS	22
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES	24
ITEM 5.	OTHER INFORMATION	24
ITEM 6.	EXHIBITS	24
SIGNATURES		25

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

 

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011 (Audited)	4
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six months ended June 30, 2012 and 2011 (Unaudited)	5
Consolidated Statements of Cash Flows for the Six months ended June 30, 2012 and 2011 (Unaudited)	6
Notes to Unaudited Consolidated Financial Statements	7

 

 

2-TRACK GLOBAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Expressed in US Dollars)

 

		June 30, 2012				December 31, 2011
		(Unaudited)				(Audited)
ASSETS
Current Assets
Cash and cash equivalents		$	294			$	170
Prepaid expenses			75				75
Total Current Assets			369				245
Security deposits			-				-
Property and equipment, net of accumulated depreciation			2,074				2,318
Total Assets		$	2,443			$	2,563
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Accounts payable and accrued expenses payable		$	1,279,427			$	1,277,735
Amounts due to related parties and former directors			1,394,237				1,394,237
Loans payable			405,805				405,805
Total Current Liabilities			3,079,469				3,077,777
Stockholders' Deficiency
Preferred stock, par value $0.001 per share; authorized
5,000,000 shares, none issued			-				-
Common stock, par value $0.001 per share; authorized
75,000,000 shares, issued and outstanding 874,500 and
874,500 shares, respectively			874				874
Additional paid-in capital			2,485,809				2,480,312
Accumulated deficit			(5,580,407	)			(5,573,098	)
Accumulated other comprehensive income			16,698				16,698
Total Stockholders' Deficiency			(3,077,026	)			(3,075,214	)
Total Liabilities & Stockholders' Deficiency		$	2,443			$	2,563

 

See notes to consolidated financial statements

 

 

2-TRACK GLOBAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Expressed in US Dollars)

(Unaudited)

 

		Three Months ended June 30,								Six Months ended June 30,
		2012				2011				2012				2011
Net sales		$	-			$	76,902			$	-			$	76,902
Cost of sales			-				41,768				-				41,768
Gross profit			-				35,134				-				35,134
Operating expenses:
Selling, general and administrative			129				24,713				759				27,162
Depreciation of property and equipment			122				-				244				-
Total operating expenses			251				24,713				1,003				27,162
Loss from operations			(251	)			10,421				(1,003	)			7,972
Other income (expenses)
Interest income			-				-				-				-
Interest expense			(3,153	)			(3,153	)			(6,306	)			(6,306	)
Income (loss) before income taxes			(3,404	)			7,268				(7,309	)			1,666
Income taxes			-				-				-				-
Net income (loss)		$	(3,404	)		$	7,268			$	(7,309	)		$	1,666
Net income (loss) per share - basic and diluted		$	(0.00	)		$	0.01			$	(0.01	)		$	0.00
Weighted average number of common shares
used to compute net loss per share-basic and diluted			874,500				873,970				874,500				873,970
Comprehensive Income (Loss)
Net income (loss)		$	(3,404	)		$	7,268			$	(7,309	)		$	1,666
Foreign currency translation adjustment			-				-				-				-
Compensive income (loss)		$	(3,404	)		$	7,268			$	(7,309	)		$	1,666

 

See notes to consolidated financial statements

 

 

2-TRACK GLOBAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Expressed in US Dollars)

(Unaudited)

 

 

		Six Months Ended
		June 30,				June 30,
Cash Flows from Operating Activities:		2012				2011
Net income (loss)		$	(7,309	)		$	1,666
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation of property and equipment			244				-
Stock-based compensation			497				4,480
Changes in operating assets and liabilities
Accounts payable and accrued expenses payable			6,692				6,306
Net cash provided by operating activities			124				12,452
Cash Flows from Investing Activities:			-				-
Cash Flows from Financing Activities:			-				-
Increase in cash and cash equivalents			124				12,452
Cash and cash equivalents, beginning of the period			170				58
Cash and cash equivalents, end of the period		$	294			$	12,510
Supplemental disclosures of cash flow information
Interest paid		$	-			$	-
Income taxes paid		$	-			$	-
Schedule of non-cash financing activitity:
June 2012 and June 2011 payments of prior year accrued audit fees by Company stockholders on behalf of Company pursuant to Escrow Agreements executed for contemplated sale of their common stock		$	5,000			$	10,000

 

See notes to consolidated financial statements

 

 

2-TRACK GLOBAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

 

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 $5,580,407 since inception and has a working capital deficiency of $ (3,079,100) as at June 30, 2012. 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.

 

  

2-TRACK GLOBAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

 

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Interim Financial Statements

 

The unaudited financial statements as of June 30, 2012 and for the three and six months ended June 30, 2012 and 2011 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of June 30, 2012 and the results of operations and cash flows for the three and six months ended June 30, 2012 and 2011. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and six months period ended June 30, 2012 are not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending December 31, 2012. The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2011 as included in our report on Form 10-K.

 

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.

 

2-TRACK GLOBAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

 

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.

 

 

2-TRACK GLOBAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

 

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 June 30, 2012 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.

 

 

2-TRACK GLOBAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

 

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 period-end exchange rates ($ 1.6013 and $1.5686 at June 30, 2012 and December 31, 2011, respectively). Limited revenues and expenses are translated into United States dollars at weighted average exchange rates for the period ($ 1.5759 and $1.6165 for the six months ended June 30, 2012 and 2011, 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).

 

 

2-TRACK GLOBAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

 

Note 3. PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net, consist of:

 

		June 30, 2012				December 31, 2011
Furniture, Fixtures and Equipment		$	2,440			$	2,440
Accumulated depreciation			(366	)			(122	)
Net		$	2,074			$	2,318

 

 

Note 4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES PAYABLE

 

Accounts payable and accrued expenses payable consist of:

 

		June 30, 2012				December 31, 2011
Vendors and service providers:
2-Track Global, Inc.		$	75,209			$	80,209
2-Track U.S.A., Inc. Korea office (including Korea
tax withheld of $59,703 and $59,703, respectively)			59,703				59,703
2-Track U.S.A., Inc. other			802,308				795,616
2-Track Limited			302,447				302,447
Accrued interest payable			39,760				39,760
Total		$	1,279,427			$	1,277,735

 

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 5. AMOUNTS DUE TO RELATED PARTIES

 

Amounts due to related parties consist of:

 

		June 30, 2012				December 31, 2011
Unpaid compensation:
Chief executive officer		$	78,384			$	78,384
Consultant and former director			440,000				440,000
Former director			12,000				12,000
Advances payable (non-interest bearing, due on demand):
Chief executive officer			295,811				295,811
Consultant and former director			1,206				1,206
Former director			5,089				5,089
Brother of chief executive officer			561,747				561,747
Total		$	1,394,237			$	1,394,237

 

 

2-TRACK GLOBAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

 

Note 6. LOANS PAYABLE

 

Loans payable consist of:

		June 30, 2012				December 31, 2011
Due Octagon Investments, S.A., interest at 5%, due on
demand, convertible into shares of common stock at a
price of $0.39 per share		$	100,000			$	100,000
Due investor, interest at 10.7%, due on demand			28,000				28,000
Due to Company’s former technical director,
interest at 0%, due on demand			46,000				46,000
Advance payable to service provider, interest at 0%, due on demand			1,083				1,083
Due to an unrelated party, interest at 2%, due on demand			230,722				230,722
Total		$	405,805			$	405,805

 

 

Note 7. INCOME TAXES

 

No provision for income taxes was recorded in the six months ended June 30, 2012 and 2011 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 June 30, 2012 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred tax asset in the financial statements at June 30, 2012. 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 2033.

 

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 8. PENSION AND EMPLOYMENT LIABILITIES

 

The Company does not have liabilities as at June 30, 2012 for pension, post-employment benefits or post-retirement benefits. The Company does not have a pension plan.

 

 

2-TRACK GLOBAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

 

Note 9. 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 of 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.

 

  

2-TRACK GLOBAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2012

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 three months ended March 31, 2012 and for the year ended December 31, 2011 are summarized as follows:

 

 

		Six Months Ended June 30, 2012				Year Ended December 31, 2011
Options outstanding, beginning of year			729				4,286
Granted			-				-
Exercised			-				-
Forfeited/expired			-				(3,557	)
Options outstanding, end of the period			729				729
Options exercisable, end of  the period			729				729

 

The exercise price of the remaining 729 (51,000 pre-split) outstanding options at June 30, 2012, 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 June 30, 2012 and December 31, 2011 is $0 and $0, respectively.

 

For the six months ended June 30, 2012 and 2011, stock options expense charged to operations was $497 and $2,240, respectively. At June 30, 2012, the unrecognized compensation expense was $0.

 

 

Note 10. 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 (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 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

 

Caution About Forward-Looking Statements

 

This Form 10-Q includes “forward-looking” statements about future financial results, future business changes and other events that have not yet occurred.  For example, statements like 2-Track “expects,” “anticipates” or “believes” are forward-looking statements.  Investors should be aware that actual results may differ materially from 2-Track's expressed expectations because of risks and uncertainties about the future.  2-Track does not undertake to update the information in this Form 10-Q if any forward-looking statement later turns out to be inaccurate.  Details about risks affecting various aspects of 2-Track’s business are discussed throughout this Form 10-Q and should be considered carefully.

 

Plan of Operation for the Next Twelve Months

 

2-Track conducts its business primarily through its wholly-owned subsidiary 2-Track U.S.A., Inc. ("TTNY"). TTNY is now the primary operating entity of 2-Track. 2-Track also maintains a sales and research facility in New Jersey. 2-Track has been engaged in developing and marketing asset tracking and security technologies. 

 

Business Operations Overview

 

Technical Roll-Out

 

During the quarter ended June 30, 2012 2-Track continued to enhance its ASP services and adding new alerting features, reports and stabilizing the platform for use with larger scale applications.

 

In addition, we continue to analyze new software for upgrading our capability to support new device types.

 

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. Condor, which currently sells in the UK, Africa, and the Middle East, in a GPRS format, has been expanded through the addition of LEO+GPRS as well as higher spec hardware for the US market.

 

Territorially 2-Track is placing a strong emphasis on developing emerging markets in Africa, the Middle East, and India markets which are characterized by a strong security need and poor wireless network infrastructure or political risk. We are also marketing higher spec products in the US.

 

 

2-Track has now started to deal with two large corporate security firms as well as expanding to the retail market. 2-Track anticipates good support within the distribution and dealership communities. In October 2009, 2 Track appointed Niscayah as its US based distributor for corporate sector in the USA. During 2011, 2-Track appointed additional distributors in USA, Asia, Middle East, and Africa including the US distributor 2-Track Solutions LLC which is independently owned and operated.

 

Results of Operation

 

Three-Month Period Ended June 30, 2012 versus 2011

 

During the quarter ended June 30, 2012, we had no revenues compared to $76,902 of revenue for the same quarter of 2011. The decreased revenue was attributable to the decreased sales in India and Nigeria where we had hoped to generate ongoing sales revenue. Cost of sales decreased to zero for the second quarter of 2012 compared to $41,768 for the second quarter of 2011. The decrease in cost of sales was commensurate with the lack of sales during the second quarter of 2012. Gross profit was zero in the second quarter of 2012 compared to $35,134 for the same quarter of 2011 reflecting the substantially higher sales revenue for the second quarter of 2011. Cost of sales as a percentage of sales decreased from 54% in 2011 to zero in the second quarter of 2012. The decrease in gross profit in the current quarter is due to the lack of any sales revenue or cost of sales compared to sales revenue in the second quarter of 2011.

 

Operating expenses decreased significantly from $24,713 for the quarter ended June 30, 2011 to $251 for the same quarter in 2012. Operating expenses consisting of selling expenses incurred by the Company’s CEO decreased significantly from $24,713 in the second quarter of 2011 down to $129 for the same quarter of 2012 as the Company sought to reduce expenditures until revenues were realized. The Company incurred no research and development expenses or professional and consulting fees due to the need to curtail such expenses as a result of the Company’s financial condition.

 

We incurred a net loss of $3,404 for the quarter ended June 30, 2012 compared to net income of $7,268 for the same quarter in 2011. The net loss in the second quarter of 2012 is a result of a lack of sales revenue during the current fiscal quarter.

 

Six-Month Period Ended June 30, 2012 versus 2011

 

2-Track had no revenues for the six months ended June 30, 2012 compared to $76,902 of revenue realized for the six months ended June 30, 2011 of which 80% of these 2011 revenues came from two customers. Cost of goods sold was zero for the first six months of 2012 compared to $41,768 of cost of goods sold for the same six month period of 2011 which is commensurate with the absence of sales revenue during 2012. Cost of goods sold as a percentage of sales decreased from 54% for the first six months of 2011 to zero in the same period of 2012. Gross profit was zero for the first six months of 2012 compared to $35,134 for the same period of 2011 reflecting the much higher sales revenue in the second quarter of 2011.

 

 

Operating expenses decreased substantially to $1,003 for the six months ended June 30, 2012 from $27,162 for the same period in 2011. The sharp decrease was due primarily to the decreased expenses relating to selling and administrative expenses as the Company sought to reduce overall operating expenses. The Company had no research and development costs or professional and consulting fees during the first six months of 2012 and 2011 reflecting the Company’s lack of operating capital. The Company had a net loss for the six months ended June 30, 2012 of $7,309 compared to net income of $1,666 recorded for the same period of 2011 primarily due to higher sales revenue during the first six months of 2011.

 

Off-Balance Sheet Arrangements

  

During the quarter ended June 30, 2012, 2-Track did not engage in any off-balance sheet arrangements as defined in Item 303 (a) of the SEC’s Regulation S-K.

 

Liquidity and Sources of Capital

 

2-Track has incurred operating losses since its inception, and, as of June 30, 2012, 2-Track had an accumulated deficit of $5,580,407.  At June 30, 2012, 2-Track had cash and cash equivalents of $294 and a working capital deficit of $3,079,100.  With this operating deficit, 2-Track will require additional debt or equity capital to cover its business plan and growth, and the repayment of debt obligations. During the second quarter of 2012, we did not raise any outside capital investments.

 

We hope to secure a minimum of $500,000 in additional working capital during fiscal year 2012 to fund our business development and growth.  It is our intention to pursue other equity and debt-based funding strategies through the issuance of additional stock and/or long-term borrowing commensurate with a responsible level of debt. 

 

Due to our limited cash flow and history of operating losses, it is unlikely that we could obtain financing through commercial or banking sources. Consequently, we are dependent on continuous cash infusions from major investors, debt financing and the exercise of outstanding options in order to fund our current operations. If these sources of capital were unwilling or unable to provide additional working capital to us, we would probably not be able to sustain our full range of operations and could jeopardize our ability to continue operations.  There is no written agreement or contractual obligation which would require our past funding sources to fund our future operations up to certain amounts or indeed continue to finance our operations at all.  Although we believe that current and/or future investors will continue to fund our expenses, there is no assurance that such investors will continue to fund our ongoing operations or the terms upon which such investments will be made. 

 

 

Critical Accounting Policies

 

Revenue Recognition

 

The Company enters into agreements to sell products (hardware or 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, we use 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 our 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.

 

2-Track’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of financial statements requires managers to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures on the date of the financial statements.  On an on-going basis, 2-Track's accountants' evaluate the estimates, including, but not limited to, those related to revenue recognition.   2-Track uses authoritative pronouncements, historical experience and other assumptions as the basis for making judgments.  Actual results could differ from those estimates. 

 

2-Track has adopted the fair value based method of accounting prescribed in Accounting Standards Codification (“CAS”) 718, “Compensation – Stock Compensation” for its employee stock option plans.

 

ITEM 4.

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 designed 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 quarter 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 Quarterly 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 intended 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 quarter ended March 31, 2012 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 2012 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 Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2012 accurately present our financial condition, results of operations and cash flows in all material respects.

 

This quarterly 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 have been no significant changes in 2-Track’s internal controls over financial reporting or in other factors which occurred during the quarter covered by this report, which could materially affect or are reasonably likely to materially affect 2-Track’s internal controls over financial reporting.

 

 

PART II - OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

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.

 

ITEM 1A.

RISK FACTORS

 

Except for a modest net income in 2011, we have previously incurred operating losses in our business. As a result of the 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.

 

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;

 

·

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 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 technology 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 change from the current unfavorable economic conditions. 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. Factors including general fluctuations in securities markets, reaction to economic news and amount of market risk acceptable to investors could affect the price of our stock and could cause such stock price to fluctuate significantly over short periods of time.

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES

 

2-Track sold no unregistered securities during the quarter ended June 30, 2012.

 

ITEM 5.

OTHER INFORMATION

 

Subsequent to the quarter covered by this report, a Stock Purchase Agreement relating to the outstanding common stock of 2-Track Global, Inc. was entered into on August 12, 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 6.

EXHIBITS

 

                  (a)  The following documents are filed as exhibits to this report:

 

Exhibits
31.1		Certification by CEO pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
31.2		Certification by CFO pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
32.1		Certification by CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated:  August 29, 2012	2-TRACK GLOBAL, INC.
	/s/ Woosun Jung
	Woosun Jung
	Chief Executive Officer
Dated:  August 29, 2012
	/s/ Woosun Jung
	Woosun Jung
	Chief Financial Officer