U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
INNOVATIVE TRACKING SOLUTIONS CORPORATION
(Name of Small Business Issuer in its charter)
Delaware 33-0728140
- ---------------------------------- -----------------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification
23232 Peralta Drive, Suite 115
Laguna Hills, California 92653-1438
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 949-454-1278
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Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [_] NO [x]
The number of shares of common stock, $.001 par value outstanding
as of March 31, 1999 was 3,785,243.
<PAGE>
Innovative Tracking Solutions Corporation
Table of Contents for Form 10-QSB
Quarter Ended March 31, 1999
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Balance Sheets as of March 31, 1999
(unaudited) 3
Condensed Statements of Operations (unaudited)
for three months ended March 31, 1999 and 1998 4
Condensed Statements of Cash Flows (unaudited)
For three months ended March 31, 1999, 1998. 5
Notes to Condensed Financial Statements (unaudited) 6
ITEM 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations or Plan of
Operations
PART II - OTHER INFORMATION 11
2
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Innovative Tracking Solutions Corporation
(A Development Stage Company)
Condensed Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
March 31,1999
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<S> <C>
ASSETS
Current Assets:
Cash in banks $ 26,329
Accounts receivable 3,147
Inventory 87,294
Prepaid expenses 2,475
Total Current Assets 119,244
Fixed Assets:
Furniture and equipment 41,545
Less: accumulated depreciation (5,699)
Total Fixed Assets 35,846
Other Assets:
Patents, trademarks, licensing agreements 108,665
Less accumulated amortization (6,854)
Total Other Assets 101,811
TOTAL ASSETS $ 256,902
Liabilities & Stockholders' Equity
Current Liabilities:
Accounts payable $ 25,171
Accrued interest payable 619
Accrued salaries 239,423
Note payable 75,000
Total Current Liabilities 340,213
Stockholders' Equity:
Common stocks, $.001 par value
Authorized shares: 10,000,000
Issued and outstanding shares: 3,785,243 3,755
Common stock subscribed 30
Paid in capital 956,961
Subscriptions receivable (60,000)
Deficit accumulated during the development stage (984,057)
Total Stockholders' Equity (83,311)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 256,902
</TABLE>
3
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Innovative Tracking Solutions Corporation
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 1998
--------------------------
<S> <C> <C>
Sales $ 4,275 $ 1,167
Cost of goods sold 418 -
Gross Profit 3,857 1,167
Selling, general and administrative expenses 213,332 114,065
Total Operating Expenses 213,332 114,065
Net loss from operation (209,475) (112,898)
Other Income (Expenses)
Interest income 279 150
Interest expense (619)
Total Other Income (Expenses) (340) 150
Net loss $ (209,814) $ (112,748)
Earnings (loss) per share $ (0.06) $ (0.06)
</TABLE>
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Innovative Tracking Solutions Corporation
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1999 1998
---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (209,814) $ (170,268)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation & amortization 2,082 973
Decrease in accounts receivable 189 -
Decrease in loans receivable - officers 41,952
Increase in inventory (11,305) (21,664)
Decrease in prepaid expenses - 1,050
Increase (decrease) in accounts payable (2,670) 5,353
Increase (decrease) in accrued salaries 23,798
Increase (decrease) in accrued expenses 619 (250)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (155,149) (184,556)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets (3,033) (7,806)
Acquisition of other assets (4,990) (26,479)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (8,023) (34,285)
CASH FLOWS FROM FINANCING ACTIVITIES
Note payable 75,000 18,750
Proceeds from issuance of common stock 137,633 155,403
Paid in Capital (45,683)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 166,950 174,153
INCREASE (DECREASE) IN CASH 3,778 (44,688)
BEGINNING CASH 22,551 52,219
ENDING CASH $ 26,329 $ 7,531
Schedule of noncash transactions
Issuance of stock in exchange for services $ 157
$ 157 -
Disclosure of accounting policy:
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
</TABLE>
5
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Notes to Condensed Financial Statements
- ----------------------------------------
Innovative Tracking Solutions Corporation
(Unaudited)
The accompanying notes are an integral part of these financial statements.
Summary of Significant Accounting Policies
- --------------------------------------------------------------
This summary of significant accounting policies of Innovative Tracking Solutions
Corporation (a development stage company) is presented to assist in
understanding the Company's financial statements. The financial statements and
notes are representations of the Company's management who is responsible for
their integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
Basis of Presentation
- --------------------------------------------------------------
These condensed financial statements of Innovative Tracking Solutions
Corporation should be read in conjunction with the financial statements
and notes thereto included in the Company's Registration Statement
of Form 10-SB. In the opinion of management, the financial information
set forth in the accompanying condensed financial statements reflect all
adjustments necessary for a fair statement of the periods reported, and
all such adjustments were of a normal and recurring nature. Interim results
are not necessarily indicative of results for a full year.
Business Activity
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Innovative Tracking Solutions Corporation (a development stage company) was
incorporated in Delaware on September 4, 1996. The Company is licensed to
manufacture and market patented products. The Company has devoted substantially
all of its efforts in establishing its business and marketing its product line
and has not generated significant revenues.
Revenue & Expense Recognition
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Revenue is recognized when the earning process is complete. Expenses are
recognized as incurred.
Inventory:
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Inventories are stated at cost. Cost is determined by specific identification
of each unit.
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Furniture & Equipment:
- --------------------------------------------------------------
Furniture and equipment are stated at cost. Depreciation is computed using
the straight-line method for both financial statement purposes and income tax
purposes.
Year
Furniture and equipment 7
Patents, trademarks:
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Patents and trademarks are carried at costs. Amortization of patents and
trademarks are provided using the straight-line method for financial reporting
purposes at rates based on the following legal lives:
Years
Patents 17 - 20
Trademarks 20
Primary Net Income (Loss) Per Common Share
- --------------------------------------------------------------
Primary net income per share is based on the average number of shares of common
stock outstanding during the year.
Related Party Transactions
- --------------------------------------------------------------
Accrued salaries of $239,423 are payable to certain officers and stockholders
of the Company.
Note payable to principal stockholder in the amount of $75,000 is payable in
full plus interest at the rate of 8.5% per annum on or before December 31, 1999.
Interest expense related to this note was $619 for the period ended March 31,
1999.
Noncash Consideration
- --------------------------------------------------------------
The Company issued stocks in exchange for services received based on market
value when the stock was in lieu of a cash invoice.
The Company issued stocks in exchange for services received based on par value
when the stock was issued as a performance or on-time bonus.
Income Taxes
- --------------------------------------------------------------
As of March 31, 1999, the Company had available for federal income tax
purposes a net operating loss carry forward of approximately $984,057, which
expired in various years through 2013.
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Leasing Arrangements
- --------------------------------------------------------------
The Company conducts its operations from facility that is leased under a two-
year noncancelable operating lease expiring in April 1999.
In addition, the Company is leasing office equipment under a three-year lease
expiring in November 2000.
The following is a schedule of future minimum rental payments under the above
operating leases as of March 31, 1998:
Year Ending
December 31 Amount
1999 $6,994
2000 3,394
$10,388
Rental expense amounted to $6,962 in 1997 and $3,905 for the three months
ended March 31, 1999.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations or Plan of Operations
- -----------------------------------
The following discussion addresses the Company's condensed financial condition
and results of operations as of and for the three months ended March 31, 1999.
The financial information presented herein will not necessarily be indicative
of future results. Future net losses can be expected as increased expenses
are incurred.
The Company is engaged in the business of product development, manufacturing,
marketing and sale of new innovative products primarily in the healthcare
industry. The Company's lead product, the Private Practice(tm) Vibration
Reminder Disk, was only launched officially in the healthcare industry in
November, 1998. The Company continues to receive orders for the product,
however orders are being received in very low volume. For the three months
ended March 31, 1999, the Company generated only $4,275 of gross revenue from
sale of the product line.
The Company's plan of operations over the next 12 months includes the full
scale industry roll-out of the physical therapy version of the Private
Practice(tm) product and 3 comprehensive product programs; Pressure Ulcer
Prevention, Incontinence and Ergonomics/Injury Prevention to the healthcare
industry. The Company intends to offer private label marketing or
co-distribution opportunities to the pharmaceutical industry for the medication
version of the Private Practice(tm) product in order to avoid the high cost
of marketing directly to consumers for this version and to increase its order
volume.
The Company will also continue to market the product through its network of
independent manufacturer's representatives and other joint distribution
opportunities with existing healthcare product manufacturers in order to reduce
its costs for sales and marketing personnel. The Company will need to increase
its internal staff for day to day operations and management by four to six
people.
In order to improve the longevity of the Private Practice(tm) disk and to
help secure greater sales of the ergonomic version from large entities such as
corporations, insurance companies or state governments, the Company will need
to secure the production a new mold for the vibration reminder disk housing that
incorporates a battery compartment. Although the current device has an
estimated battery life of one year and a low enough initial cost to the end-user
to warrant throwing it away after the battery has been exhausted, an entity
purchasing a large volume of these disks for their employees will in many cases
prefer a changeable battery compartment to avoid the cost of purchasing disks
every year. The cost for this mold is estimated to be $30,000. The company
does not anticipate any additional capital commitments over the next 12 months.
The company will continue to secure services from healthcare industry experts
to gain additional product and program development through payment of the
company's common stock as it has in the past.
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<PAGE>
In addition to its working capital on hand as of the date of this registration
statement, the Company believes that it will require, at least, an additional
$1,000,000 of capital over the next 12 months in order to fund the full scale
roll-out of its products and to finance the continuing operations of the
Company as it endeavors to build revenue and reach profitable operations.
The Company intends to secure additional working capital by commencing a
private placement of its $.001 par value common stock offering 1,000,000
shares pursuant to Regulation D, Rule 505 under the Securities Act of 1933
("1933 Act") at $1.50 per share. The offering will be conducted by management
of the Company. There can be no assurance that the Company will be able to
obtain sufficient additional capital, either through the proposed private
placement or otherwise, in order to fund the Company's working capital
requirements in a timely manner.
Year 2000 Compliance
- ------------------------
With respect to Year 2000 compliance, the Company manufactures two products
that contain microprocessors. The source code for the microprocessors has
been written so that it is not dependent on dates but instead functions on a 24-
hour internal timing routine. To this extent, all products currently being
manufactured by the Company are Year 2000 compliant.
In the beginning of the second quarter of 1999, the Company shall conduct an
audit of its vendors and suppliers to identify relevant Year 2000 issues. At
this time, the Company cannot give a reasonable estimate of the costs associated
with Year 2000 compliance due to an absence of data from its vendors and
suppliers, nor can assurances be offered with respect to third party compliance.
Upon assessment of the answers generated by our Year 2000 questionnaires, a more
realistic picture of the scope and impact of the Year 2000 compliance
challlenges, if any, should allow sufficient time for appropriate remediation
without significant effect on the Company's business, financial condition or
result of operation.
Forward Looking Statements
- ----------------------- ------
This registration statement contains forward-looking statements. The
Company's expectation of results and other forward-looking statements contained
in this registration statement, involve a number of risks and uncertainties.
Among the factors that could cause actual results to differ materially from
those expected are the following: business conditions and general economic
conditions; competitive factors, such as pricing and marketing efforts,
timing of product introductions; and the pace and success of product research
and development. These and other factors may cause expectations to differ.
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<PAGE>
PART II -OTHER INFORMATION
Item 1. Legal Proceedings.
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Court: Supreme Court of the State of New York, County of Nassau
Date preceding began: February 9, 1999
Principal Parties: Strathmore Equity Services, Inc. and
Innovative Tracking Solutions Corporation.
Relief sought: $80,000
Case settled out of court: March 3, 1999
Description of facts underlying the proceedings: Strathmore Equities was paid
by Innovative Tracking Solutions for future radio marketing services in common
stock amounting to 40,000 shares on July 30, 1997. Strathmore Equities was
unable to fulfill their contract for services in full and agreed to receive a
lesser amount of shares totaling 15,000 in full satisfaction of services
performed to date and agreed to be paid in installments of 2,000 common shares
per month. After receiving their first installment, Strathmore Equities
breached a verbal agreement to not sell its shares in such a manner as to create
a downward death spiral of the market price of the stock. Consequently,
Innovative Tracking Solutions Corporation suspended the issue of further monthly
installments. Strathmore Equities then filed suit against Innovative Tracking
Solutions Corporation for breach of contract. Innovative Tracking Solutions
Corporation offered to settle the matter with 12,000 common shares in full
satisfaction of any and all claims and Strathmore Equities agreed to the
settlement on March 3, 1999.
Item 2. Changes in Securities
------------------------
None
Item 3. Defaults Upon Senior Securities
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Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Inapplicable
Item 5. Other Information
------------------------
Inapplicable
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits
---------------
Exhibit 27.
(b) Reports on Form 8-K
----------------
Inapplicable.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
INNOVATIVE TRACKING SOLUTIONS CORPORATION
(Registrant)
By_/s/ DIANNA CLEVELAND
- ---------------------------
Dianna Cleveland, President and C.E.O., Director
Date: April 15th, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
_/s/ LEE A. NAMISNIAK
- ----------------------------
Lee A. Namisniak, Chief Financial/Operating Officer, Director
Date: April 15th, 1999
_/s/ LOU WEISS
- ----------------------
Lou Weiss, Director
Date: April 15th, 1999
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