U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ______________ to ______________
Commission file number: 333-49388
I-TRACK, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 91-1966948
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3031 COMMERCE DRIVE, BUILDING B, FORT GRATIOT, MICHIGAN 48059
(Address of principal executive offices)
(810) 385-2061
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed
since last report)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
23,696,900 SHARES OF COMMON STOCK, $0.001 PAR VALUE,
AS OF JUNE 30, 2002
Transitional Small Business Disclosure Format (check one); Yes No X
----- -----
I-TRACK, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. - Financial Statements
- Independent Accountant's Report............................4
- Balance Sheet (unaudited)
June 30, 2002 ............................................5
- Statements of Operations (unaudited)
Three and Six Months Ended June 30, 2002
and 2001, and Period from Inception
(March 8, 1999) through June 30, 2002 .....................6
- Statements of Cash Flows (unaudited) Six
Months Ended June 30, 2002 and 2001, and Period
from Inception (March 8, 1999) through
June 30, 2002 .............................................7
- Notes to Financial Statements .............................8
Item 2. - Management's Discussion and Analysis or
Plan of Operations .......................................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..........................................13
Item 2. Changes in Securities ......................................13
Item 3. Defaults Upon Senior Securities ............................13
Item 4. Submission of Matters to a Vote of Security Holders ........13
Item 5. Other Information ..........................................13
Item 6. Exhibits and Reports on Form 8-K ...........................13
SIGNATURES ...................................................................15
2
i-TRACK, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
3
INDEPENDENT ACCOUNTANTS' REPORT
We have reviewed the accompanying balance sheet of i-Track, Inc. as of
June 30, 2002 and the statements of operations for the three and six month
periods ended June 30, 2002 and June 30, 2001 and for the period from inception
to June 30, 2002 and statements of cash flows for the six month periods ended
June 30, 2002 and 2001 and the period from inception to June 30, 2002. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, the Company is dependent upon AVL Information Systems,
Ltd. and AVL Information Systems, Inc. for purchase of materials it sells,
provision of management services and the repayment of amounts loaned at June 30,
2002. Those conditions raise substantial doubt about its ability to continue as
a going concern. Management's plans regarding those matters are also described
in Note 4. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
EDWARDS, MELTON, ELLIS, KOSHIW AND COMPANY, P.C.
Troy, Michigan
August 6, 2002
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i-TRACK, INC.
F/K/A/ AVL SYS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 2002
(Unaudited)
ASSETS
Current assets:
Cash $ 1,701
Accounts receivable - trade, net of an allowance
for doubtful accounts of $35,000 13,371
Accrued interest receivable from
related parties 49,656
-------------
Total current assets 64,728
Notes receivable from related parties 1,271,162
-------------
$ 1,335,890
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,787
-------------
Total current liabilities 19,787
Stockholders' equity:
Preferred stock, 1,000,000 shares
authorized, $0.01 par value, none -
issued or outstanding
Common stock, 50,000,000 shares
authorized, $0.001 par value,
23,696,900 issued and outstanding 23,697
Additional paid-in capital 1,493,453
Stock issuance costs (148,355)
Deficit accumulated during the
development stage (52,692)
-------------
1,316,103
-------------
$ 1,335,890
=============
The accompanying notes are an integral part of the financial statements.
5
i-TRACK, INC.
F/K/A AVL SYS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(Unaudited)
For the three For the three For the six For the six For the period
months ended months ended months ended months ended March 8, 1999
June 30, June 30, June 30, June 30, (inception) through
2002 2001 2002 2001 June 30, 2002
------------- ------------- ------------ ------------ -------------------
Revenue $ 68,056 $ - $ 215,312 $ - $ 289,671
Operating expenses:
Cost of goods sold 55,860 - 181,300 - 244,660
General and administrative expenses 21,946 4,055 55,578 4,124 124,859
Management fees to related party 7,500 - 15,000 - 22,500
------------- ------------- ------------ ------------ ---------------
Total costs and expenses 85,306 4,055 251,878 (4,124) 392,019
------------- ------------- ------------ ------------ ---------------
Operating loss (17,250) (4,055) (36,566) (4,124) (102,348)
Other income (expense):
Interest income from related parties 9,534 - 35,241 - 49,656
------------- ------------- ------------ ------------ --------------
Net income (loss) $ (7,716) $ (4,055) $ (1,325) $ (4,124) $ (52,692)
============= ============= ============ ============ ==============
Weighted average number of common
shares outstanding 23,696,900 19,505,556 23,696,900 19,102,778 20,011,366
============= ============= ============ ============= ==============
Net income (loss) per common share $ - $ - $ - $ - $ -
============= ============= ============ ============= ==============
The accompanying notes are an integral part of the financial statements.
6
i-TRACK, INC.
F/K/A AVL SYS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six For the six For the period
months ended months ended March 8, 1999
June 30, June 30, (inception) through
2002 2001 June 30, 2002
------------ ------------- -------------------
Cash flows from operating activities
Net income (loss) $ (1,325) $ (4,124) $ (52,692)
Adjustments to reconcile net income (loss)
to net cash used in operating
activities:
(Increase) decrease in assets:
Accounts receivable 988 - (13,371)
Accrued interest receivable (35,241) - (49,656)
Increase (decrease) in liabilities:
Accounts payable 16,009 17,213 19,787
Issuance of stock for services - - 1,200
------------ ------------- ---------------
(18,244) 17,213 (42,040)
------------ ------------- ---------------
Net cash provided by (used in) operating
activities (19,569) 13,089 (94,732)
Cash flows from investing activities - - -
Cash flows from financing activities:
Proceeds (repayments) of operating
advance-related party - 11,385 15,000
Proceeds from stock issuance - 250,000 400,950
Stock issuance costs - (28,005) (148,355)
Proceeds from(advances to) related party 18,598 - (171,162)
------------ ------------- ---------------
Net cash used in financing activities 18,598 233,380 96,433
------------ ------------- ---------------
Net increase (decrease) in cash (971) 246,469 1,701
Beginning cash 2,672 4,479 -
------------ ------------- ---------------
Ending cash $ 1,701 $ 250,948 $ 1,701
============ ============= ===============
The accompanying notes are an integral part of the financial statements.
7
i-TRACK, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information and Item 310(b) of Regulation S-B. They do not include all
of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year. For
further information refer to the audited financial statements of the Company as
of December 31, 2001, including notes thereto, included in the Company's
Registration Statement on Form SB-1.
NOTE 2: EARNINGS PER SHARE
The Company calculates net income (loss) per share as required by SFAS No.
128, "Earnings per Share." Basic earnings (loss) per share is calculated by
dividing net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share is calculated by
dividing net income (loss) by the weighted average number of common shares and
dilutive common stock equivalents outstanding. During the periods presented,
common stock equivalents were not considered, as their effect would be
anti-dilutive.
NOTE 3: ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts was increased by management to $35,000
to provide for uncollectable accounts receivable and notes receivable at June
30, 2002.
NOTE 4: GOING CONCERN
The Company has been a development stage company since its inception on
March 8, 1999. The Company is dependent upon AVL Information Systems, Ltd. and
its subsidiary to provide all of its products sold and to supply management
services. Because of the uncertainty of AVL Information Systems, Ltd. to
continue as a going concern to supply these products and services and to
generate sufficient cash flow to repay the $1,271,162 notes receivable, there is
substantial doubt about the Company's ability to continue as a going concern.
Management is investigating the acquisition of the U.S. subsidiary, AVL
Information Systems, Inc. from AVL Information Systems, Ltd.
The accompanying financial statements do not include an adjustment that
might result from the outcome of this uncertainty.
8
i-TRACK, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)
NOTE 5: SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES
For the three For the three For the period
months ended months ended March 8, 1999
June 30, June 30, (inception) through
2002 2001 June 30, 2002
------------- ------------- -------------------
Issuance of 15,000,000 shares of
stock to satisfy debt $ - $ - $ 15,000
============= ============= =============
Issuance of 1,200,000 shares of
stock for service rendered $ - $ - $ 1,200
============= ============= =============
Net cash from stock proceeds
received by a related corporation
in exchange for note receivable
from that related corporation $ - $ - $ 1,100,000
============= ============= =============
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Unless the context otherwise requires, the terms "we", "our" and "us" refers to
i-Track, Inc.
CAUTION
Certain statements in this Quarterly Report on Form 10-QSB, our audited
financial statements for the fiscal year ended December 31, 2001 as filed in our
annual report on Form 10-KSB, as well as statements made by us in periodic press
releases, oral statements made by our officials to analysts and shareholders in
the course of presentations about ourselves, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause the actual results, performance
or achievements of us to be materially different from any future results,
performance or achievements expressed or implied by the forward looking
statements. Such factors include, among other things, (1) general economic and
business conditions; (2) interest rate changes; (3) the relative stability of
the debt and equity markets; (4) competition; (5) the availability and cost of
our products; (6) demographic changes; (7) government regulations particularly
those related to automatic vehicle location industry; (8) required accounting
changes; (9) equipment failures, power outages, or other events that may
interrupt Internet communications; (10) disputes or claims regarding our
proprietary rights to our software and intellectual property; and (11) other
factors over which we have little or no control.
OVERVIEW
We were incorporated in the state of Nevada on March 8, 1999 by AVL Information
Systems Ltd. and its principal officer and directors. AVL Information Systems
Ltd. is a Canadian public company that owns and licenses certain technology and
automatic vehicle location systems. Effective September 30, 2001, we entered
into an exclusive worldwide distribution agreement with AVL Information Systems
Ltd. Under the agreement, we are licensed to market and distribute all of the
products manufactured by AVL Information Systems Ltd.
We are in the development stage and have generated minimal revenues. We have a
deficit accumulated during the development stage of $52,692 as of June 30, 2002.
We have suffered losses from operations and require additional financing.
Moreover, we are dependent upon AVL Information Systems Ltd. and its subsidiary
to provide all of our products and management services. Because of the
uncertainty of AVL Information Systems Ltd. to continue as a going concern to
supply these products and services, and to generate sufficient cash flow to
repay the $1,271,162 of notes receivable, there is substantial doubt about our
ability to continue as a going concern. While we are investigating the
acquisition of the U.S. subsidiary of AVL Information Systems in partial
satisfaction of the debt, we cannot assure you that this acquisition will occur
or that it will eliminate this doubt about our ability to continue.
10
RESULTS FROM OPERATIONS
We generated our first revenues during the last quarter of fiscal 2001. For the
three and six months ended June 30, 2002, we generated revenues of $68,056 and
$215,312, respectively. Cost of goods sold, as a percentage of revenues, was
82.1% and 84.2% for these periods, respectively. General and administrative
expenses increased from $4,124 during the first six months of 2001 to $55,578 in
2002, an increase of 1248%. In addition, we incurred management fees of $15,000
in 2002 that were not incurred in 2001. As a result, we incurred an operating
loss of $36,566 for the six months ended June 30, 2002, as compared to $4,124
for the six months ended June 30, 2001. The operating loss for the three months
ended June 30, 2002 was $17,250, as compared to $4,055 for the three months
ended June 30, 2001.
However, due to interest income of $9,534 and $35,241 for the three and six
months ended June 30, 2002, on the notes receivable from related parties, our
net loss for the three and six month periods were $7,716 and $1,325,
respectively.
LIQUIDITY AND FINANCIAL CONDITION
For the six months ended June 30, 2002, the statement of cash flows reflects net
cash used in operating activities of $19,569, and net cash provided by financing
activities of $18,598. For the six months ended June 30, 2001, operating
activities provided cash of $13,089 and financing activities, primarily the sale
of stock described below, provided cash of $233,380.
On November 6, 2000, we filed a registration statement on Form SB-1 with the SEC
(file number 333-49388) for the offer and sale of 2,500,000 units, at a price
$0.10 per unit, with each unit consisting of one share of common stock and one
warrant to purchase one share of common stock. Our registration statement was
declared effective on April 10, 2001. We completed the offering on April 30,
2001, selling 2,500,000 Units for gross proceeds in the amount of $250,000. The
total amount of offering expenses were $28,005, with net proceeds of $221,995.
In August and September, 2001, we advanced a total of $209,000 to our affiliate,
AVL Information Systems Ltd., toward the purchase of 600 Chaperone tracking
units and marketing materials. This advance depleted most of our cash, leaving
$30,052 at September 30, 2001.
In October 2001, warrants for the purchase of 2,146,900 shares of our common
stock were exercised for $1,073,450. Theses funds have also been advanced to AVL
Information Systems Ltd. toward the purchase of tracking units. An additional
346,900 warrants were exercised in November 2001.
At June 30, 2002, we had cash of $1,701 and working capital of $44,941. This
compares to cash of $2,672, and working capital of $31,446 at December 31, 2001.
However, $49,656 of our current assets at June 30, 2002 was accrued interest
receivable from related parties. As described in Note 4 of the Notes to
Financial Statements, $1,271,162 is owed by AVL Information Systems Ltd. and its
subsidiary. Each of these entities received a going concern opinion on the audit
of its financial statements.
11
We loaned funds to AVL Information Systems and its subsidiary to enable those
entities to get the Chaperone units to market more quickly. Through December 31,
2001, we had orders for approximately 5,000 units of the Chaperone unit, and
through June 30, 2002, we had orders for approximately 8,500 units. While we
had revenues of $215,312 for the six months ended June 30, 2002, sales at this
level are not sufficient to cover our operating expenses or to engage in the
type of marketing campaign that we need to pursue. We are not expecting
significant repayment from AVL during the current fiscal year. Accordingly, we
will have to pursue funding from external sources through a line of credit
arrangement and/or the sale of debt and/or equity securities. We cannot assure
you that we will be successful in these pursuits.
PLAN OF OPERATION
At this time, we intend to establish relationships with a number of other
companies to accelerate the implementation of the distribution agreement and the
sale of the Spryte and Chaperone Systems(TM). We believe that our status as a
U.S. publicly traded company will assist us in establishing strategic alliances
because of our perceived level of credibility and access to capital in the U.S.
markets. We intend to establish relationships with existing companies engaged in
the automatic vehicle location industry, wireless carriers, manufacturers,
distributors, and Internet companies. We intend to create relationships and to
retain consultants and contractors with established connections in the
telecommunication and application service provider industries. We foresee that
the compensation would be commission based. Depending upon the market acceptance
of the Spryte and Chaperone Systems(TM), we may hire employees in the
foreseeable future.
We believe that establishing a network of alliances, while not a small task, can
be accomplished in a shorter period of time and at less cost than building a
comparable direct sales infrastructure. It is our priority to establish a
channel partner network in the U.S. and Canada, and recruit international
channel partners as opportunities present themselves.
We expect to generate revenues by selling the Spryte and Chaperone Systems(TM)
at cost plus margin. We believe the amount of margin will vary depending on the
time, expense, and size of sale.
We do not expect to purchase any significant equipment during the next twelve
months, nor do we expect to hire a significant number of employees during that
time period.
12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
REGULATION CONSECUTIVE
S-B NUMBER EXHIBIT PAGE NUMBER
2.1 Articles of Incorporation (1) N/A
2.2 Bylaws (1) N/A
2.3 Certificate of Amendment of Articles of
Incorporation (1) N/A
10.1 Promissory Note dated August 20, 2000, in the
amount of $15,000, payable to Peter Fisher (1) N/A
10.2 International Distribution Agreement dated
January 7, 2001 (2) N/A
10.3 Worldwide Exclusive Distribution Agreement dated
September 30, 2001 (3) N/A
10.4 Management Services Agreement dated January
1, 2002 (4) N/A
10.5 2002 Stock Plan (4) N/A
99.1 Certification Pursuant to 18 U.S.C. Section 16
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
---------------
13
(1) Incorporated by reference from the exhibits to the Registration Statement
on Form SB-1 filed on November 6, 2000, File No. 333-49388.
(2) Incorporated by reference from the exhibits to the Registration Statements
on Form SB-1/A-1 filed on January 17, 2001, File No. 333-49388.
(3) Incorporated by reference from the exhibits to the Quarterly Report on
Form 10-QSB filed on December 6, 2001, File No. 333-49388.
(4) Incorporated by reference from the exhibits to the Annual on Form 10-KSB
for the fiscal year ended December 31, 2001, File No. 333-49388.
b) Reports on Form 8-K: None.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
I-TRACK, INC.
(Registrant)
Date: August 19, 2002 By: /s/ PETER FISHER
-------------------------------------
Peter Fisher, Chairman
(Principal Financial and Accounting
Officer)
15