Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: NOVEMBER 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________________ to _______________________
Commission File Number: 000-14356
HEALTHTRAC, INC.
(Exact name of registrant as specified in its charter)
CANADA
(State or other jurisdiction of incorporation or organization)
911353658
(I.R.S Employer Identification No.)
539 MIDDLEFIELD ROAD, REDWOOD CITY, CA 94063
(Address of principal executive offices and Zip Code)
650-839-5500
(Registrant's telephone number, including area code)
VIRTUALSELLERS.COM, INC.
SUITE 1000 - 120 NORTH LASALLE STREET, CHICAGO, IL, 60602
(Former name, former address and former fiscal year, if changed since last
report)
________________________________________________________________________________
Indicate by check mark 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. [X] Yes [ ] No
As of January 14, 2003, there were 221,024,251 shares of the Registrant's common
shares issued and outstanding.
-2-
Consolidated Financial Statements
(Expressed in United States dollars)
HEALTHTRAC, INC.
(Formerly Virtualsellers.com, Inc.)
Three months ended November 30, 2002 and 2001
Nine months ended November 30, 2002 and 2001
(Unaudited)
DRAFT - JANUARY 14, 2003
HEALTHTRAC, INC.
(Formerly Virtualsellers.com, Inc.)
Consolidated Balance Sheets
(Unaudited)
(Expressed in United States dollars)
- -----------------------------------------------------------------------------------------------------------------
November 30, February 28,
2002 2002
- -----------------------------------------------------------------------------------------------------------------
(restated
-note 2)
ASSETS
Current assets:
Cash and cash equivalents $ 191,649 $ 248,391
Accounts receivable, net of allowance of $9,649
(February 28, 2002 - $34,578) 239,345 271,302
Employee receivable 30,775 26,417
Inventories 40,869 48,834
Prepaid expenses and deposits 134,217 256,953
Assets of discontinued operations (note 4) 50,000 259,604
--------------------------------------------------------------------------------------------------------
Total current assets 686,855 1,111,501
Equipment 262,431 754,241
Intellectual property, net of $1,613,018 accumulated
amortization (February 28, 2002 - $705,695) 4,435,801 5,343,123
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 5,385,087 $ 7,208,865
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,564,026 $ 1,398,861
Accrued liabilities 562,583 383,670
Deferred revenue 285,367 456,025
Notes payable 183,720 150,000
Deposit 53,299 --
Current portion of obligations under capital lease 29,583 43,129
Liabilities of discontinued operations (note 4) 283,283 387,671
--------------------------------------------------------------------------------------------------------
Total current liabilities 2,961,861 2,819,356
Obligations under capital lease -- 23,176
Stockholders' equity:
Common shares, no par value (note 3):
Authorized: 300,000,000 common shares
Issued and outstanding: 219,574,251 shares (199,034,013
shares at February 28, 2002) 121,572,069 120,685,444
Shares to be issued 289,751 754,213
Accumulated deficit (119,438,594) (117,073,324)
--------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,423,226 4,366,333
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 5,385,087 $ 7,208,865
=================================================================================================================
Future operations (note 1)
Commitment and contingencies (note 7)
Subsequent events (note 8)
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
DRAFT - JANUARY 14, 2003 1
/s/ Robert Maul Chairman /s/ Edward W. Sharpless President & CEO
DRAFT - JANUARY 14, 2003 2
HEALTHTRAC, INC.
(Formerly Virtualsellers.com, Inc.)
Consolidated Statements of Operations
(Unaudited)
(Expressed in United States dollars)
- --------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
November 30 November 30,
--------------------------------- ---------------------------------
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
(restated (restated
-note 2) -note 2)
Revenue $ 780,010 $ 963,052 $ 2,626,694 $ 1,724,246
Costs and expenses:
Direct costs 29,921 153,072 456,170 162,813
Selling, general and administrative
expenses 630,029 1,205,509 3,050,402 3,212,583
Amortization 307,776 218,800 1,013,553 352,750
Write down of equipment -- -- 397,150 --
-----------------------------------------------------------------------------------------------------------------
967,726 1,577,381 4,917,275 3,728,146
- --------------------------------------------------------------------------------------------------------------------------
Loss before the undernoted items (187,716) (614,329) (2,290,581) (2,003,900)
Other Income (expense):
Interest revenue (450) 551 -- 5,921
Lawsuit settlement -- 17,393 -- 113,921
Miscellaneous -- (1,425) -- 23,140
-----------------------------------------------------------------------------------------------------------------
(450) 16,519 -- 142,982
- --------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (188,166) (597,810) (2,290,581) (1,860,918)
Loss from discontinued operations (note 4) (55,198) (407,637) (74,689) (5,514,699)
- --------------------------------------------------------------------------------------------------------------------------
Loss for the period $ (243,364) $ (1,005,447) $ (2,365,270) $ (7,375,617)
==========================================================================================================================
Basic and diluted loss per common share:
Continuing operations $ 0.00 $ 0.00 $ 0.01 $ 0.01
Discontinued operations 0.00 0.00 0.00 0.04
- --------------------------------------------------------------------------------------------------------------------------
$ 0.00 $ 0.00 $ 0.01 $ 0.05
==========================================================================================================================
Weighted average number of shares outstanding,
basic and diluted loss per share 218,110,190 164,843,970 212,734,705 144,368,863
==========================================================================================================================
See accompanying notes to consolidated financial statements.
DRAFT - JANUARY 14, 2003 3
HEALTHTRAC, INC.
(Formerly Virtualsellers.com, Inc.)
Consolidated Statements of Stockholders' Equity
(Expressed in United States dollars)
- -------------------------------------------------------------------------------------------------------------------------------
Common shares
----------------------------
Assigned Shares to Accumulated
Number Value be issued deficit Total
- -------------------------------------------------------------------------------------------------------------------------------
Balance, February 28, 2001 127,834,749 $ 107,521,482 $ 4,705,000 $(107,156,515) $ 5,069,967
Shares issued during the year:
Exercise of CCAA warrants 732,433 -- -- -- --
Issued for acquisition of Sullivan Park 6,500,000 2,210,000 (2,700,000) -- (490,000)
Shares issued and to be issued for
acquisition of Healthtrac 13,212,976 4,492,412 107,588 -- 4,600,000
Issued on acquisition of Med Wire
assets 241,935 150,000 -- -- 150,000
Issued on acquisition of specific
assets of Healthscape 631,579 240,000 -- -- 240,000
Shares issued for cash received
pursuant to private placements 42,985,717 4,744,125 (2,005,000) -- 2,739,125
Shares to be issued for settlement
of debt -- -- 6,000 -- 6,000
Shares issued for settlement of debt 3,716,090 971,767 -- -- 971,767
Shares issued for services 1,425,777 123,658 -- -- 123,658
Shares issued for employees' and
directors' compensation 1,018,181 566,000 -- -- 566,000
Shares issued for severance pay 1,000,000 100,000 -- -- 100,000
Shares returned to treasury and
cancelled (265,424) -- -- -- --
Shares to be issued for cash received
pursuant to private placements -- -- 640,625 -- 640,625
Share issue costs -- (24,000) -- -- (24,000)
Subscription receivable -- (410,000) -- -- (410,000)
Loss for the year -- -- -- (9,916,809) (9,916,809)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, February 28, 2002 199,034,013 120,685,444 754,213 (117,073,324) 4,366,333
Shares issued during the period:
Shares to be issued for settlement of debt -- -- 57,163 -- 57,163
Shares to be issued for cash received pursuant
to private placements -- -- 15,000 -- 15,000
Shares issued for cash received pursuant to
private placements 19,540,238 834,125 (536,625) -- 297,500
Shares issued for employee compensation 1,000,000 130,000 -- -- 130,000
Subscription receivable -- (77,500) -- -- (77,500)
Loss for the period -- -- -- (2,365,270) (2,365,270)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 2002 219,574,251 $ 121,572,069 $ 289,751 $(119,438,594) $ 2,423,226
===============================================================================================================================
See accompanying notes to consolidated financial statements
DRAFT - JANUARY 14, 2003 4
HEALTHTRAC, INC.
(Formerly Virtualsellers.com, Inc.)
Consolidated Statements of Cash Flow
(Unaudited)
(Expressed in United States dollars)
- -----------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
November 30, November 30,
------------------------ --------------------------
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------
(restated (restated
- note 2) - note 2)
Cash provided by (used in):
Operating activities:
Loss for the period $(243,364) $(1,005,447) $(2,365,270) $(7,375,617)
Items not involving cash:
Loss from discontinued operations 55,198 407,637 74,689 5,514,699
Amortization 307,776 218,800 1,103,553 352,750
Write-down of equipment -- -- 397,150 --
Non-cash compensation expense -- -- 80,000 --
Inventory obsolescence provision -- -- (30,768) --
Changes in non-cash operating working capital:
Accounts receivable (104,443) (18,501) 31,957 341,981
Employee receivable (4,358) (2,221) (4,358) 4,968
Prepaid expenses and deposits 73,416 29,171 122.735 85,715
Inventories 728 (3,646) 38,733 32,402
Accounts payable 139,140 532,524 222,328 14,294
Accrued liabilities (137,415) (289,179) 178,913 92,773
Deferred revenue (61,665) -- (170,658) --
Deposit -- -- 53,299 --
- -----------------------------------------------------------------------------------------------------------
Cash flow used in continuing operations 25,013 (271,506) (357,697) (936,037)
Cash flow used in discontinued operations 3,998 (39,827) (4,740) (1,846,984)
- -----------------------------------------------------------------------------------------------------------
29,011 (311,333) (362,437) (2,783,021)
Investments:
Acquisition of equipment (net) 4 (3,353) (11,571) (82,559)
Acquisition costs -- (132,038) -- (283,562)
Cash acquired on acquisition -- -- -- 57,091
- -----------------------------------------------------------------------------------------------------------
Cash flow used in investing activities 4 (135,391) (11,571) (309,030)
Financing:
Cash received for shares issued 62,500 741,250 270,000 2,501,250
Repayment of capital lease obligation, net (1,698) -- (36,722) --
Long-term debt -- -- -- --
Note payable -- -- 33,720 --
Cheques issued in excess of funds on deposit -- (74,065) -- --
Cash received for shares to be issued -- -- 15,000 205,000
-----------------------------------------------------------------------------------------------------
Cash flow provided by financing activities 60,802 667,185 281,998 221,196
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 89,817 220,461 (92,010) (385,801)
Cash and cash equivalents, beginning of period 101,832 -- 283,659 606,262
Cash of discontinued operations -- 29,930 -- 29,930
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 191,649 $ 190,531 $ 191,649 $ 190,531
===========================================================================================================
Non-cash transactions and supplemental disclosures (note 6)
See accompanying notes to consolidated financial statements.
DRAFT - JANUARY 14, 2003 5
-6-
1. FUTURE OPERATIONS:
These financial statements have been prepared on the going concern basis,
which assumes the realization of assets and the settlement of liabilities
in the normal course of business. The application of the going concern
concept is dependent on the Company's ability to generate future
profitable operations and receive continued financial support from its
shareholders and from external financing. The Company incurred a loss from
operations of $2,365,270 for the nine months ended November 30, 2002 and
has an accumulated deficit of $119,438,594 at November 30, 2002. For the
nine months ended November 30, 2002, the Company used $362,437 in cash to
fund operations, and as at November 30, 2002, the Company has a working
capital deficiency of $2,275,006.
Management projects that the Company will require additional cash and
working capital for fiscal 2003 to manage prior liabilities of
approximately $400,000 (unaudited). Although management is of the opinion
that sufficient cash will be obtained from operations or external
financing to meet the Company's liabilities and commitments as they become
due in fiscal 2003, there can be no assurance that funds from external
financings will be available when required on an economical basis to the
Company. The ability of the Company to continue as a going concern and
realize the carrying value of its assets is dependent on the Company's
ability to increase its revenues by increasing its customer base and
reducing its operating costs so that the Company achieves profitable
operations. To date, subsequent to November 30, 2002 the Company has
raised no funding through external common share private placements. If the
Company is unable to obtain sufficient funds for operations, it will be
required to reduce operations or liquidate assets.
These financial statements do not reflect any adjustments that would be
necessary should the Company be unable to continue as a going concern and
therefore be required to realize its assets and discharge its liabilities
in other than the normal course of operations.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
These unaudited interim consolidated financial statements have been
prepared in accordance with accounting principles generally accepted
in the United States of America. Except as disclosed in note 22 of
the Company's annual audited consolidated financial statements as at
February 28, 2002, these principles do not differ materially from
accounting principles generally accepted in Canada.
-7-
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(a) Basis of presentation (continued):
These consolidated financial statements do not include all
disclosures required by accounting principles generally accepted in
the United States or required by Canadian generally accepted
accounting principles for annual financial statements, and
accordingly, these consolidated financial statements should be read
in conjunction with the Company's most recent annual consolidated
financial statements. In the opinion of management, all adjustments,
consistently solely of normal recurring adjustments, necessary for
the fair presentation of these unaudited financial statements have
been made. These consolidated financial statements follow the same
accounting policies and methods of application used in the Company's
audited annual consolidated financial statements as at and for the
year ended February 28, 2002.
These consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All subsidiaries were
acquired from unrelated parties and have been accounted for using
the purchase method. Their results of operations have been included
from the respective effective dates of acquisition. All significant
intercompany balances and transactions have been eliminated.
====================================================================================
Canadian subsidiaries United States subsidiaries
------------------------------------------------------------------------------------
Canadian-American Communications Inc. Northnet Telecommunications Inc.
Canadian Northstar Transmission Systems Ltd. eCommerce Solutions inc.
Preferred Telemangement Inc. ("PTI) Sullivan Park, Inc. ("Sullivan Park")
Cam-Net Cellular Inc. Healthtrac Corporation
====================================================================================
On February 28, 2002, the Company closed its catalogue sales
division. During the third quarter of fiscal 2003, the Company
discontinued its e-commerce segment segment, which been
substantially curtailed in fiscal 2002. As a result, the catalogue
and e-commerce divisions represent discontinued operations to the
Company. In accordance with generally accepted accounting principles
in the United States, prior period figures have been reclassified in
the consolidated financial statements to separately reflect the
assets, liabilities, revenues and expenses under discontinued
operations accounting.
(b) Loss per share:
Loss per share has been calculated using the weighted average number
of shares outstanding during the period. Diluted loss per
share does not differ from basic loss per share as the impact
of all outstanding convertible securities would be to reduce
the loss per share.
-8-
3. SHARE CAPITAL:
(a) Authorized:
300,000,000 common stock without par value
150,000,000 class A preference stock without par value
150,000,000 class B preference stock without par value
(b) Commitments to issue common shares:
The Company has committed to issue 13,000,000 shares to former
creditors under a reorganization plan. As at November 30, 2002,
10,581,455 (February 28, 2002 - 10,581,455) shares have been issued
to creditors leaving an outstanding commitment to issue 2,418,545
(February 28, 2002 - 2,418,545) shares.
(c) Warrants:
On June 4, 2001, the Company issued 65,000 share purchase warrants
which expire June 4, 2004. Each warrant entitles the holder to
purchase one common share for $0.56. As at November 30, 2002, 65,000
(February 28, 2002, 65,000) of these warrants were unexercised.
On July 16, 2001, the Company issued 20,000 share purchase warrants
which expire July 16, 2003. Each warrant entitles the holder to
purchase one common share for $0.40. As at November 30, 2002, 20,000
(February 28, 2002, 20,000) of these warrants were unexercised.
On August 3, 2001, the Company issued 50,000 share purchase warrants
to a former employee in place of 45,000 options previously granted
to that employee. The warrants expire on August 3, 2003. Each
warrant entitles the holder to purchase one common share for $0.24.
As at August 31, 2002, 50,000 (February 28, 2002, 50,000) of these
warrants were unexercised.
On January 2, 2002, the Company issued 6,000,000 share purchase
warrants to the former President as part of his severance package.
The warrants expire on January 2, 2007. Each warrant entitles the
holder to purchase one common share for $0.10, the market price of
the Company's common shares at the time of the issuance of the share
purchase warrants. As at November 30, 2002, 6,000,000 (February 28,
2002, 6,000,000) of these warrants were unexercised. The company has
cancelled these share purchase warrants.
(d) Stock options:
The Company has a stock option plan, which allows the Company, at
the discretion of the Board of Directors, to issue options to
employees, directors and consultants to purchase common shares of
the Company. Stock purchase options are granted having exercise
prices based on the market price at the date of grant. The stock
options expire at various dates ranging from April 11, 2003 to
November 5, 2011. The stock options vest in accordance with each
individual stock option agreement.
-9-
3. SHARE CAPITAL (CONTINUED):
(d) Stock options (continued):
The following summarizes changes in stock options since February 28,
2002:
==================================================================================
Weighted average
Nine months ended November 30, 2002 Shares exercise price
----------------------------------------------------------------------------------
Outstanding, beginning of period 6,776,000 $ 0.14
Repriced -- --
Granted 6,000,000 0.10
Forfeited (3,000,000) (0.10)
----------------------------------------------------------------------------------
Outstanding, end of period 9,776,000 $ 0.13
==================================================================================
------------------------------------------------------------------
Number Price Expiry
------------------------------------------------------------------
Employees 350,000 0.11 March 6, 2004
Director 1,000,000 0.15 July 28, 2010
Employees 1,590,000 0.15 July 28, 2010
Directors 300,000 0.15 September 25, 2010
Employee 775,000 0.15 October 23, 2010
Directors 400,000 0.15 November 1, 2010
Employees 25,000 0.15 November 1, 2010
Employees 65,000 0.15 January 2, 2011
Directors 1,200,000 0.15 April 24, 2011
Employees 70,000 0.15 April 24, 2011
Employee 26,000 0.15 July 16, 2011
Employees 775,000 0.09 October 22, 2011
Director 200,000 0.15 November 5, 2011
Consultant 2,000,000 0.10 April 11, 2003
Employee 1,000,000 0.10 April 1, 2004
------------------------------------------------------------------
Total 9,776,000 0.13
==================================================================
On June 10, 2002, President and Chief Executive Officer resigned
from the Company and consequently, forfeited the 3,000,000 unvested
options at $0.10 (note 7(c)).
During the period, the expiry date was extended for 350,000 options
held by former employees. No additional compensation is required to
be recognized as a result of this modification.
On April 1, 2002, 2,000,000 stock options were granted to a
consultant of the Company which vest in accordance with certain
performance criteria and expire on April 1, 2003. No compensation
was required to be recorded to November 30, 2002, for this award.
(e) Issuance of shares for non-monetary consideration:
Shares issued for employee and director compensation, to third
parties for services rendered, for settlement of debt and for the
acquisition of assets or businesses are recorded based upon the
market trading value of the shares at the date of the related
agreements to issue the shares.
-10-
4. DISCONTINUED OPERATIONS:
On February 28, 2002, the Company closed its catalogue sales division.
During the third quarter of fiscal 2003, the Company discontinued its
e-commerce segment which had been substantially curtailed in fiscal 2002.
As a result, the catalogue and e-commerce divisions represent discontinued
operations to the Company. In accordance with generally accepted
accounting principles in the United States, prior year and current year
figures have been reclassified in the consolidated financial statements to
separately reflect the assets, liabilities, revenues and expenses under
discontinued operations accounting.
SUMMARIZED FINANCIAL INFORMATION FOR THE DISCONTINUED OPERATIONS IS AS
FOLLOWS:
===================================================================================
November 30, 2002 February 28, 2002
- -----------------------------------------------------------------------------------
Assets
Cash $ -- $ 35,267
Accounts and employee receivables -- 34,557
Inventory -- 544
Prepaid expenses -- 28,522
Equipment, net of accumulated amortization 50,000 160,715
- -----------------------------------------------------------------------------------
Assets of discontinued operations $ 50,000 $259,605
===================================================================================
Liabilities
Accounts payable $180,861 $287,604
Accrued liabilities 102,422 100,067
- -----------------------------------------------------------------------------------
Liabilities of discontinued operations $283,283 $387,671
===================================================================================
================================================================================
Nine months ended Nine months ended
November 30, 2002 November 30, 2001
--------------------------------------------------------------------------------
Revenue $ 50,304 $ 844,573
Expenses:
Direct costs 21,540 612,619
Selling and administrative costs 54,139 2,213,268
Amortization 26,201 636,152
Write-down of equipment 139,533 1,330,000
Impairment of goodwill -- 1,522,758
Other -- 44,475
Gain on forgiveness of debt (116,420) --
--------------------------------------------------------------------------------
Loss from discontinued operations $ 74,689 $5,514,699
================================================================================
-11-
5. SEGMENTED INFORMATION:
The Company has two continuing operating segments - a health promotion
division (Healthtrac Corp.) and a call center division (NorthStar
TeleSolutions, Inc.). The health promotion and call center segments are
located in the United States. Segmented information for the nine months
ended November 30, 2002 with comparative figures for November 30, 2001 are
as follows:
Operating segments:
=================================================================================================
Health
promotion Call Centre
NOVEMBER 30, 2002 segment segment Total
- -------------------------------------------------------------------------------------------------
Gross revenue $ 1,760,955 $ 865,739 $ 2,626,694
Corporate -- -- --
- -------------------------------------------------------------------------------------------------
$ 1,760,955 $ 865,739 $ 2,626,694
=================================================================================================
Segment income (loss) $ (872,089) $ 14,731 $ (857,358)
Corporate -- -- (1,433,223)
- -------------------------------------------------------------------------------------------------
Income (loss) for the period $ (872,089) $ 14,731 $(2,290,581)
=================================================================================================
Segment assets $ 4,966,196 $ 265,190 $ 5,231,386
Assets of discontinued operations -- -- 50,000
Corporate assets -- -- 103,701
- -------------------------------------------------------------------------------------------------
Total assets $ 4,966,196 $ 265,190 $ 5,385,087
=================================================================================================
Equipment additions:
Equipment $ 5,385 $ 5,075 $ 10,460
Corporate -- -- 1,111
- -------------------------------------------------------------------------------------------------
$ 5,385 $ 5,075 $ 11,571
=================================================================================================
Amortization expense:
Equipment $ 13,946 $ 20,183 $ 34,129
Intellectual property 907,322 -- 907,322
Corporate assets -- -- 72,102
- -------------------------------------------------------------------------------------------------
$ 921,322 $ 20,183 $ 1,013,553
=================================================================================================
-12-
5. SEGMENTED INFORMATION (CONTINUED):
Operating segments (continued):
- ---------------------------------------------------------------------------------------------------
Health
promotion Call Centre
NOVEMBER 30, 2001 segment segment Total
- ---------------------------------------------------------------------------------------------------
Gross revenue $ 717,827 $ 1,006,419 $ 1,724,246
===================================================================================================
Segment loss $ (494,443) $ (209,425) $ (703,868)
Corporate -- -- (1,157,050)
- ---------------------------------------------------------------------------------------------------
Loss from continuing operations $ (494,443) $ (209,425) $(1,860,918)
===================================================================================================
Segment assets $ 6,099,774 $ 212,553 $ 6,312,327
Assets of discontinued operations -- -- 705,339
Corporate assets -- -- 727,276
- ---------------------------------------------------------------------------------------------------
Total assets $ 6,099,774 $ 212,553 $ 7,744,942
===================================================================================================
Equipment additions:
Equipment $ 491,033 $ 30,277 $ 521,310
Discontinued operations -- -- 11,332
Corporate -- -- 3,977
- ---------------------------------------------------------------------------------------------------
$ 491,033 $ 30,277 $ 536,619
===================================================================================================
Amortization expense:
Equipment $ 247,140 $ 30,590 $ 277,730
Corporate assets -- -- 75,020
- ---------------------------------------------------------------------------------------------------
$ 247,140 $ 30,590 $ 352,750
===================================================================================================
----------------------------------------------------------------
Nine months ended Nine months ended
November 30, 2002 November 30, 2001
----------------------------------------------------------------
Call center service $ 865,739 $1,006,419
Healthcare:
Book sales 368,753 88,101
Programs revenue 1,392,202 629,726
----------------------------------------------------------------
$2,626,694 $1,724,246
================================================================
-13-
6. NON-CASH TRANSACTIONS AND SUPPLEMENTAL DISCLOSURES:
- ---------------------------------------------------------------------------------------------------
Nine months ended Nine months ended
November 30, 2002 November 30, 2001
- ---------------------------------------------------------------------------------------------------
Issuance of shares for:
Employee and director compensation $80,000 $ --
Settlement of debt 57,163 971,767
Acquisition of Med Wire assets -- 150,000
Acquisition of Healthtrac -- 4,600,000
Acquisition of Healthscape assets -- 240,000
Additions to capital assets financed by capital leases 42,481 --
- ---------------------------------------------------------------------------------------------------
7. COMMITMENT AND CONTINGENCIES:
(a) Rolling Meadows Premises:
The Company moved its e'commerce operations from Rolling Meadows,
Illinois to the Greenwood, Indiana offices in October 2001. A
complaint was filed for rent and damages in the amount of
$859,512. The Company's position on this proceeding is that
the building has been sublet and deny that they owe the
Plaintiff any money. The outcome of this complaint is
currently uncertain and consequently no amounts have been
accrued as at November 30, 2002. Management is in current
discussions with the plaintiff to settle the dispute.
8. SUBSEQUENT EVENTS:
Subsequent to November 30, 2002, the Company issued 1,450,000 common
shares to consultants for services rendered.
- 14 -
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
All figures are in United States Dollars unless otherwise stated.
Within 90 days prior to the filing of this quarterly report on Form 10-Q, our
chief executive officer and chief financial officer evaluated the effectiveness
of our disclosure controls and procedures and have concluded that these controls
and procedures effectively ensure that the information required to be disclosed
by us in the reports that we file or submit under the Securities and Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported in a
timely manner. There have been no significant changes in our internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
GENERAL OVERVIEW
Healthtrac provides health management services to health plans, self-insured
employers and government agencies via programs designed to postpone disease and
disability through preventive practices and chronic disease self-management. Our
health risk assessment identifies high-risk constituents prior to high claims
utilization, our tailored interventions reduce health risks and costs by
supporting healthy changes and condition management, and our reporting
capabilities track changes over time and evaluate each program's impact.
Healthtrac measures return on investment, participant and group changes in
health risks, health consumerism, and productivity, and tracks reductions in
healthcare usage.
Healthtrac's products and services are designed to enhance the quality of care
while reducing the overall cost of health care. Our programs are intended to not
only lead the way to better health but to do so in a way that can be continually
measured in terms of effectiveness and results.
The fundamental mission of Healthtrac -- to improve the health status of the
population -- is reflected in all of our programs. Our goals are to reduce
health risks and improve health status, reduce health care costs, and provide
sound data on program impact.
Healthtrac offers a variety of programs ranging from minimal intervention
(Healthtrac 101) for the entire client population, to intensive interventions
for those at greatest risk (Healthtrac High Risk). Our products are available to
participants through the mail or via the Internet.
The core components of the Healthtrac programs are:
- Health Assessments (i.e. the tool used to measure and monitor
the population's health risks, and to identify those
individuals at greatest risk for poor health status);
- Self-Care (e.g. Take Care of Yourself Online and book
versions, health promotion newsletter, self-care books, online
medical encyclopaedia, medical Libraries, health news and
content);
- Health Education and Promotion (e.g. health education
materials, personalized letters and reports summarising health
assessment responses and providing encouragement to take
action to improve health, online Learning Centres)
- 15 -
- High Risk Identification and Intervention (e.g., targeted risk
and condition-specific health education materials and health
education telephone counselling).
Healthtrac 101 reduces the need and demand for health care services by helping
participants increase their personal health self-confidence and their ability to
employ effective self-management practices. This program provides essential
health promotion intervention to participants through universal health
information, education, and support to help participants achieve and maintain
the highest possible level of well-being. Tailored and targeted feedback
reinforces healthy changes based on their self-efficacy and readiness to make
changes, wherever they may be on the health continuum. The results are
reinforcement of gradual progress toward goals, improvements in health status
and reductions in health risks, accompanied by a decrease in unnecessary and
inappropriate use of medical care resources.
The Healthtrac High Risk program provides an intensive health education
intervention for those who are at greatest risk to utilize high cost services.
Effective interventions targeted to this high cost population can yield
substantial savings. With proactive, early intervention, what might otherwise
become major medical problems, with associated expenses, absenteeism and loss of
productivity, can be minimized or, in some cases, completely avoided. As
evidence of the effectiveness of this approach, the Healthtrac High Risk program
yields ROI's as high as 8:1, as proven through published research.
There are twelve risk modules in the High Risk Program, more being developed in
2003, each emphasizing a specific lifestyle-related or chronic condition.
The lifestyle risk modules are:
- Cigarette smoking
- Stress
- Overweight
- Combined lifestyle risks: high stress, sedentary lifestyle,
poor nutrition
The chronic condition modules are:
- Arthritis
- Asthma
- Back Pain
- Diabetes
- Heart Disease
- High Blood Pressure
- Lung/Respiratory Disease
- Stroke
Our supporting services include:
- Client Services (e.g. assists with the day-to-day management
of the program)
- Account Management (e.g. consults with the client to determine
strategic needs and meet objectives)
- 16 -
- Medical Consultation (e.g. James Fries, MD, Medical Director
for Healthtrac provides demand management, research, and other
consultation for clients)
- Health Education Consultation (e.g. our health educators
provide consultation on health promotion programs and
educational materials)
- Claims Analysis (e.g. evaluation and comparison of healthcare,
workers compensation, disability claims, and personnel
measures with Healthtrac data).
- Call Center Counseling (e.g. health decision support -- 24
hours a day, seven days a week)
All Healthtrac programs employ four essential strategies:
1. Analysis of the participant's health status through health
assessment questionnaires
2. Development of a personal action plan -- tailored to the
individual's needs and readiness to change -- that is designed
to increase self-efficacy and reduce health risks
3. Education in wise and appropriate medical care decision-making
4. Ongoing reinforcement of positive health habit changes through
periodic health assessment, serial tracking of changes in
health status and health risks, and targeted health promotion
messages
CALL CENTER OPERATIONS
We operate one call center through our subsidiary, NorthNet Telecommunications,
Inc. doing business as NorthStar TeleSolutions. Our call center is located at
125 Airport Parkway, Greenwood, Indiana. Our call center provides back office
services such as outbound and inbound customer support, centralized customer
billing, customer sales and support, order entry, order fulfillment, bill
collection, IT help desk support, as well as management reporting, database
management, service scheduling and dispatch, marketing services and remote
service maintenance. Our call center currently has the capacity for over 80 call
center representatives and offers customer service support 24-hours a day, seven
days a week. We provide our services for a flat monthly rate or on a
per-transaction basis depending on the scope of services required.
In the past, we have provided services to a limited number of cable television
operators and Internet service providers in the United States. Even though we
have recently lost some small clients primarily due to economic conditions, we
have expanded our client base and now service over 60,000 homes with cable
television and/or other broadband services. We target businesses that have a
customer base of up to 20,000 customers, as we have found that businesses with
more than 20,000 customers typically have well established in-house call
centers. We market our call center services through periodic advertising, direct
mail, strategic partnerships and outbound telemarketing, as well as by
appearances at industry trade-shows.
We concentrate our call center services on customer support and transaction
processing, allowing our clients to concentrate on the marketing and growth of
their businesses while still maintaining a high level of customer care and
service. We are cultivating new customers for the call center, which have also
begun to provide cable-related services such as local and long distance
telecommunications and Internet access. By utilizing our service we are able to
bundle and/or market together the services provided by our clients. We have also
had quite a bit of success with our newest service that enables us to remotely
control the services of our client's subscribers. This service greatly reduces
the operating cost to our clients by eliminating truck rolls while improving
customer satisfaction as they are able to receive immediate service and enhanced
service offerings.
- 17 -
We are continuing to expand our scope of service that we provide. In the past,
we provided limited services to cable television operators and Internet service
providers in the United States. We have expanded the scope of our call center
operations and are better positioned to support new and existing clients that
offer the latest services and technologies. We currently handle approximately
45,000 transactions and 16,000 calls per month and have the resources to
significantly increase each of these.
OTHER OPERATIONS
On September 23, 2002, the PSSP Group division was discontinued. Management
distributed the company's information technology resources between its
Greenwood, Indiana data center and Redwood City, California headquarters where
the information technology staff has assumed full responsibility for all
Healthtrac's IT products and services.
- 18 -
RESULTS OF OPERATIONS
During the quarter ended November 30, 2002, we continued to concentrate on the
development of our health promotion business, on the development of the
Healthtrac name and on our call center business.
Some of our recent highlights and accomplishments include:
- We reduced headcount by consolidating the investor relations
area with existing resources, closing the PSSP/e-commerce
division, terminating a vendor contract and internally
consolidating public relations efforts, outsourcing the
accounting functions, and consolidating technology into the
Redwood City office, resulting in savings of $1.7 million
annually.
- We shut down our Chicago (120 North LaSalle) and South
Carolina offices and consolidated operations in our Redwood
City headquarters. We maintain a satellite sales and client
service office in Chicago.
- We implemented a Web-based interactive CRM package to allow
for better tracking of prospects and proposals, along with
forecasting tools for improved financial planning.
- We retained new counsel in both Canada and the United States.
- Due to new compliance requirements mandated in the recent
Sarbanes-Oxley Act of 2002, we made considerable changes in
our internal policies and controls relating to accounting
policies, disclosure and other governance and share issuance
matters.
- Healthtrac renewed its service agreement with Monterey County
Health Promotion Partnership.
- Caterpillar Inc. based in Peoria, Illinois has renewed its
contract with Healthtrac Corporation to continue to use
Healthtrac's programs and services at the core of
Caterpillar's Healthy Balance(R) program.
- Healthtrac signed a three-year agreement to offer its products
and services to the members of the Employers' Association.
Employers' Association is a management-oriented service
organization structured to complement the human resource
management of member firms and inform them on related
regulatory matters. EA members are located throughout Illinois
with the majority comprising manufacturing and service
industries.
- NorthStar TeleSolutions signed service agreements with three
new clients, including Broadband Concepts, Inc., Satellite
Management Services, Inc., and Visions Stores Corporation,
d/b/a Visions Communications.
On October 2, 2002, the company implemented a comprehensive restructuring plan
in an effort to reduce expenses, improve client service and increase sales. The
board approved the measure to close the Chicago office and consolidate
operations in Redwood City, California.
Three Months Ended November 30, 2002 Compared to Three Months Ended November 30,
2001
Revenues for the three months ended November 30, 2002 ("Third Quarter 2003") of
$780,010 decreased $183,042, a decrease of 19% from revenues of $963,052 for the
three months ended November 30, 2001 ("Third Quarter 2002"). The decrease in
revenues in Third Quarter 2003
- 19 -
over Third Quarter 2002 is primarily due to a break in billing our large
customers during the transition of client programs to our new system.
At the call center, the Third Quarter 2003 revenues were $299,849 compared to
$415,829 for Third Quarter 2002 and $291,222 for Second Quarter 2003. The call
center generates revenue providing transaction processing and backroom services
including inbound and outbound telemarketing, customer and technical support,
customer order entry, centralized billing and collection, order fulfilment,
customer dispatch functions and other related services. The revenues were
consistent with Second Quarter 2003 and the decline from Third Quarter 2003 was
due to the loss of a major account from 2002 at the beginning of the fiscal
year.
Healthtrac Corporation earned revenues of $480,158 for Third Quarter 2003
compared to $572,004 for Third Quarter 2002 and $526,646 for Second Quarter
2003. The decrease is due to the division focusing on the implementation of its
new software versus marketing for new customers, a decline in revenues from
existing customers due to processing delays caused by the new software
implementation and an overall decline in book and processing revenues due to
lower customer demand as a result of the customer cost containment initiatives.
Healthtrac Corporation generates revenues by providing health promotion and
disease management services to self-funded employers and health insurance plans.
Direct product costs in Third Quarter 2003 were $29,921 compared to direct costs
of $153,072 in Third Quarter 2002, a decrease of $123,151. The call center
division primarily sells services and thus has no direct product costs. The
decrease in direct product costs is due to the lower book sales at Healthtrac
during the quarter.
Selling, general and administrative expenses decreased to $630,029 from
$1,205,509 in Third Quarter 2002, a decrease of $575,480. The decrease is due to
streamlining processes and procedures to reduce the number of people that we
employ at the divisions but primarily at head office.
Depreciation and amortization increased from $218,800 to $307,776, an increase
of $88,976. The increase is due to the amortization of the intellectual property
of Healthtrac.
Other income (expense) decreased from income of $16,519 in Third Quarter 2002 to
expense of $450 in Third Quarter 2003, a decrease of $16,969. Other income in
Third Quarter 2002 related primarily to a gain on the settlement of a lawsuit
against one of the Company's former business suppliers.
The Company had recorded a loss of $407,637 in Third Quarter 2002 compared to a
loss in Third Quarter 2003 of $55,198 relating to its e'commerce and catalogue
divisions which have been reclassified to discontinued operations due to the
shut-down of the catalogue division in fiscal 2002 and the e'commerce division
in Third Quarter 2003. These divisions had no activity in Third Quarter 2003 and
the loss is due to the write-down of assets no longer in use nor recoverable.
For Third Quarter 2003, we recognized a loss of $243,364 or $0.00 per share,
compared to a loss of $1,005,447 or $0.00 per share for Third Quarter 2002. The
decrease in the loss is due to the factors explained above.
- 20 -
Nine Months Ended November 30, 2002 Compared to Nine Months Ended November 30,
2001
Revenues for the Nine Months ended November 30, 2002 ("Nine Months 2003") of
$2,626,694 increased $902,448, an increase of 52% from revenues of $1,724,246
for the Nine Months ended November 30, 2002 ("Nine Months 2002"). The increase
in revenues in Nine Months 2003 over Nine Months 2002 is primarily due to the
health promotion segment, which we acquired in the late Second Quarter of fiscal
2002.
At the call center, the Nine Months 2003 revenues were $865,739 compared to
$1,006,419 for Nine Months 2002. The call center generates revenue providing
transaction processing and backroom services including inbound and outbound
telemarketing, customer and technical support, customer order entry, centralized
billing and collection, order fulfilment, customer dispatch functions and other
related services. The revenues declined with Nine Months 2002 due to the loss of
a major customer at the beginning of the fiscal year.
Healthtrac Corporation earned revenues of $1,760,955 for Nine Months 2003
compared to $717,827 for the Nine Months 2002. The increase was due to the Nine
Months 2002 only having four reporting months due to the acquisition compared to
nine months for 2003. On an annualized basis, revenues have declined due to the
division focusing on the implementation of its new software versus marketing for
new customers, a decline in revenues from existing customers due to processing
delays caused by the new software implementation and an overall decline in book
and processing revenues due to lower customer demand as a result of the customer
cost containment initiatives. Healthtrac Corporation generates revenues by
providing health promotion and disease management services to self-funded
employers and health insurance plans.
Direct product costs in Nine Months 2003 were $456,170, compared to direct costs
of $162,813 in Nine Months 2002, an increase of $283,357. The call center
division primarily sells services and thus has no direct product costs. The
increase in direct product costs is due to books and other direct costs at
Healthtrac, which included nine months in 2003 compared to only four months in
2002.
Selling, general and administrative expenses decreased to $3,050,402 from
$3,212,583 in Nine Months 2002, a decrease of $162,181. The decrease is due to
lower expenses for the last three months of this period. There was an increase
in the expenses due to the inclusion of the expenses of Healthtrac for nine
months in 2003 compared to only four months in 2002, but this was more than
offset by cost cutting measures implemented in Third Quarter 2003.
Depreciation and amortization increased from $352,750 to $1,103,553, an increase
of $750,803. The increase is due to the amortization of intellectual property
that arose from the acquisition of our Healthtrac subsidiary, partially offset
by the lower amortization of goodwill from the Sullivan Park acquisition due to
the write-off of the Sullivan Park goodwill in Nine Months 2002.
In the Nine Months 2003, the Company abandoned certain assets acquired in 2002
resulting in a write-down of $397,150. These assets were abandoned as they did
not fit in with the long-term
- 21 -
goals and direction of the Company. The assets abandoned included the assets
acquired from Healthscape and Medwired in 2002.
Other income (expense) decreased from income of $142,982 in Nine Months 2002 to
income of $nil in Nine Months 2003, a decrease of $142,982. Other income in Nine
Months 2002 related primarily to a gain on the settlement of a lawsuit against
one of the Company's former business suppliers.
The Company recorded a loss of $74,689 in Nine Months 2003 compared to a loss of
$5,514,699 relating to its catalogue and e-commerce divisions which have been
reclassified to discontinued operations due to the shut-down of the catalogue
division in fiscal 2002 and the e'commerce division in Third Quarter 2003. These
divisions had minimal activity in Nine Months 2003 and the loss represents a
write-down of the remaining e-commerce assets. For the Nine Months 2002, the
loss included $2,852,758 for the write-down of goodwill and fixed assets and
$2,661,911 for operations. These divisions were shut-down due to their continued
incurrence of operating losses and due to the substantial decline in the
prospects for e'commerce and telecommunications companies.
For Nine Months 2003, we recognized a loss of $2,365,270 or $0.01 per share,
compared to a loss of $7,375,617 or $0.05 per share for Nine Months 2002. The
decrease in the loss is due to the factors explained above.
LIQUIDITY AND CAPITAL RESOURCES
As at November 30, 2002, we had a net working capital deficiency of $2,275,006
including cash resources of $191,649.
During Third Quarter 2003, we generated $29,015 in cash from operations and
investing activities and received $60,802 in cash from financing activities for
a net increase in cash of $89,817. During Nine Months 2003, we used $362,437 in
cash to fund operations, used $11,571 in cash to fund investing activities which
consisted solely of capital asset additions and received $281,998 in cash from
financing activities for a net decrease in cash of $92,010.
We have historically funded operations through the issuance of our common
shares. We expect to fund future operations and investments through the issuance
of common shares. We estimate our cash requirements for capital asset additions
for the remainder of fiscal 2003 to be approximately $25,000. We also estimate
that, due to unforeseen circumstances, cash flow from operations may be negative
in fiscal 2003, and thus, we may require additional financing in order to
continue operations. At this time, we do not know if additional capital will be
required to fund operations. There is no guarantee that we will be able to
obtain the additional cash resources if necessary, or if available, resources
can be obtained at reasonable terms. If the Company is unable to obtain
sufficient funds for operations, it will be required to reduce operations or
liquidate assets. Management believes that the additional cash resources will be
available from private placements.
CRITICAL ACCOUNTING POLICIES
- 22 -
Our discussion and analysis of our financial condition and results of
operations, including the discussion of liquidity and capital resources, are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires that our company
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, management re-evaluates its estimates and
judgments. Actual results could differ from the estimates. We believe the
following critical accounting policies require greater judgment and estimates
used in the preparation of the consolidated financial statements.
The consolidated financial statements have been prepared on the going concern
basis, which assumes that our company will be able to realize its assets and
discharge its obligations in the normal course of business. If we were not to
continue as a going concern, we would likely not be able to realize on our
assets at values comparable to the carrying value or the fair value estimates
reflected in the balances set out in the consolidated financial statements. We
incurred a loss for the nine month period of $2,365,270 and used $362,437 in
cash to fund operations for the period ended November 30, 2002.
Our Company's management has estimated the useful life of the intellectual
property that was acquired through the acquisition of Healthtrac as being five
years. We have yet to realize profits from this acquisition and may not be able
to realize these assets in the normal course of operations over the next five
years. In estimating the fair value of intellectual property, our company's
management estimates their value at the segment level. The fair value of the
definite life intangible will be impacted by general economic conditions, demand
for the segment's services and other factors. To the extent that fair value is
reduced in future periods, we may be required to record an impairment charge
against the carrying value of the intellectual property.
We recognize revenue in the Healthcare segment for the health assessment
questionnaires as the services are provided and the revenues earned. In
estimating the revenues earned, our management estimates the percentage of work
completed based on historical experience of proportional costs incurred by us to
perform the services. To the extent we have received funds for services that
have not been completed they will be deferred until realized.
RISK FACTORS
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q contains both historical and forward-looking
statements. All statements other than statements of historical facts are, or may
be deemed to be, forward-looking statements within the meaning of section 27A of
the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended and are subject to the "safe harbor" created by
those sections. These forward-looking statements are not based on historical
facts, but rather reflect management's current expectations concerning future
results and events. These forward-looking statements generally can be identified
by use of statements that include phrases such as "believe," "expect,"
"anticipate," "intend," "plan," "foresee," "likely," "will" or other similar
words or phrases. Similarly, statements that describe our objectives, plans or
goals are or may be forward-looking statements. These forward-looking
- 23 -
statements involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to be different
from any future results, performance and achievements expressed or implied by
these statements.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on the assumption that the Company will not lose a
significant customer or customers, that the Company's markets will continue to
grow, that the Company's products will remain accepted, that competitive
conditions within the Company's markets will not change materially or adversely,
that the Company will retain key personnel, that the Company's forecasts will
accurately anticipate market demand, and that there will be no material adverse
change in the Company's operations or business. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. In addition, the business and operations of
the Company are subject to substantial risks, which increase the uncertainty
inherent in the forward-looking statements. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.
Such estimates, projections or other "forward-looking statements" involve
various risks and uncertainties as outlined below and those discussed in our
Form 10-K Annual Report for the year ended February 28, 2002. The cautionary
statements made in this document and in our Form 10-K Annual Report should be
read as being applicable to all related forward-looking statements wherever they
appear in this document. We caution the readers that important factors in some
cases have affected and, in the future, could materially affect actual results
and cause actual results to differ materially from the results expressed in any
such estimates, projections or other "forward-looking statements." Readers
should carefully consider the following factors in evaluating our company, our
business and any investment in our company:
Risks Related to Our Business
We Have A Limited Operating History, Which Makes It Difficult To Evaluate Our
Future Prospects.
Although we were incorporated in 1982, we have a lack of history regarding our
newly created health promotion business. Accordingly, we have a limited
operating history and limited financial data upon which you may evaluate our
business and prospects. Our potential for future profitability must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets. Some of these risks
relate to our potential inability to:
- acquire and maintain a sufficient number of customers for each
of our business divisions to achieve profitability;
- 24 -
- successfully provide high levels of service quality to our
existing customers as we expand the scale of our business;
- develop new service offerings that complement our existing
offerings;
- increase our brand awareness for all of our operations.
We may not successfully address these risks. If we do not successfully address
these risks, we may not realize sufficient revenues or net income to reach or
sustain profitability, which would adversely affect our continuing business
operations.
We Have A History Of Losses And Expect To Continue To Incur Significant
Operating Losses And Negative Cash Flow, And We May Never Be Profitable.
We have incurred substantial net losses and have a substantial net operating
loss carryover. A significant component of these losses were incurred in
operations, which we no longer operate but we have spent significant funds to
develop our current business divisions, procure hardware, software and
networking products and develop our operations, research and development and
sales and marketing operations. For the nine month period ended November 30,
2002, we incurred losses of $2,365,270. As of November 30, 2002, we had an
accumulated deficit of $119,438,594. We have incurred significant operating
losses and have not achieved profitability. While we feel confident that we can
secure additional funds through private placement financing if necessary and
successfully carry out our business plan, there can be no assurance that we will
accomplish these tasks and achieve profitability. If we cannot successfully
carry out our business plan, then our continuing business operations would be
adversely affected.
To achieve operating profitability, we will need to increase our customer base
and revenue and decrease our costs. We may not be able to increase our revenue
or increase our operating efficiencies in this manner. If our revenue grows more
slowly than we anticipate or if our operating or capital expenses increase more
than we expect, our operating results will suffer. The auditors' report on our
annual consolidated financial statements for the year ended February 28, 2002,
contains an explanatory paragraph that states that our recurring losses from
operations raise substantial doubt about our ability to continue as a going
concern. The financial statements do not include any adjustments that might
result in the change of this uncertainty.
Our Financial Results May Fluctuate Significantly Which Could Cause Our Stock
Price To Decline.
Our revenue and operating results may vary significantly from quarter to
quarter. These fluctuations could cause our stock price to fluctuate
significantly or decline. Important factors that could cause our quarterly
results to fluctuate materially include:
- the timing of obtaining new customers for each one of our
business divisions;
- the timing of deploying new services for our current and
prospective customers;
- the timing and magnitude of operating expenses and capital
expenditures;
- 25 -
- changes in our pricing policies or those of our competitors;
and
- changes in technology or government regulation.
Our current and future levels of operating expenses and capital expenditures are
based largely on our growth plans and estimates of future revenue. These
expenditure levels are, to a large extent, fixed in the short term. We may not
be able to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall, and any significant shortfall in revenue relative to planned
expenditures could negatively impact our business and results of operations. In
addition, if our customer base expands rapidly or unpredictably, we may not be
able to efficiently utilize our infrastructure or we may not have sufficient
capacity to satisfy our customers' requirements, which could harm our operating
results. Moreover, because many of our expenses are components of our cost of
revenues, our gross margins may remain negative in the future.
Due to these and other factors, quarter-to-quarter comparisons of our operating
results may not be meaningful. Readers of this report should not rely on our
results for any one quarter as an indication of our future performance. In
future quarters, our operating results may fall below the expectations of public
market analysts or investors. If this occurs, the market price of our common
stock would likely decline.
We Have Grown Very Rapidly And Our Ability To Achieve Profitability Will Suffer
If We Fail To Manage Our Growth.
We have rapidly expanded our business during the transition to becoming a health
promotion/customer service and Internet software and development company,
although we have decreased our number of employees from 79 at February 28, 2001
to 52 at February 28, 2002. As of August 31, 2002, we had 52 employees, and as
at November 30, 2002 we had 37. Staff reductions were made in Healthtrac Inc.'s
administrative and PSSP areas. These changes have placed, and will continue to
place, a significant strain on our employees, management systems and other
resources. We expect our business to continue to grow in terms of geographic
scope, number of customers and the scope of services we offer. There will be
additional demands on our customer service support, research and development,
sales and marketing and administrative resources as we try to increase our
service offerings, expand our geographic scope and expand our target markets.
The strains imposed by these demands are magnified by our limited operating
history. We may not be able to successfully manage our growth. In order to
manage our growth successfully, we must:
- improve and add to our management, financial and information
systems and controls and other elements of our business
process infrastructure;
- maintain a high level of customer service and support; and
- expand, retain, train, manage and integrate our employee base
appropriately and effectively.
Any failure by us to effectively manage our growth could disrupt our operations
or delay execution of our business plan and consequently harm our business.
- 26 -
We Operate In A New, Highly Competitive Market, And Our Inability To Compete
Successfully Against New Entrants And Established Companies Would Limit Our
Ability To Increase Our Market Share And Would Harm Our Financial Results.
The markets related to each of our business divisions are rapidly evolving and
highly competitive. Some of these will likely be characterized by an increasing
number of market entrants, as there are few barriers to entry, and by industry
consolidation. We expect that we will face competition from both existing
competitors and new market entrants in the future.
Our competitors and other companies may form strategic relationships with each
other to compete with us. These relationships may take the form of strategic
investments, joint-marketing agreements, licenses or other contractual
arrangements, any of which may increase our competitors' ability to address
customer needs with their product and service offerings. In addition, we believe
that there will be continued consolidation within the markets in which we
compete. Our competitors may consolidate with one another, or acquire other
technology providers, enabling them to more effectively compete with us. This
consolidation could affect prices and other competitive factors in ways that
would impede our ability to compete successfully and harm our business. To the
extent that these providers expand the scope of these new services to address
some of the functionality we currently provide, some of these companies may be
unwilling to provide services to us or to enter into relationships with us.
Our success is dependent upon achieving significant market acceptance of our
products and services by employers, healthcare organizations, physicians,
healthcare professionals and, now that we have adapted the Healthtrac products
for use on the Internet, Internet consumers. We cannot guarantee that employers,
healthcare organizations, medical professionals or Internet consumers will
accept Healthtrac, or even the Internet, as a replacement for traditional
sources of healthcare information. Market acceptance of our products and
services depends upon continued growth in the use of the Internet generally and,
in particular, as a source of healthcare information services for medical
professionals and consumers. The Internet may not prove to be a viable channel
for these services because of inadequate development of necessary
infrastructure, such as reliable network backbones, or complementary services,
such as high-speed modems and security procedures for the transmission of
confidential and private healthcare information, the implementation of
competitive technologies, government regulation or other reasons. Failure to
achieve and maintain market acceptance would seriously harm our business.
We will compete with other companies providing or maintaining online services or
Web sites targeted to the health promotion and disease management industry,
companies providing or maintaining online general health promotion and disease
management information and related services, companies providing or maintaining
public sector and non-profit Web sites that contain health-related information
and services, companies providing or maintaining Web search services
particularly geared to medical and healthcare Web sites, and publishers and
distributors of traditional media targeted to doctors and the healthcare
industry. Many of our competitors are larger than we are and have significantly
greater financial resources and marketing capabilities than we do, together with
better name recognition. It is also possible that new competitors may emerge and
acquire significant market share. Competitors with superior resources and
capabilities may be able to utilize such advantages to market their Web site,
products and
- 27 -
services better, faster and/or cheaper than we can. Increased competition is
likely to result in reduced gross margins and loss of market share, either of
which could have a material adverse effect upon our business, results of
operations and financial condition. Because of these competitive factors and due
to our comparatively small size and limited financial resources, we may be
unable to compete successfully.
The call center, telemarketing and customer relationship management industries
are intensely competitive. We compete with numerous independent call centers,
telemarketing and customer relationship management firms as well as the in-house
operations of many of our existing or prospective clients. We compete for call
center, telemarketing and customer relationship management services based on
quality, technological expertise, customer service, price, value, range of
service offerings, and available capacity.
Most businesses that are significant consumers of call center, telemarketing and
customer relationship management services utilize more than one firm to
outsource their business and often reallocate work among various firms from time
to time. Clients often request call center, telemarketing and customer
relationship management services to be provided on an individual project basis
and we frequently are required to compete for individual projects as they are
initiated.
If We Are Unable To Retain Our Executive Officers And Key Personnel, We May Not
Be Able To Successfully Manage Our Business Or Achieve Our Objectives.
Our business and operations are substantially dependent on the performance of
our key employees. Effective September 18, 2002, Edward Sharpless was appointed
as President and CEO of our company. Although we believe that the loss of Mr.
Sharpless will not have a materially adverse impact upon our company, there can
be no assurance in this regard, nor any assurance that we will be able to find a
suitable replacement for Mr. Sharpless. Furthermore, we do not maintain "key
man" life insurance on the lives of any of our officers. If we lose the services
of one or more of our executive officers or key employees or if one or more of
them decides to join a competitor or otherwise compete directly or indirectly
with us, we may not be able to successfully manage our business or achieve our
business objectives.
Our Business Will Suffer If We Are Unable To Hire, Train And Retain Highly
Qualified Employees.
Our future success depends on our ability to identify, hire, train, integrate
and retain highly qualified technical, sales and marketing, managerial and
administrative personnel. Our success is therefore dependent upon our ability to
identify, hire and retain such qualified personnel, for whose services we will
be in competition with other prospective employers, many of which may have
significantly greater resources than we do. Additionally, demand for qualified
personnel conversant with certain technologies is intense and may outstrip
supply as new and additional skills are required to keep pace with evolving
computer technology. As our customer base and revenue continue to grow, we will
need to hire a significant number of qualified personnel. In particular, we may
need to hire a sufficient number of technical operations personnel in order to
deploy customers on a timely basis. Competition for qualified personnel is
intense in some sectors, and we may not be able to attract, train, integrate or
retain a sufficient number of
- 28 -
qualified personnel in the future. As we grow, it will become more difficult to
identify qualified personnel to fill technical positions, which will cause us to
rely increasingly on internal training programs. Our failure to attract, train,
integrate and retain qualified personnel could seriously disrupt our operations
and increase our costs by forcing us to use more expensive outside consultants
and reduce the rate at which we can increase revenue.
Important components of the compensation of our personnel are stock options and
restricted stock, which vest typically over an extended period. We face a
significant challenge in retaining our employees if the value of these stock
options and restricted stock is either not substantial enough or so substantial
that the employees leave after their stock options or restricted stock have
vested. To retain our employees, we expect to continue to grant new options
subject to vesting schedules, which could be dilutive to investors. If our stock
price does not increase significantly above the prices of our options, we may
also need to issue new options or grant additional shares of stock in the future
to motivate and retain our employees.
We Rely Upon Technology And Computer Systems And The Temporary Or Permanent Loss
Of Such Equipment Or Systems, Through Casualty, Operating Malfunction Or
Otherwise, Could Have A Materially Adverse Effect Upon Our Company.
Our Call Center and Healthtrac systems utilize sophisticated and specialized
telecommunications, network and computer technology and proprietary software and
have focused on the application of these technologies to meet our clients'
needs. We anticipate that it will be necessary to continue to invest in and
develop new and enhanced technology on a timely basis to maintain our
competitiveness. Significant capital expenditures may be required to keep our
technology up to date. Investments in technology and future investments in
upgrades and enhancements to software for such technology may not necessarily
maintain our competitiveness. Our future success will also depend in part on our
ability to anticipate and develop information technology solutions which keep
pace with evolving industry standards and changing client demands.
In addition, our business is highly dependent upon our computer and telephone
equipment and software systems, and the temporary or permanent loss of such
equipment or systems, through casualty, operating malfunction or otherwise,
could have a materially adverse effect upon our company. Our business systems
depend on the smooth operation of computer systems that may be affected by
circumstances beyond our control. Events that could cause system interruptions
are:
- fire;
- earthquake;
- hurricane;
- power loss;
- telecommunications failure; and/or
- unauthorized entry or other events.
-29-
Although we back up data as a matter of course, and take other measures to
protect against loss, there is still a certain degree of risk of such losses. A
system outage or data loss could adversely affect our business.
Despite the security measures that we maintain, our systems may be vulnerable to
computer viruses, hackers, rogue employees or similar sources of disruption. Any
interruptions in our operations could have a materially adverse effect on our
business. Any problem of this nature could result in significant liability to
customers or financial institutions and may deter potential customers from using
its services. We attempt to limit this sort of liability through back-up
systems, contractual provisions and insurance. However, there is no assurance
that these contractual limitations would be enforceable, or that our insurance
coverage would be adequate to cover potential liabilities.
Our operations are dependent upon our ability to protect our Healthtrac and Call
Center information databases against damage that may be caused by fire, power
failure, telecommunications failures, unauthorized intrusion, computer viruses
and other emergencies. We have taken precautions to protect our company and our
customers from events that could interrupt delivery of our services. These
precautions include off-site storage of backup data, fire protection and
physical security systems, backup power generators and a disaster recovery plan.
We also maintain business interruption insurance in amounts that we consider
adequate. Notwithstanding such precautions, there can be no assurance that a
fire, natural disaster, human error, equipment malfunction or inadequacy, or
other event will not occur.
Our Call Center Growth Is Dependent Upon The Trend Toward Outsourcing And Any
Significant Change In This Trend Could Have A Materially Adverse Effect On Our
Company.
The growth of our Call Center business depends in large part on the industry
trend toward outsourcing information technology and administrative services.
There can be no assurance that this trend will continue, as organizations may
elect to perform such services in-house. We intend to alleviate our dependence
upon any one revenue stream by expanding our business operations vertically and
horizontally. Nevertheless, a significant change in the direction of this trend
toward outsourcing could have a materially adverse effect on our company.
Our Future Success Will Depend In Large Part Upon Our Ability To Keep Pace With
Technology.
Our future success will depend in large part upon our ability to keep pace with
technology. Rapid changes have occurred, and are likely to continue to occur.
There can be no assurance that our development efforts will not be rendered
obsolete by research efforts and technological advances made by others. The
market for information technology services is characterized by rapid
technological advances, frequent new product introductions and enhancements, and
changes in customer requirements. Although we believe that our Call Center is
sufficient for the present, we believe that our future success will depend in
large part on our ability to service new products, platforms and rapidly
changing technology. These factors will require that we provide adequately
trained personnel to address the increasingly sophisticated, complex and
evolving needs of our customers. Our ability to capitalize on future
acquisitions in the Call Center and health promotion and disease management
industries will depend on our ability to (i) enhance our software and
successfully integrate such software into our technical product support
services,
-30-
(ii) adapt such software to new hardware and operating system requirements and
(iii) develop new software products in an industry characterized by increasingly
rapid product and technological obsolescence. Our success is dependant upon
Healthtrac's ability to upgrade and enhance its existing programs and systems.
Our failure to anticipate or respond rapidly to technological advances, new
products and enhancements, or changes in customer requirements could have a
materially adverse effect on our company.
Our Business Will Suffer If We Do Not Enhance Or Introduce New Services And
Upgrades To Meet Changing Customer Requirements.
The market for Web based products such as our online health management product
is characterized by rapid technological change, frequent new hardware, software
and networking product introductions and Internet-related technology
enhancements, uncertain product life cycles, changes in customer demands and
evolving industry standards. Any delays in responding to these changes and
developing and releasing enhanced or new services could hinder our ability to
retain existing and obtain new customers. In particular, our technology is
designed to support a variety of hardware, software and networking products that
we believe to be proven and among the most widely used. We cannot assure readers
of this report, however, that present and future customers will continue to use
these products. Even if they do, new versions of these products are likely to be
released and we will need to adapt our technology to these new versions. We
must, therefore, constantly modify and enhance our technology to keep pace with
changes made to our customers' hardware and software configurations and network
infrastructures. If we fail to promptly modify or enhance our technology in
response to evolving customer needs and demands, our technology could become
obsolete, which would significantly harm our business. In addition, frequent
changes in the hardware, software and networking components of the systems and
services we provide could adversely affect our ability to automate the
deployment process, a key element of our business strategy.
Our success is dependent upon our ability to provide the latest technology for
our operation processes and our ability to enhance and provide clinical upgrades
in our disease management and health promotion programs based on the latest
research. Our success may also require that we continue to perform science-based
evaluations on the impact of our programs.
If we do not develop, license or acquire new services, or deliver enhancements
to existing products on a timely and cost-effective basis, we may be unable to
meet the growing demands of our existing and potential customers. In addition,
as we introduce new services or technologies into existing customer
architectures, we may experience performance problems associated with
incompatibility among different versions of hardware, software and networking
products. To the extent that such problems occur, we may face adverse publicity,
loss of sales, delay in market acceptance of our services or customer claims
against us, any of which could harm our business.
Most Of Our Agreements For Call Center Services Are Short Term And Our Financial
Performance Could Be Damaged By A Significant Number Of Terminations Or
Non-Renewals.
The standard customer agreement for customers of the Call Center are short-term
and can be terminated without cause by either party. We expect that there will
be terminations and non-renewals from time to time and that we may not be able
to replace all of these clients. Our
-31-
ability to generate revenues and our financial performance could be damaged by a
significant number of terminations or non-renewals of such contracts.
We Could Be Sued For Medical Malpractice
The information provided by us is intended to be in addition to, and not in
substitution for, medical advice from a user's own physician. However, medical
advice may be dispensed both directly by doctors and indirectly through our
Healthtrac products. Damage awards in medical malpractice suits can be very
high, potentially creating a financial burden that we could not withstand if
such a suit were successful and not fully covered by insurance.
Our Success Depends On The Continued Growth In The Usage Of The Internet As A
Communication Medium And As A Vehicle For Commerce.
Use of the Internet by businesses and consumers as a medium for commerce is
still in the early stages of development, and is therefore subject to
uncertainty. E-commerce is a relatively recent development. Rapid growth in the
use of and interest in the Internet has occurred only recently. Acceptance and
use may not continue to develop at historical rates and a sufficiently broad
base of consumers and businesses may not adopt or continue to use the Internet
and other online services as a medium of commerce. The development of the
Internet as a commercial marketplace may occur more slowly than anticipated.
Factors that may affect Internet usage include:
- actual or perceived lack of security of information;
- development of the necessary network infrastructure and
associated technologies;
- delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet
activity;
- congestion of Internet traffic or other usage delays; and
- reluctance to adopt new business methods.
These factors could result in slower response times or adversely affect usage of
the Internet, resulting in lower numbers of e-commerce transactions and
decreased demand for our services. If Internet usage does not continue to
increase, demand for our services may be limited and our business and results of
operations could be harmed.
Because Our Success Depends On Our Intellectual Property, If Third Parties
Infringe Our Intellectual Property, We May Be Forced To Expend Significant
Resources Enforcing Our Rights Or Suffer Competitive Injury.
Our success depends in large part on our intellectual property, including our
proprietary software technology. We currently rely on a combination of
copyright, trademark, trade secret and other laws and restrictions on disclosure
to protect our intellectual property rights. We currently hold the Internet
domain names "www.virtualsellers.com", "www.Healthtrac.com" and
"www.MyHealthtrac.com" as well as various other related names, and we use
"Healthtrac" and
-32-
"TAME" as tradenames. Domain names generally are regulated by Internet
regulatory bodies and are subject to change and may be superseded, in some
cases, by the laws, rules and regulations governing the registration of
tradenames and trademarks with the United States Patent and Trademark Office and
certain other common law rights. In the event that the domain registrars are
changed, new ones are created or we are deemed to be infringing upon another's
tradename or trademark, we could be unable to prevent third parties from
acquiring or using, as the case may be, our domain name, tradenames or
trademarks which could adversely affect our brand name and other proprietary
rights. These legal protections afford only limited protection, and our means of
protecting our proprietary rights may not be adequate.
Our intellectual property may be subject to even greater risk in foreign
jurisdictions, as the laws of many countries do not protect proprietary rights
to the same extent as the laws of the United States. If we cannot adequately
protect our intellectual property, our competitive position may suffer.
We may be required to spend significant resources to monitor and police our
intellectual property rights. We may not be able to detect infringement and may
lose our competitive position in the market before we are able to ascertain any
such infringement. In addition, competitors may design around our proprietary
technology or develop competing technologies. Litigation may be necessary in the
future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of others
or to defend against claims of infringement. Any such litigation could result in
substantial costs and diversion of resources, including the attention of senior
management. Defending against intellectual property infringement and other
claims could be time consuming and expensive and, if we are not successful,
could subject us to significant damages and disrupt our business.
Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
make, use or sell our services. As a result, we may be found to infringe on the
proprietary rights of others. In the event of a successful claim of infringement
against us and our failure or inability to license the disputed technology, our
business and operating results would be significantly harmed. Intellectual
property litigation has become prevalent in the Internet and software fields.
Any litigation or claims, whether or not valid, could result in substantial
costs and diversion of resources. Intellectual property litigation or claims
could force us to do one or more of the following:
- pay costly damages;
- stop selling services that incorporate the challenged
intellectual property;
- obtain a license from the holder of the infringed intellectual
property right, which may not be available on reasonable terms
or at all; and
- redesign our services or our network, if feasible.
If we are forced to take any of the foregoing actions, our business may be
seriously harmed. In addition, any of these could have the effect of increasing
our costs and reducing our revenue. Our insurance may not cover potential claims
of this type or may not be adequate to indemnify us for all liability that may
be imposed.
-33-
Our Limited Marketing And Sales Resources Could Prevent Us From Effectively
Marketing Our Products And Services
We have limited internal marketing and sales resources and personnel. In order
to market our current products and services and any future products and services
we may develop, we will have to either develop a marketing and sales force with
technical expertise and distribution capability or outsource such duties to
independent contractors. There can be no assurance that we will be able to
establish sales and distribution capabilities or that we will be successful in
gaining market acceptance for our current products or services and any future
products and services we may develop. There can be no assurance that we will be
able to recruit skilled sales, marketing, service or support personnel, that
agreements with distributors will be available on terms commercially reasonable
to us, or at all, or that our marketing and sales efforts will be successful.
Failure to successfully establish a marketing and sales organization, whether
directly or through third parties, would have a materially adverse effect on our
business, financial condition, cash flows, and results of operations. There can
be no assurance that any of our proposed marketing schedules or plans can or
will be met.
Governmental Regulation And The Application Of Existing Laws To The Internet May
Slow The Internet's Growth, Increase Our Costs Of Doing Business And Create
Potential Liability For The Dissemination Of Information Over The Internet.
Laws and regulations governing Internet services, related communications
services and information technologies and electronic commerce are beginning to
emerge but remain largely unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing
laws, such as those governing intellectual property, privacy, libel,
telecommunications and taxation, apply to the Internet and to related services
such as ours. Uncertainty and new laws and regulations, as well as the
application of existing laws to the Internet, could limit our ability to operate
in these markets, expose us to compliance costs and substantial liability and
result in costly and time consuming litigation. The international nature of the
Internet and the possibility that we may be subject to conflicting laws of, or
the exercise of jurisdiction by, different countries may make it difficult or
impossible to comply with all the laws that may govern our activities.
Furthermore, the laws and regulations relating to the liability of online
service providers for information carried on or disseminated through their
networks is currently unsettled.
Healthcare Regulation Could Adversely Affect Our Business
The healthcare industry is highly regulated and is subject to changing
political, regulatory and other influences. These factors affect the purchasing
practices and operations of healthcare organizations. Federal and state
legislatures and agencies periodically consider programs to reform or revise the
United States healthcare system. These programs may contain proposals to
increase governmental involvement in healthcare, lower reimbursement rates or
otherwise change the environment in which healthcare industry participants
operate. Healthcare industry participants may respond by reducing their
investments or postponing investment decisions, including investments in our
applications and services. We are unable to predict future proposals with any
certainty or to predict the effect they would have on our business.
-34-
Existing laws and regulations also could create liability, cause us to incur
additional cost or restrict our operations. Many healthcare laws are complex,
applied broadly and subject to interpretation by courts and other governmental
authorities. In addition, many existing healthcare laws and regulations, when
enacted, did not anticipate the methods of healthcare e-commerce and other
products and services that we provide. However, these laws and regulations may
nonetheless be applied to our products and services. Our failure, or the failure
of our business partners, to accurately anticipate the application of these
healthcare laws, or other failure to comply, could create liability for us,
result in adverse publicity and negatively affect our business.
The Effect of The Health Insurance Portability and Accountability Act of 1996
(HIPAA) On Our Business Is Difficult to Predict And Its Implementation May Cause
Unexpected Problems
Although we believe that we are in a position to comply with HIPAA, we are
continuing to develop our HIPAA-ready solutions and our business strategy for
marketing those solutions and services. Changes in compliance deadlines or in
other aspects of the HIPAA regulations may cause us to make changes to our
strategy or require us to develop different solutions. The effect of HIPAA on
our business is difficult to predict and there can be no assurances that we will
adequately address the business risks created by HIPAA and its implementation or
that we will be able to take advantage of any resulting business opportunities.
In addition, we are unable to predict what changes to the HIPAA regulations will
be made in the future or how those changes could affect our business.
The extension of the deadline for complying with the HIPAA transaction standards
will cause us to have a longer period of time in which we must accommodate our
customers' varying states of readiness to test new systems and move to the new
standards. There can be no assurance that we will be able to meet our deadlines
or those of our customers.
The Recent Terrorist Attacks May Have An Adverse Effect On Our Business
The terrorist attacks in New York and Washington, D.C. on September 11, 2001
appear to be having an adverse affect on business, financial and general
economic conditions. This may, in turn, have an adverse effect on our business
and results and operations. At this time, however, we are not able to predict
the nature, extent and duration of these effects on overall economic conditions
or on our business and operating results.
Due To Deteriorated U.S. And World Economic Conditions, Expenditures For
Information Technology Spending Or Health Promotion Products And Services Could
Decline. If Spending Is Reduced, Our Sales And Operating Results Could Be Harmed
Many of our customers are affected by economic conditions in the United States
and throughout the world. Many companies have announced that they will reduce
their spending which may include them spending less on information technology
systems, Internet applications and healthcare promotion products. If such
spending is reduced by customers and potential customers, our sales could be
harmed, and we may experience greater pressures on our gross margins. If
economic conditions do not improve, or if our customers reduce their overall
purchases, our business, sales, gross profits and operating results may be
adversely affected.
-35-
Our Stock Price Is Extremely Volatile
The trading price of our common shares has been, and in the future is expected
to be, volatile and we expect to experience further market fluctuations as a
result of a number of facto