FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTS OF 1934 |
| For the Quarter ended AUGUST 31, 2003 | Commission file number: 000-14356 |
HEALTHTRAC, INC.
| CANADA | 91-1353658 | |
| (State of incorporation) | (I.R.S. Employer Identification No.) | |
| 539 MIDDLEFIELD ROAD, REDWOOD CITY, CALIFORNIA | 94063 | |
| (Address of principal executive offices) | (Zip Code) |
Indicate by check mark whether the Registrant (i) 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 (ii) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes [X] No [ ]
The number of shares of common stock outstanding as of September 29, 2003 was 221,386,417.
HEALTHTRAC, INC.
TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION | Page | ||||
Item 1. Condensed Consolidated Financial Statements |
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Condensed Consolidated Balance Sheet at August 31, 2003 (unaudited) and February 28, 2003 |
4 | ||||
Condensed
Consolidated Statements of Operations (unaudited) for the three
months and six months ended August 31, 2003 and 2002 |
5 | ||||
Condensed Consolidated Statements of Stockholders Equity |
6 | ||||
Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended August 31, 2003 and 2002 |
7 | ||||
Notes to Condensed Consolidated Financial Statements (unaudited) |
8 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 | ||||
Item 3. Not applicable |
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Item 4. Controls and Procedures |
19 | ||||
PART II — OTHER INFORMATION |
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Item 1. Legal Proceedings |
19 | ||||
Item 2 to 5 – Not applicable |
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Item 6. Exhibits and reports on Form 8K |
20 | ||||
SIGNATURES |
21 | ||||
CERTIFICATIONS |
22 | ||||
2
SPECIAL NOTE REGARDING INDEPENDENT ACCOUNTANTS REVIEW
At the time of filing, our independent accountants, KPMG LLP, have not participated in the review of this quarterly report on Form 10-Q for the period ended August 31, 2003, as required under Article 10 of Regulation S-X. We expect KPMG LLP to complete their review by the end of October and we will file an amended 10Q to remove this statement at that time.
INTRODUCTORY NOTE
The Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Company intends that certain matters discussed in this report are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by the context of the statement which may include words such as the Company “believes,” “anticipates,” “expects,” “forecasts,” “estimates,” or other words of similar meaning and context. Similarly, statements that describe future plans, objectives, outlooks, targets, models or goals are also deemed forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those forecasted or anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements and elsewhere in this report, including Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Stakeholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements or construe such statements to be a representation by the Company that the objectives or plans of the Company will be achieved. The forward-looking statements included in this report are made only as of the date of this report, and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
3
HEALTHTRAC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in United States dollars)
| August 31, 2003 | February 28, 2003 | |||||||||||
| (Unaudited) | ||||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 109,151 | $ | 186,873 | ||||||||
Accounts receivable, net of allowance of $4,469 (Feb 28, 2003 - $4,469) |
232,595 | 406,095 | ||||||||||
Inventories |
124,407 | 121,435 | ||||||||||
Prepaid expenses and deposits |
134,727 | 146,263 | ||||||||||
Total current assets |
600,880 | 860,666 | ||||||||||
Equipment, net |
251,667 | 169,994 | ||||||||||
Intellectual property, net of $2,520,343 accumulated
amortization (Feb 28, 2003 - $1,915,459) |
3,528,475 | 4,133,359 | ||||||||||
| $ | 4,381,022 | $ | 5,164,019 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 1,386,862 | $ | 1,216,043 | ||||||||
Accrued liabilities |
697,513 | 714,974 | ||||||||||
Deferred revenue |
209,224 | 328,826 | ||||||||||
Current portion of obligations under capital lease |
11,578 | 19,470 | ||||||||||
Liabilities of discontinued operations (note 3) |
165,000 | 200,000 | ||||||||||
Total current liabilities |
2,470,177 | 2,479,313 | ||||||||||
Obligations under capital lease |
9,344 | 9,344 | ||||||||||
Shareholders’ equity: |
||||||||||||
Common shares, no par value (note 4): |
||||||||||||
Authorized: 300,000,000 (Feb 28, 2003 – 300,000,000) common shares
Issued and outstanding: 220,886,417 (Feb 28, 2003 – 223,104,598) |
121,166,364 | 121,809,921 | ||||||||||
Shares to be issued |
100,000 | 100,000 | ||||||||||
Accumulated deficit |
(119,364,863 | ) | (119,234,559 | ) | ||||||||
Total shareholders’ equity |
1,901,501 | 2,675,362 | ||||||||||
| $ | 4,381,022 | $ | 5,164,019 | |||||||||
Future operations (note 1)
Commitment and contingencies (notes 4 and 7)
See accompanying notes
4
HEALTHTRAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in United States dollars)
| Three Months Ended | Six Months Ended | |||||||||||||||||
| August 31, | August 31, | August 31, | August 31, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||
Revenue |
820,440 | 817,600 | 1,663,929 | 1,846,687 | ||||||||||||||
Costs and expenses |
||||||||||||||||||
Direct costs |
132,726 | 192,400 | 354,882 | 542,699 | ||||||||||||||
Selling, general and administrative |
117,780 | 1,141,969 | 839,078 | 2,420,373 | ||||||||||||||
Amortization |
312,905 | 354,501 | 627,707 | 705,777 | ||||||||||||||
Write down of equipment |
— | 397,150 | — | 397,150 | ||||||||||||||
| 563,411 | 2,086,020 | 1,821,667 | 4,065,969 | |||||||||||||||
Operating income (loss) |
257,029 | (1,268,420 | ) | (157,738 | ) | (2,219,282 | ) | |||||||||||
Other income (expense) |
||||||||||||||||||
Forgiveness of debt |
24,258 | 116,420 | 36,629 | 116,420 | ||||||||||||||
Loss on disposal of fixed assets |
(9,197 | ) | — | (9,197 | ) | — | ||||||||||||
Miscellaneous |
— | (8,365 | ) | — | 450 | |||||||||||||
| 15,061 | 108,055 | 27,432 | 116,870 | |||||||||||||||
Income
(loss) from continuing operations |
272,090 | (1,160,365 | ) | (130,306 | ) | (2,102,412 | ) | |||||||||||
Income (loss) from discontinued operations |
— | (15,480 | ) | — | (19,706 | ) | ||||||||||||
Income (loss) for the period |
$ | 272,090 | $ | (1,175,845 | ) | $ | (130,306 | ) | $ | (2,121,903 | ) | |||||||
Basic and diluted Income (loss) per common
share (note 2) |
||||||||||||||||||
Continuing operations |
$ | — | $ | (0.01 | ) | $ | — | $ | (0.01 | ) | ||||||||
Discontinued operations |
$ | — | $ | — | — | — | ||||||||||||
Loss for the period |
$ | — | $ | (0.01 | ) | $ | — | $ | (0.01 | ) | ||||||||
Weighted average number of shares outstanding |
221,861,713 | 215,018,640 | 222,483,156 | 210,073,299 | ||||||||||||||
See accompanying notes
5
HEALTHTRAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY
(Expressed in United States dollars)
(Unaudited)
| 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 year |
||||||||||||||||||||||
For cash pursuant to private placements |
20,040,238 | 859,124 | (561,625 | ) | — | 297,499 | ||||||||||||||||
Shares to be issued for cash received pursuant to private placements |
— | — | 15,000 | — | 15,000 | |||||||||||||||||
Shares issued for employee compensation
($50,000 cash received from private placement) |
1,000,000 | 130,000 | — | — | 130,000 | |||||||||||||||||
Subscription receivable |
— | (77,500 | ) | — | — | (77,500 | ) | |||||||||||||||
Shares issued for services |
1,450,000 | 45,500 | — | — | 45,500 | |||||||||||||||||
Shares issued and to be issued for acquisition of Healthtrac |
431,293 | 107,588 | (107,588 | ) | — | — | ||||||||||||||||
Shares to be issued for settlement of debt |
1,149,054 | 59,765 | — | — | 59,765 | |||||||||||||||||
Loss for the year |
— | — | — | (2,161,235 | ) | (2,161,235 | ) | |||||||||||||||
Balance, February 28, 2003 |
223,104,598 | 121,809,921 | 100,000 | (119,234,559 | ) | 2,675,362 | ||||||||||||||||
Shares issued during the period |
||||||||||||||||||||||
Shares returned to treasury and cancelled |
(2,218,181 | ) | (666,000 | ) | — | — | (666,000 | ) | ||||||||||||||
Subscription receivable |
35,000 | 35,000 | ||||||||||||||||||||
Shares to be issued for settlement of debt |
(12,557 | ) | (12,557 | ) | ||||||||||||||||||
Loss for the period |
— | — | — | (130,306 | ) | (130,306 | ) | |||||||||||||||
Balance, August 31, 2003 |
220,886,417 | $ | 121,166,364 | $ | 100,000 | $ | (119,364,865 | ) | $ | 1,901,499 | ||||||||||||
See accompanying notes
6
HEALTHTRAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States dollars)
| Six Months Ended | |||||||||||
| August 31, 2003 | August 31, 2002 | ||||||||||
| (unaudited) | |||||||||||
Cash flows from operating activities: |
|||||||||||
Income (loss) for the period |
$ | (130,306 | ) | $ | (2,121,903 | ) | |||||
Items not involving cash |
|||||||||||
Loss from discontinued operations |
— | — | |||||||||
Write down of equipment |
9,197 | 481,663 | |||||||||
Non-cash compensation expense |
(666,000 | ) | 80,000 | ||||||||
Forgiveness of debt |
(63,834 | ) | (116,420 | ) | |||||||
Inventory obsolescence provision |
— | (30,768 | ) | ||||||||
Amortization |
627,707 | 731,978 | |||||||||
Changes in non-cash operating working capital: |
|||||||||||
Accounts receivable |
173,500 | 146,873 | |||||||||
Prepaid expenses and deposits |
11,537 | 52,519 | |||||||||
Inventories |
(2,972 | ) | 38,549 | ||||||||
Accounts payable |
170,819 | 87,161 | |||||||||
Accrued liabilities |
(17,461 | ) | 318,682 | ||||||||
Deferred revenue |
(119,602 | ) | (108,993 | ) | |||||||
Deposit |
— | 53,299 | |||||||||
Cash received (used in) continuing operations |
(7,415 | ) | (387,360 | ) | |||||||
Cash received from (used in) discontinued operations |
(35,000 | ) | — | ||||||||
| (42,415 | ) | (387,360 | ) | ||||||||
Investments: |
|||||||||||