TMCnet News
ITRACKR SYSTEMS INC - 10-Q/A - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) This quarterly report contains forward-looking statements including statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words "expects," "anticipates," "intends," "believes" or similar language. These forward-looking statements involve risks, uncertainties and other factors. All forward-looking statements included in this quarterly report are based on information available to us on the date hereof and speak only as of the date hereof. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. The factors discussed elsewhere in this quarterly report are among those factors that in some cases have affected our results and could cause the actual results to differ materially from those projected in the forward-looking statements. The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report. Recent Events On February 1, 2010, Must Haves, Inc. amended its articles of incorporation with the State of Florida, changing its name to iTrackr Systems, Inc. On December 10, 2009, Must Haves, Inc., iTrackr Acquisition, Inc. ("Merger Sub") and iTrackr, Inc., a Florida corporation ("iTrackr"), entered into an Agreement and Plan of Merger (the "Agreement"), which closed January 12, 2010. On the Closing Date, iTrackr was merged with and into Merger Sub, which is the surviving corporation and became a wholly-owned subsidiary of the Registrant. At the closing of the Merger, subject to and pursuant to the terms and conditions of the Agreement, each outstanding share of Purchaser common stock was converted into one share of common stock of the Registrant. Upon consummation of the Merger, the shareholders of the Purchaser received an aggregate of 17,875,695 shares of Registrant common stock and thus owned 93.5% of Must Have's common stock. Must Haves also assumed 6,555,000 options and warrants of iTrackr, which are exercisable at prices from $0.01 to $0.40. In addition, pursuant to the Plan of Merger Agreement, on January 12, 2010 Stella Gostfrand submitted her resignation as an officer and director of the Company, and also on January 12, 2010 Michael Uhl, Dave Baesler and John Rizzo were appointed to serve as members of the board of directors of the Company, all of which will be effective following the expiration of the ten day period following the mailing of the information statement required by Rule 14f-1 under the Exchange Act. Upon the consummation of the Reverse Merger on January 12, 2010 Ramesh Anand was appointed to serve as Chief Operating of the Company, and Mr. Rizzo was appointed to serve as Chief Executive Officer and Chief Financial Officer of the Company. Overview iTrackr Systems, Inc. ("iTrackr", the "Company", "we", "us" or "our") was formed in May 2006 to develop, market and commercialize a product and inventory search application through a social networking site designed to leverage the best of Internet and Mobile technologies. We have taken the best of several burgeoning markets, including eCommerce, social networking and mobile content, and developed what we believe is a powerful platform that drives value to consumers, retailers and advertising and marketing firms. iTrackr Systems intends to introduce and commercialize Internet and Mobile social merchandizing technology platforms to retailers and consumers. "Social merchandizing" applies the variety of traditional marketing practices to promote products and services to a community of individuals via social networking technologies. iTrackr is similar to MySpace and Facebook; however, our members' interests are not in diary or event blogging, but in the timely location of products and services which can be acquired and consumed on a local level. 17 -------------------------------------------------------------------------------- iTrackr Systems' technology enables consumers to search and track merchandise, letting the consumer know which retail locations in a local zip code are stocking the queried merchandise, as well as the comparative prices. In addition, if the item is not in stock, the consumer can request that iTrackr Systems notify them via mobile text message or email when the item is delivered to a local retailer and where that retailer is located. In 2009, iTrackr purchased online customers support software technology from Chatstat for approximately $95,000. iTrackr has subsequently launched its customer support chat software ("ChatTrackr") which facilitates real-time customer support and expert advice, and paid transactions. iTrackr generates revenues primarily through the licensing of its ChatTrackr to Saveology and RespondQ. These customers use our application service provider ("ASP") system, outsourcing our chat applications for a monthly fee-per-agent, or license fee and in certain cases, an annual enterprise fee. In addition, we offer customers a hosted ChatTrackr solution, enabling them to download our software on their website, where agents download a fee-based desktop application, while we manage the service on our network for an additional fee. Examples of websites we manage include www.buycomcast.com and www.buytimewarner.com. We also bill customers for maintenance and upgrades to our service. Our plans to grow our customer support business is to position ChatTrackr as a sales tool for online retailers, increasing fees through customer additions, traffic and through the number of agents using ChatTrackr. We intend to expand our product search business by offering this service to existing ChatTrackr customers as a means of driving further traffic to their own websites and transactional volume. Our target markets include all ecommerce businesses, financial services, healthcare and automotive. Our primary sources of operating funds have been historically through the issuance of debt and equity. For the year ended December 31, 2010 we raised $50,000 from the sale of a warrant, $100,000 from the sale of common stock and $139,500 in debt. For the year ended December 31, 2009, we raised $333,312 in debt. To finance our growth strategy, we may continue to actively pursue additional funds through equity financing, including the sale of additional shares of common and preferred stock, asset sales, accelerated payments of maintenance and management fees, debt financing, or a combination thereof. At March 31, 2011, iTrackr Systems had assets of $92,549, including cash on hand of $285 and accounts receivable of $37,088. For the three months ended March 31, 2011 and the year ended December 31, 2010 the Company had revenue of $40,000 and $106,409, respectively. For the three months ended March 31, 2011 and the year ended December 31, 2010 the Company had and net losses of $136,080 and $981,805, respectively, of which $0 and $483,459, respectively, was related to stock compensation expense. iTrackr has incurred losses since inception and may not be able to generate sufficient net revenue from its business in the future to achieve or sustain profitability. The Company believes that its cash on hand is insufficient to continue operations. The Company currently receives approximately $13,000 to $23,000 per month in sales revenue. The Company currently needs approximately $15,000 to $20,000 per month to fund our minimum cash outflows and $43,300 to $53,300 per month to maintain and expand our sales and operations. The difference between the required minimum cash outflows of $15,000 to$20,000 per month and $43,300 to $53,300 per month primarily represents the salaries of 4 to 8 additional sales and administrative personnel, whom we intend to gradually hire as our cash flow increases. Thus, the Company will need approximately $180,000 to $300,000 to continue through March 31, 2012. In order to meet our cash needs, management is working to secure additional sales and debt and equity financing. In the event no outside funding is achieved or sales remain flat Mr. Rizzo, our CEO will continue to provide personal funds as needed to fund our required minimum cash outflows. During the three months ended March 31, 2011 no borrowings from Mr. Rizzo were required. During 2010, Mr. Rizzo loaned the Company $41,500. Mr. Rizzo is an accredited investor and has committed to fund up to and additional $250,000. However, the Company does not expect to need the full commitment amount primarily as a result of increasing sales. Impact of Inflation General inflation in the economy has driven the operating expenses of many businesses higher, and, accordingly we have experienced increased salaries and higher prices for supplies, goods and services. We continuously seek methods of reducing costs and streamlining operations while maximizing efficiency through improved internal operating procedures and controls. While we are subject to inflation as described above, our management believes that inflation currently does not have a material effect on our operating results. However, inflation may become a factor in the future. 18 -------------------------------------------------------------------------------- Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions and estimates that affect the amounts reported. Note A of Notes to Financial Statements describes the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: · We are required to make assumptions about matters that are highly uncertain at the time of the estimate; and · Different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations. Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations. In preparing our financial statements to conform to accounting principles generally accepted in the United States, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. These estimates include useful lives for fixed assets for depreciation calculations and assumptions for valuing options and warrants. Actual results could differ from these estimates. Stock-Based Compensation The Company accounts for all compensation related to stock, options and warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. We use the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. In calculating this fair value, there are certain assumptions that we use consisting of: 1) The expected life of the option. No incentive stock options have been granted to date. In the event the Company issues employee options, we will base our determination of expected life on the guidance in ASC 718-10-55-29 to 34. The Company utilizes the contract term of each non qualified option except in the event that the option is not transferrable in which case we apply the aforementioned guidance in determining the expected term. 2) Risk-free interest rate. We use the treasury bill rate that most closely aligns with the duration of the derivative. 3) Dividend yield. Until a dividend is offered this input will always be zero. 4) Volatility. We use the Dow Jones Internet Composite Index (Ticker: FDN) from inception of the index to the date of grant. 5) Forfeiture rate. To date this rate has been zero. 6) Stock price (see discussion below). The use of a different estimate for any one of these components could have a material impact on the amount of calculated compensation expense. 19 -------------------------------------------------------------------------------- We periodically issue common stock as compensation. Pursuant to ASC 505-50-30-6 issuances are valued using the market price of the stock or value of the services rendered on the date of the related agreement, whichever is more readily determinable. To date, common stock granted and issued for services has been issued free of obligation to the recipient and for no consideration. The shares are valued at the price non-employees are willing to accept as payment in lieu of cash, which, historically, has been the price per share of recent sales of unregistered securities or value of debt converted to common stock. Long-lived Assets Long-lived assets, comprised of equipment, and identifiable intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that may cause an impairment review include significant changes in technology that make current computer-related assets that we use in our operations obsolete or less useful and significant changes in the way we use these assets in our operations. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset's estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset's estimated fair value, which may be based on estimated future cash flows (discounted and with interest charges). We recognize an impairment loss if the amount of the asset's carrying value exceeds the asset's estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. The new cost basis will be depreciated (amortized) over the remaining useful life of that asset. Using the impairment evaluation methodology described herein, there have been no long-lived asset impairment charges for each of the last two years. Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. We have not made any material changes in our impairment loss assessment methodology during the past two fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material. Income Taxes Provisions for income taxes are based on taxes payable or refundable for the current period and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. When accounting for Uncertainty in Income Taxes, first, the tax position is evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed "more-likely-than-not" to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company underwent a change of control for income tax purposes on October 8, 2003 according to Section 381 of the Internal Revenue Code. The Company's utilization of U.S. Federal net operating losses will be limited in accordance to Section 381 rules. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. 20 -------------------------------------------------------------------------------- Results of Operations Three Months Ended March 31, 2011 Compared With the Three Months Ended March 31, 2010. Revenues Revenues for the three months ended March 31, 2011 were $46,250 compared to revenues of $10,742 for the three months ended March 31, 2010. The increase in revenue is primarily due to the purchase of ChatStat late in 2009 and sales to RespondQ in 2011 for which there were no sales in Q1 2010. Of the $46,250 in 2011 sales, $12 relates to click through referral fees and $46,238 to sales related to ChatTrackr. Two customers, Saveology and RespondQ, accounted for 4% and 96%, respectively of our ChatTrackr related sales. These results compare to 2010 where $155 related to click through referral fees and $10,587 to sales related to ChatTrackr made to Saveology. During the three months ended March 31, 2011 and the year ended December 31, 2010, Saveology and RespondQ were our only ChatTrackr customers. Both customers' contracts are identical except for the payment terms where the Company bills Saveology monthly on net 30 day payment terms at the rate of $0.75 per chat hour and RespondQ pays a flat $12,700 per month on net 30 day payment terms with an initial fee of $25,000 due 90 days from the agreement date. The Saveology agreement was entered into on September 1, 2009 and the Respond Q agreement was entered into on November 1, 2010. Under both agreements, the Company provides Click2Chat (i.e., ChatTrackr) software as a service. The initial contract term is 12 months and renews for successive 12 month periods unless terminated by the Company. Services that are voluntarily terminated are payable to the Company through the then current 12 month term. Both contracts are currently in force. Operating Expenses Total operating expenses for the three months ended March 31, 2011 were $170,635 or 68% lower compared to $540,425 for the three months ended March 31, 2010. The $369,790 decrease in operating expenses is primarily the result of a $378,459 decrease in non-cash stock compensation expense recorded as a result of warrant issuances and stock paid for services in 2010 offset by a $9,025 increase in personnel related costs. Other Income and Expense Other expense related to interest on our notes payable increased $1,702 to $5,445 for the three months ended March 31, 2011 compared to $3,743 of expense during the same period of 2010. The increase is due to higher notes payable as of March 31, 2011 compared to March 31, 2010. Net Loss Our net loss was $129,830 for the three months ended March 31, 2011, compared to a loss of $533,426 for the three months ended March 31, 2010. The $403,596 or 76% decrease in net loss was primarily due to the $378,459 decreases in stock compensation expense. Liquidity and Capital Resources From inception to March 31, 2011, we have incurred an accumulated deficit of $4,224,922. This loss has been incurred through a combination of stock compensation of $1,154,316, professional fees and expenses supporting our plans to develop our website and brand our services as well as continued operating losses. Since inception, we have financed our operations primarily through debt and equity financing. However, we cannot provide assurance that management will be successful in acquiring such sources of capital in the future. During the three months ended March 31, 2011 we had a net decrease in cash of $8,766. Total cash resources as of March 31, 2011 were $285 compared with $9,051 at December 31, 2010. 21 -------------------------------------------------------------------------------- Our accounts payable and accrued expense balance at March 31, 2011 were approximately $874,000 and includes $753,000 due to our CEO for unpaid salary and benefits and $121,038 of accounts payable and accrued liabilities. As of March 31, 2011, we have $37,088 of accounts receivable and cash of $285. Between accounts receivable and cash on hand we have enough to fund approximately seven to ten weeks of required minimum cash outflows (See discussion below). Our available working capital and capital requirements will depend upon numerous factors, including the sale of live chat services, the timing and cost of expanding into new markets, the cost of developing competitive technologies, the resources that we devote to developing new products and commercializing capabilities, the status of our competitors, our ability to establish collaborative arrangements with other organizations, and our ability to attract and retain key employees. We believe that approximately $43,300 to $53,300 per month or $520,000 to $640,000 will be required to maintain and expand our sales and operations and cover our operating and public company administrative expenses for the next 12 months. These costs are comprised of wages, professional fees, communications (i.e., cell phone and internet service) internet hosting and supplies. In addition to covering our operating expenses, we may require additional cash resources due to changing business conditions or other future developments, including any acquisitions we may decide to pursue. The Company currently receives approximately $13,000 to $15,000 per month in sales revenue compared to $15,000 to$20,000 per month in required minimum cash outflows. Due to our limited operating history, we cannot estimate the level of future sales and may not generate enough cash to cover our required minimum cash outflows. With the acquisition of RespondQ in November 2010 as a new customer combined with Saveology, we are in a much better position to fund our required minimum cash outflows. However, in order to expand our sales efforts we will gradually need approximately $43,300 to $53,300 per month. The difference between the required minimum cash outflows of $15,000 to$20,000 per month and $43,300 to $53,300 per month primarily represents the salaries of 4 to 8 additional sales and administrative personnel, whom we intend to gradually hire as our cash flow increases. In order to meet this increase our management continues to work diligently to secure either debt or equity based financing for which we are currently in discussions. In the event no outside funding is achieved or sales remain flat Mr. Rizzo, our CEO will continue to provide personal funds as needed to fund our required minimum cash outflows. During the three months ended March 31, 2011 no borrowings from Mr. Rizzo were required. During 2010, Mr. Rizzo loaned the Company $41,500. Mr. Rizzo is an accredited investor and has committed to fund up to an additional $250,000. However, the Company does not expect to need the full commitment amount primarily as a result of increasing sales. Net cash used by operating activities was $8,766 for the three months ended March 31, 2011 as compared to $85,664 for the three months ended March 31, 2010. Net cash provided by investing activities was $0 for the three months ended March 31, 2011 as compared to $95 for the three months ended March 31, 2010. Net cash provided by financing activities was $0 for the three months ended March 31, 2011 as compared to $118,000 for the three months ended March 31, 2010. During the year ended December 31, 2010, iTrackr Systems, Inc.: ? Received $50,000 in exchange for the issuance of 166,666 shares of restricted common stock. ? Received $50,000 upon the exercise of warrants to purchase 166,666 shares of restricted common stock. ? Received $50,000 in exchange for a warrant to purchase 1,000,000 shares of common stock. ? Converted $42,000 of principle and $466 of accrued interest into 121,332 shares of restricted common stock. ? Received gross proceeds of $139,500 from promissory notes. ? Issued 360,000 shares of restricted common stock valued at $108,000 to settle a legal dispute with Marc Falcone. ? Issued 101,000 shares of restricted common stock to settle accounts payable valued at $32,000. ? Issued 350,000 shares of restricted common stock in exchange for services valued at 105,000. Off-Balance Sheet Arrangements We have no material off-balance sheet transactions. 22 -------------------------------------------------------------------------------- |