UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended March 31, 2001
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act;
For the transition period from _________ to __________
Commission File Number: 000-29822
THEHEALTHCHANNEL.COM, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0728140
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
260 Newport Center Drive, Suite 250, Newport Beach, CA 92660
---------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(949) 631-8317
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
The issuer had 27,610,954 shares outstanding as of March 31, 2001.
Transitional Small Business Disclosure Format (check one):
Yes No X
1
THEHEALTHCHANNEL.COM, INC.
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheet as of March 31, 2001 (unaudited)
Statements of Operations for the 3 months ended March
31, 2001 (unaudited) and March 31, 2000 (unaudited) and
from inception to March 31, 2001 (unaudited).
Statement of Stockholders' Equity/(Deficit) for the
Period since inception to March 31, 2001 (unaudited).
Statements of Cash Flows for the 3 months ended March
31, 2001 (unaudited) and March 31, 2000 (unaudited) and
from inception to March 31, 2001 (unaudited).
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - MARCH 31, 2001
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 12,453
Prepaid expenses and other receivables 4,215
------------
Total current assets $ 16,668
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 259,449
DEPOSITS 3,852
------------
$ 279,969
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 661,380
Loans payable, stockholders 179,000
Accrued Stock-Based Compensation 783,349
Loans payable, short term, 6% interest,
due in full by May 23, 2001 500,000
------------
Total current liabilities $ 2,123,729
STOCKHOLDERS' DEFICIT:
Common stock; $.001 par value, 110,000,000
shares authorized, 27,610,954 shares issued
and outstanding 27,611
Additional paid in capital 8,451,920
Deficit accumulated during development stage (10,323,291)
------------
Total stockholders' deficit (1,843,760)
------------
$ 279,969
============
1
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
For the period
Three months ended Three months ended since inception to
March 31, 2001 March 31, 2000 March 31, 2001
------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
NET REVENUES $ 36,178 $ 28 $ 46,943
COST OF REVENUES -- -- --
------------ ------------ ------------
GROSS PROFIT 36,178 28 46,943
OPERATING EXPENSES:
Depreciation 284,410 81,138 753,470
Consulting and professional fees 74,998 223,347 4,096,457
Website related 45,578 -- 803,321
Interest expense 176,664 -- 519,999
General and administrative 229,426 393,174 1,983,339
------------ ------------ ------------
Total operating expenses 811,076 697,659 8,156,586
LOSS FROM CONTINUING OPERATIONS (774,898) (697,631) (8,109,643)
Loss on discontinued operations -- -- (2,114,398)
Loss on disposal of segment -- -- (99,250)
------------ ------------ ------------
TOTAL DISCONTINUED OPERATIONS -- -- (2,213,648)
------------ ------------ ------------
NET LOSS $ (774,898) $ (697,631) $(10,323,291)
============ ============ ============
NET LOSS PER SHARE, BASIC AND DILUTED: $ (0.03) $ (0.03)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
EQUIVALENT SHARES OUTSTANDING 27,610,954 23,197,201
============ ============
2
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIT
Deficit
Accumulated
Common Stock Additional Stock during the Total
------------ paid-in subscriptions development stockholders'
Shares Amount Capital Receivable Stage Equity/(Deficit)
----------- ----------- ----------- ----------- ----------- ----------------
DESCRIPTION
Balance at December 31, 1997, restated for
1:3 stock split on October 12, 2000 11,388,007 $ 11,388 $ 379,859 $ -- $ (274,783) $ 116,464
Shares sold for cash 3,334,252 3,334 473,130 476,464
Shares issued in exchange for services 6,998,481 6,999 1,054,540 1,061,539
Common stock subscription 184,413 184 59,816 (60,000)
Net loss for the year ended
December 31, 1998 (1,472,601) (1,472,601)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 21,905,153 21,905 1,967,345 (60,000) (1,747,384) 181,866
IVTX
Issuance of common stock from IVTX
private placement offering (Note 4) 113,043 113 112,086 60,000 172,199
Issuance of shares for services rendered on
behalf of the Company (Note 4) 34,800 35 52,165 52,200
THEHEALTHCHANNEL.COM (FORMERLY IVTX)
Contribution of asset from Biologix
International, Ltd. (Note 3) 947,835 947,835
Issuance of common stock from private
placement offering (Note 4) 405,934 406 510,134 (25,000) 485,540
Issuance of common stock related to
settlement agreements (Note 4) 501,667 502 1,796,843 1,797,345
Shares given directly by shareholders for
services rendered on the Company's
behalf (Note 4) 860,100 860,100
Net loss for the year ended
December 31, 1999 (3,926,992) (3,926,992)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 22,960,597 22,961 6,246,508 (25,000) (5,674,376) 570,093
Shares exchanged from pools (See Note 4) 1,528,369 1,528 (1,528) --
Private placement offering, net 1,524,651 1,525 898,715 900,240
Proceeds received from stock subscriptions 25,000 25,000
Shares issued in settlement of debt (Alphabet
Media) 53,333 53 46,987 47,040
Shares issued for services - consultants 22,105 22 25,978 26,000
Shares issued for services (National
Securities) 5,170 5 7,333 7,338
Shares issued for services (Quinn Emanuel) 27,633 27 30,645 30,672
Shares issued in settlement of legal matter
(Benning and Fields) 21,365 21 23,310 23,331
Shares issued in settlement (Marshall
Redding) 274,508 275 172,666 172,941
Shares issued for bridge loan (Les Dube) 526,556 527 251,973 252,500
Warrants issuable for bridge loan (Laguna
Pacific) 250,000 250,000
Shares issued to Larry Horwitz for
consulting services 666,667 667 499,333 500,000
Net loss for the year ended
December 31, 2000 (3,874,017) (3,874,017)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 (Audited) 27,610,954 $ 27,611 $ 8,451,920 $ -- $(9,548,393) $(1,068,862)
Net loss for the three months ended
March 31, 2001 (unaudited) (774,898) (774,898)
----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 2001 (unaudited) 27,610,954 $ 27,611 $ 8,451,920 $ -- $(10,323,291) $(1,843,760)
=========== =========== =========== =========== =========== ===========
3
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
For the three months For the period
ended March 31, since inception to
2001 2000 March 31, 2001
------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
NET LOSS $ (774,898) $ (697,631) $(10,323,291)
ITEMS RECONCILING NET LOSS TO CASH
USED BY OPERATING ACTIVITIES:
Depreciation and amortization 284,410 81,138 753,470
Loss on disposal of segment -- -- 99,250
Interest expense 169,164 -- 499,999
Noncash expenses from stock issuances -- 83,231 5,096,232
Settlement of litigation -- -- 300,000
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable -- -- 3,147
Inventory -- 83,077
Software development costs -- (25,000) --
Prepaid expenses 16,640 50,730 (173,380)
Deposits -- -- (6,449)
Accounts payable and accrued expenses 160,708 222,749 776,497
------------ ------------ ------------
Total adjustments 630,922 412,848 7,431,843
------------ ------------ ------------
Net cash used by operating activities (143,976) (284,783) (2,891,448)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
payments to acquire property and equipment -- (28,263) (65,083)
------------ ------------ ------------
Net cash used for investing activities -- (28,263) (65,083)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for asset transfer -- -- (26,329)
Deferred offering cost -- -- --
Stock subscription receivable -- 25,000 --
Loans receivable -- (28,000) --
Proceeds from loans, including related parties 154,000 -- 579,000
Proceeds from issuance of capital stock, net -- 378,228 2,416,313
------------ ------------ ------------
Net cash provided by (used for) financing activities 154,000 375,228 2,968,984
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 10,024 62,182 12,453
CASH, beginning of period 2,429 92,237 --
------------ ------------ ------------
CASH, end of period $ 12,453 $ 154,419 $ 12,453
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Non-cash consideration from debt and equity transactions $ -- $ 83,231 $ 5,999,401
============ ============ ============
Proceeds from loan payable paid directly to Horwitz and Beam
from Laguna Pacific on behalf of the Company $ -- $ -- $ 100,000
------------ ------------ ------------
Acquisition of website technology and related assets $ -- $ -- $ 947,835
------------ ------------ ------------
5
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2001
(1) BASIS OF PREPARATION
GENERAL
With headquarters in Newport Beach, California, thehealthchannel.com
(formerly Innovative Tracking Solutions Corporation or "IVTX") is a
comprehensive health information Internet portal that offers a one-step access
point for consumers and professionals who want to explore a broad array of
health topics. The portal currently indexes other Internet health and
health-related sites, has direct links with online health-care information
service centers and provides detailed coverage of medical conditions. Consumers
may access a global library of health-care information while searching for
products and services. The site offers a complete Internet portal for
state-of-the-art continuing medical education for professionals.
The Company was incorporated under the laws of the State of Delaware on
September 4, 1996.
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements include all adjustments (consisting
of only normal recurring accruals) which are, in the opinion of management,
necessary for a fair presentation of the results of operations for the periods
presented. Interim results are not necessarily indicative of the results to be
expected for the year ending December 31, 2001. The financial statements should
be read in conjunction with the financial statements included in the annual
report of thehealthchannel.com, Inc. (the "Company") on Form 10-KSB for the year
ended December 31, 2000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to earnings as incurred, whereas, additions, renewals, and
betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets.
During the quarter, management determined that the useful life of the
website technology and related software to be approximately two years, and
accordingly, accelerated the amortization of the website technology and related
software. This change in estimate increased the depreciation and amortization
expense by an additional $200,000. Based on this change in estimate, the website
technology and related software will be fully amortized by June 2001.
6
DEVELOPMENT STAGE ENTERPRISE
The Company is a development stage company as defined in Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by Development
Stage Enterprises." The Company is devoting substantially all of its present
efforts to establish a new business, which is unrelated to the business of
Innovative Tracking Solutions Corporation ("IVTX"), and its planned principal
operations have not yet commenced. All losses accumulated since inception of
thehealthchannel.com have been considered as part of the Company's development
stage activities. The operations of IVTX in 1999 are presented as discontinued
operations as a result of the transfer of its assets and liabilities to a
private company.
NET LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standard No. 128,
Earnings per Share ("SFAS No. 128"), which is effective for annual and interim
financial statements issued for periods ending after December 15, 1997. Net loss
per share has been computed using the weighted average number of shares
outstanding. Common stock equivalents have been excluded since their inclusion
would reduce loss per share.
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE COMPANY
thehealthchannel.com, Inc., formerly known as Innovative Tracking Solutions
Corporation (the "Company") was incorporated in Delaware on September 6, 1996.
It operates a consumer-based health super site (http://www.thehealthchannel.
com).
On April 16, 1999, the Company transferred all of its assets and
liabilities based on majority stockholder approval to a newly formed private
company. The Company's plan of operations following the transfer of assets and
liabilities was to seek and complete a merger or acquisition transaction with a
small or medium-sized enterprise which desired to become or remain a public
corporation.
On July 28, 1999, the Company was successful in finding an appropriate
acquisition candidate and, pursuant to its bylaws and general Delaware corporate
law, the Company acquired certain assets of Biologix International, Ltd.,
consisting primarily of thehealthchannel.com website and related technology in
exchange for the controlling interests of the Company. Restricted common shares,
representing the majority controlling interests held by the directors of the
Company, were transferred.
In connection with this change of control, the Company's name was changed
to thehealthchannel.com, Inc. on July 28, 1999. The Acquisition closed on July
28, 1999 (the "Acquisition").
With headquarters at 5000 Birch Street, Suite 4000, Newport Beach,
California, thehealthchannel.com is a comprehensive health information Internet
portal that offers a one-step access point for consumers and professions who
want to explore a broad array of health topics. Consumers may access a global
library of health-care information while searching for products and services.
The site offers a complete Internet portal for state-of-the-art continuing
medical education for professionals.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
2000
REVENUES
We are a development stage company. Revenues for the three months ended
March 31, 2001 of $36,178 was derived from programming fees as compared to $28
for the three months ended March 31, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses amounted to $811,076 for the
three months ended March 31, 2001 as compared to $697,659 in 2000. This included
depreciation and amortization expense of $284,000 in 2001 as compared to $81,000
in 2000, consulting and professional fees of $75,000 as compared to $223,000 in
2000, interest expense of $176,000 as compared to $0 in 2000. During the
quarter, management determined that the useful life of the website technology
and related software to be approximately two years, and accordingly, accelerated
the amortization of the website technology and related software. This change in
estimate increased the depreciation and amortization expense by an additional
$200,000. Based on this change in estimate, the website technology and related
software will be fully amortized by June 2001.
LOSS FROM OPERATIONS
The Company incurred a loss from operations of $774,898 for the three
months ended March 31, 2001 as compared to $697,631 for the three months ended
March 31, 2000.
7
NET LOSS
The Company had a net loss of $774,898 or $(0.03) per share for the three
months ended March 31, 2001 as compared to $697,631 or $(0.03) per share in
2000.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have primarily funded our capital requirements
through private equity infusions. Commencing in September of 1999 and closing in
August 2000, we conducted a private offering, to accredited investors only, of
units, each unit consisting of one share of our common stock and one warrant
exercisable for a term of two years. All shares purchased in this offering, as
well as all shares underlying warrants purchased in this offering, have
piggyback registration rights which have been included in the Form SB-2/A. The
Form SB-2?A went effective in May 2001. As adjusted for our one for three
reverse split, we originally priced this offering at $2.25 per unit with a $2.25
exercise price on the warrants. However, the price of our publicly traded stock
dropped precipitously since the beginning of this private offering and we
subsequently offered the units at lower prices.
We received a loan in the amount of $250,000 from Laguna Pacific Partners
L.P., a Delaware limited partnership. This loan is made pursuant to a secured
note that bears interest at the rate of 6% and is payable on February 3, 2001.
The due date of this loan has been extended to May 1, 2001. The loan is secured
by all of our assets. In consideration for making this loan to us, Laguna
Pacific Partners received a warrant for common stock equal to the quotient of
$250,000 divided by the closing bid of our stock immediately preceding the
effective date of this prospectus. The term of this warrant is five years and
the exercise price is $1 in the aggregate. The warrant agreement contains terms,
which increase the number of shares underlying the warrants commencing February
1, 2001 at the rate of 10% per month, compounding on a monthly basis, until the
effective date of our registration statement. The number of shares registered
under the registration statement on Form SB-2/A includes the monthly increase
for February, March and April 2001.
On August 18, 2000, we received a loan in the amount of $250,000 from Les
Dube and Irene Dube. This loan is made pursuant to a note, which bears interest
at the rate of 6% and is payable on the earlier of February 18, 2001 or the
effective date of the prospectus. The due date of this loan has been extended to
the earlier of May 23, 2001, or the effective date of the registration statement
on Form SB-2/A. This loan was issued in consideration for 526,556 shares of
common stock. These shares have been registered in the registration statement on
Form SB-2/A, and, upon repayment of this loan, these shares are to be retained
by Les Dube. On the effective date of the registration statement on Form SB-2/Am
Les Dube may sell these shares.
At March 31, 2001, the Company had outstanding current liabilities of
$2,123,729 of which $783,349 has been approved by the Board of Directors to be
settled by issuance of stock. The balance consists of $220,000 in accounts
payable, accrued professional fees of approximately $145,000, of which a further
$95,000 has been agreed to be settled through stock issuance, and accrued
officers' salaries of $204,000. All officers of the Company have agreed to defer
their compensation until such time as the Company has the financial ability to
pay compensation. It is anticipated that loans payable will be repaid from
online and wireless revenues.
We recognize that the company must generate additional resources to enable
it to continue operations. Our plans include the sale of additional equity and
debt securities to various private equity funds ranging from $1,000,000 to
$15,000,000. In addition, with infusion of capital from equity funding, we plan
to generate significant revenues resulting in positive cash flows by year-end.
However, no assurance can be given that we will be successful in raising
additional capital. Further, there can be no assurance, assuming we successfully
raise additional funding, that we will achieve profitability or positive cash
flow. If management is unable to raise additional capital and expected
significant revenues do not result in positive cash flow, we will not be able to
meet our obligations and will have to cease operations.
The Company does not believe that inflation has had a significant impact on
its operations since inception of the Company.
FUTURE PLAN OF OPERATION
The company's overall plan of operations for the next 12 months include
significant website development in four primary areas:
a) Further develop, promote and increase product offerings in its
industry leading "Anywhere, Anytime (TM)" mobile and wireless
strategy. Thehealthchannel.com was a first time mover in the health
sector with this technology application.
b) Broaden overall content offerings in the areas of general health
content and delivery of health goods and services.
c) Deliver a number of "deep vertical" products in specific health
topics.
d) Implement the business-to-business revenue generating products
covering a number of health areas including some unique products not
currently in the marketplace.
The company's overall plan of operation also includes completion of
strategic acquisitions for the purposes of revenue/profit enhancement, content
development, and increased traffic to the website.
We are currently conducting product research and development in the areas
of general health content, broadening and strengthening our health information
delivery, as well as conducting research and development in the areas of premier
health product offerings (deep verticals) and mobile and wireless communication.
In addition we will continue to develop its business-to-business goods and
services products.
We recently purchased (through the inclusion of our new operations center
lease) the necessary infrastructure to grow and reduce our operational costs by
bringing a majority of our software development in-house.
We expect to add approximately 5-10 new employees in this fiscal year.
8
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In management's opinion, there are no material litigation matters pending
or threatened against the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None.
(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this amended quarterly report to be signed on its behalf by
the undersigned, thereunto duly authorized.
THEHEALTHCHANNEL.COM, INC.
Dated: May 15, 2001 /s/ Donald Shea
------------------------------------
By: Donald Shea
Its: Chief Executive Officer, President,
Chairman of the Board