SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
or
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-29822
THEHEALTHCHANNEL.COM, INC.
(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 Number)
260 NEWPORT CENTER DRIVE, SUITE 250
NEWPORT BEACH, CALIFORNIA 92660
(Address of principal executive offices) (Zip code)
(949) 631-8317
--------------
(Issuer's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(None)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.001 per share
Check whether Registrant (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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
the Form 10-KSB. [X]
Registrant's revenues for its fiscal year ended December 31, 2000, were $10,765.
As of December 31, 2000, Registrant had 27,610,954 shares of its $.001 par value
Common Stock issued and outstanding with an aggregate market value of the common
stock held by non-affiliates of $2,293,673. This calculation is based upon the
closing sales price of $.09 per share on April 10, 2001.
Transitional Small Business Disclosure Format (check one). Yes [ ] No [X]
The following documents are incorporated herein by reference: Registration
Statement on Form SB-2, filed with the SEC on March 19, 2001.
TABLE OF CONTENTS
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PART I PAGE
------ ----
Item 1 Description of Business 3
Item 2 Description of Property 8
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
PART II
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Item 5 Market for Common Equity and Related Stockholder
Matters 10
Item 6 Management's Discussion and Analysis 11
Item 7 Financial Statements 14
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 14
PART III
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Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 15
Item 10 Executive Compensation 17
Item 11 Security Ownership of Certain Beneficial Owners and
Management 18
Item 12 Certain Relationships and Related Transactions 18
PART IV
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Item 13 Exhibits and Reports on Form 8-K 19
PART I
ITEM. 1 DESCRIPTION OF BUSINESS
A. BUSINESS DEVELOPMENT
1. FORM AND YEAR OF ORGANIZATION
In March 1998, a market maker filed a 15c2-11 statement with the National
Association of Securities Dealers, Inc. and IVTX's stock was cleared for
quotation on the Over-the-Counter Bulletin Board under the symbol "IVTX" on
April 21, 1998. In early 1999, IVTX management determined that the "public"
status of IVTX was detrimental to IVTX's operations due to the time and expense
burdens of being a public company. On April 14, 1999, IVTX transferred all of
its assets and liabilities based on majority stockholder approval to a newly
formed private company, Innovative Tracking Solutions, Inc., a Nevada
corporation.
In June 1999, IVTX met the management of BioLogix, Inc. BioLogix was a
diversified public company which owned a number of assets, including a
consumer-based health care website located at http://www.thehealthchannel.com.
IVTX and BioLogix each reorganized as follows:
o In July 1999 IVTX completed a 28.2 for 1 forward stock split. The
officers of IVTX were paid $250,000 cash in exchange for their shares
for the purpose of financing the operation of the IVTX assets, which
had been transferred to a private corporation in April 1999.
o The other 36 IVTX shareholders were provided with the alternative of
either retaining two of their post-split IVTX shares and contributing
the balance to an exchange pool (as discussed more fully below) or
exchanging their shares for shares in Innovative Tracking Solutions,
Inc., a Nevada corporation, the privately held corporation into which
the IVTX operating assets had been transferred. Thirty-five of these
36 IVTX shareholders elected to retain two shares and contribute the
balance to the exchange pool.
o In July 1999 the Internet website and associated technology located at
www.thehealthchanel.com were transferred by BioLogix, Inc. to IVTX.
The name of IVTX was changed to thehealthchannel.com
o The BioLogix shareholders were provided with the alternative of
retaining their BioLogix shares or retiring their BioLogix shares, on
a one for one basis, in exchange for IVTX shares contained in the
exchange pool (which as noted above had changed its name to
TheHealthChannel.com). There were approximately 800 BioLogix
shareholders and approximately 650 of these shareholders elected to
exchange their BioLogix shares for THCL shares.
On November 17, 2000, the Company changed its symbol to THCH. It is
currently quoted on the over the counter market.
2. ANY BANKRUPTCY, RECEIVERSHIP OR SIMILAR PROCEEDING
Not Applicable.
3
3. ANY MATERIAL RECLASSIFICATION, MERGER, CONSOLIDATION, OR PURCHASE
OR SALE OF A SIGNIFICANT AMOUNT OF ASSETS NOT IN THE ORDINARY COURSE OF BUSINESS
All material reclassifications, mergers, consolidations are outlined in
section (1) Form and Year of Organization.
B. BUSINESS OF ISSUER
1. PRINCIPAL PRODUCTS AND THEIR MARKET
As of July 1999 we have focused exclusively upon the development of
business strategies and acquisition of existing operations, which satisfy the
following three-part test:
o Is the business strategy/acquisition candidate in the healthcare
industry which may be controlled by us?
o Does implementation of the Internet materially improve the business
strategy/acquisition candidate?
o Can the proposed plan generate projected revenues within six months
and a return on our investment within twelve months of the deployment
of our capital?
We believe that the following discussion of our business plan provides the
infrastructure that is now prepared to efficiently deploy a substantial capital
raise into the healthcare Internet sector. Our plans diversify among both
healthcare industry consumers and healthcare industry professionals.
PRODUCTS MARKETED TO HEALTHCARE PROFESSIONALS
We have focused our product development efforts in identifying Internet
based products and services which will increase the productivity of healthcare
professionals by either automating traditional paper-based or manual processes,
or by providing additional revenue sources for the healthcare professional
community.
We are currently developing three products specifically directed toward
physicians:
o Our revenue sharing program with the Institute for Medical Studies,
Inc., a continuing medical education company;
o The Physicians Automated Attendant, a software system which will be
integrated into our internet site, accessible through wireless
portable devices, automating the process of drug prescription and
insurance billing; and,
o Physician Pro Care obesity program.
Thehealthchannel.com is contemplating entering into a revenue sharing
agreement with the Institute of Medical Studies to exchange Internet links and
to jointly create Internet continuing education programs.
According to their management, the Institute for Medical Studies has for
more than ten years provided physicians throughout the world with continuing
medical education programs involving virtually every area of the medical
practice, from new surgical techniques to certifications for prescribing new
drugs. These programs have typically been provided in a traditional classroom
setting requiring physicians to travel to the class's location. The preparation
of these classes involves the development of extensive materials and the hiring
of a number of prominent physicians in each field. Classes will be both "real
time" allowing Internet participants to interact with the presenter, as well as
archived, allowing physicians to view classes previously provided. Providing
such classes over the Internet involves extremely new technologies and business
models. There is no assurance that we will successfully provide such classes
over the Internet or if we are successful in providing such classes that
physicians will regularly access these classes through our Internet site, rather
than continue to attend traditional classroom presentations. To date,
thehealthchannel.com has not offered any such classes, nor has it received any
revenues from the agreement.
4
We are also developing a web-based product entitled the Physicians
Automated Attendant. This product is at an early stage of development. However,
it is our intention that this software system would be installed on wireless
devices which shall access our website providing patient prescriptions and
adjudication of insurance claims. We anticipate that the initial prototypes of
this product will be completed during the first quarter of the year 2001. We
believe that there are a number of companies developing products, which will
directly compete with the Physicians Automated Attendant. Further, since this
product involves newly deployed technology, there is no assurance that the
technology will be successfully developed or that if it is successfully
developed, that physicians will utilize such technology at a level that will be
financially practicable for our business plan.
Medical professionals are embracing handheld devices to write
prescriptions, access drug databases, remotely access and manage front office
operations and communicate more effectively with patients, staff and other
health care providers. No company is currently providing medical professionals
with up to the minute news and information about the profession and/or their
medical specialty.
Physician Pro Care is one of the leading professional obesity programs
designed for people who are clinically obese (50 lbs. overweight). The
supplemental products that are offered as part of the program will be further
distributed through our website. It is anticipated that this can be significant
revenue enhancement due to the increased exposure related to the distribution
through the Internet.
HEALTHCARE INDUSTRY CONSUMER PRODUCTS
The centerpiece of our consumer products strategy is our website located at
www.thehealthchannel.com. We have engineered our website completely in-house,
through the efforts of our web design team and in close collaboration with new
content and database integration partners. The site provides increased ease of
navigation, enhanced personalization, and interaction through on-line chat
communities, increased ad and sponsorship banner space and healthcare management
via the "Conditions & Symptoms" research tool. The site focuses on alternative
care as well as traditional medicine and provides offerings for consumer and
professional users. The site was built utilizing the latest hardware and back
end systems that have been tested and configured for optimal performance,
reliability, stability and efficiency. We have entered into an agreement with
NewsEdge, to provide eHealth content consisting of approximately 90 articles
daily, which are added to thehealthchannel.com's growing content database. Our
agreement requires that we pay NewsEdge one installment of $15,000. We have
entered into an agreement with Integrative Medicine, to provide various eHealth
content databases and weekly medical-alert newsletters. Our agreement requires
that we pay Integrative Medicine an annual fee of $80,000 in monthly
installments of $6,667 each. To date, we have made three installment payments
totaling $20,001. We have renegotiated this agreement to decrease the amount
owed on a monthly basis to $5,000 per month commencing February 1, 2001 and
continuing until June 30, 2002.
We have entered into an agreement with EarthLink.com, a general Internet
portal, to provide ready access to our site for EarthLink subscribers clicking
the healthcare heading on the EarthLink portal. Our agreement with EarthLink
provides for a one-year commitment and requires that we pay EarthLink.com
$36,000 in four installments of $9,000 each. To date, we have made three
installment payments to EarthLink.com totaling $27,000. Lastly,
thehealthchannel.com has an arrangement with the National Institute of Health to
incorporate, publish and "private label" content and content links from the
National Library of Medicine's MEDLINEplus web site. Our agreement with the
National Institute of Health requires no payment of money.
We also develop health-related content and programming for the World Wide
Web targeted at consumer access vis-a-vis the Internet, web-TV and/or other
means of network access.
We intend to enter into strategic alliances and business relationships.
These come in many different forms. For example, medical education, alternative
medicine, pharmacy, library, and journals may enter into relationships with us
to provide information to our web site. We currently have such relationships
with NewsEdge and Integrative Medicine as discussed above.
5
We also expect to have numerous relationships with third party e-commerce
companies offering their products and services to thehealthchannel.com users.
This will either be through direct advertising of the third party e-commerce
site on thehealthchannel.com site or through a commission agreement whereby we
would receive a commission for any product purchased from the third party
e-commerce site by thehealthchannel.com user. In this regard, we have entered
into eight affiliate agreements with other health oriented websites such as
vitamins.com and mothernature.com. These agreements provide us with revenues
(ranging from 10% to 20% of the sale) in the event users are introduced to our
affiliate sites through our website and products or services are ordered. We
have only recently commenced these affiliate relationships and have received
only a nominal amount of revenue as of the date of this prospectus. As a result
of the recent commencement of these relationships, it would be speculative to
forecast any future sales or sales growth.
On September 9, 1999, we entered into an agreement with 24/7 Media, Inc.
24/7 operates a network of Internet websites (the "24/7 Network") for which it
solicits advertisers, advertising agencies, buying services or others
("Advertisers") regarding the placement of advertising banners and similar
devices and sponsorships ("Advertising") for display on pages, screens, and
other segments or spaces on Internet websites. We granted 24/7 the worldwide
exclusive right to sell all Advertising on the Company's website for a term of
one year. For all advertising revenues generated by 24/7, we will pay 24/7 a
percentage based upon the number of impressions on our website according to the
following chart:
Number of Impressions Percentage Retained by 24/7
Delivered in Preceding Month for Current Month
---------------------------- -----------------
0 to 2,000,000 50%
2,000,000 to 2,999,999 45%
3,000,000 to 4,999,999 40%
5,000,000 to 14,999,999 35%
15,000,000+ 30%
To date, we have generated only minimal revenue from this agreement with
24/7. We have begun accruing advertising revenue from the 24/7 agreement since
July 2000. We have received additional revenue from website development
projects.
We have implemented an "anywhere, anytime" strategy whereby we intend to
attract a segment of the market that may not be reachable through traditional
browser limited websites. Our website is already available to Palm and Pocket PC
device users through http://www.avantgo.com and to wireless Palm devices through
http://www.palm.net as well as http://www.omnisky.com. We intend to extend our
reach in this market by launching WAP (wireless application protocol) or
web-enabled phone applications in the coming weeks. We are the only healthcare
website to receive a four star rating on the palm.net web site. A four star
rating is only awarded to web sites that are considered to be "good" in meeting
3Com's criteria (see http://beta.palm.net/apps/users/main/ 1,10190,00. html/
?ACTION=Rating) (see http://beta.palm.net/apps/users/download/
1,1051,1477,00.html).
The emergence of the Internet as a significant communications medium is
driving the development and adoption of web content and commerce applications
that offer both convenience and value to consumers, as well as unique marketing
opportunities and reduced operating costs to business. A growing number of
consumer and trade customers have begun to conduct business on the Internet
including paying bills, booking airline tickets, trading securities and
purchasing consumer goods such as personal computers, consumer electronics,
compact disks, books, groceries and vehicles. Moreover, online transactions can
be faster, less expensive and more convenient than transactions conducted
through a human intermediary.
2. DISTRIBUTION
The services and products of the Company are distributed by its employees
and independent contractors, either at the customer's site or via the Internet
or wireless strategies.
6
3. STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT.
Any and all new services are discussed in section (1) Principal Products
and their markets above.
4. COMPETITION
The online commerce industry, particularly on the Internet, is new, rapidly
evolving and intensely competitive, which we expect to intensify in the future.
Barriers to entry are minimal, allowing current and new competitors to launch
new websites at a relatively low cost. We currently or potentially compete with
other companies which have health care websites. These competitors include
InteliHealth, OnHealth, Web MD, Koop.com, and YourHealth.com.
We believe that the principal competitive factors in this market are brand
name recognition, wide selection, personalized service, ease of use, 24-hour
accessibility, customer service, convenience, reliability, quality of search
engine tools, and quality of editorial and other site content. Many of our
current and potential competitors have longer operating histories, larger
customer bases, greater brand name recognition and significantly greater
financial, marketing and other resources than we do. In addition, other websites
may be acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. Certain of our competitors
may be able to devote greater resources to marketing and promotional campaigns,
and devote substantially more resources to website and systems development than
we do.
Increased competition may result in reduced operating margins, loss of
market share and a diminished franchise value. There can be no assurance that we
will be able to compete successfully against current and future competitors, and
competitive pressures that we face may have a material adverse effect on our
business, prospects, financial condition and results of operations. Further as a
strategic response to changes in the competitive environment, we may, from time
to time, make certain service or marketing decisions or acquisitions that could
have a material adverse effect on its business, prospects, financial condition
and results of operations. New technologies and the expansion of existing
technologies may increase the competitive pressures on us. In addition,
companies that control access to transactions through network access or Web
browsers could promote our competitors or charge us a substantial fee for
inclusion.
We face well-financed competition from other companies competing in the
health sector on the Internet, such as Healtheon, WebMD, and Dr. Koop. Recently,
Healtheon and WebMD merged. There is no guarantee that we will be able to
compete against these companies or any other companies that might enter the
Internet health sector.
5. SOURCES AND AVAILABILITY OF RAW MATERIAL AND PRINCIPAL SUPPLIERS
The content for the Company's web site comes from three primary sources:
o HTML links. Programmed medical content links from the Infoseek
search engine (ultraseek).
o Strategic Alliances and Business Relationships. These come in
many different forms. The Company expects to have numerous
relationship with third party e-commerce companies offering their
products and services to thehealthchannel.com users. This will
either be through direct advertising of the third party
e-commerce site on thehealthchannel.com site or through a
commission agreement whereby the Company would receive a
commission for any product purchased from the third party
e-commerce site by thehealthchannel.com user. In this regard,
there are presently no existing relationships.
o Original content: The Company has a diverse, experienced board of
and advisors who provide original content for the Company's site
in their areas of expertise.
7. DEPENDENCE ON MAJOR CUSTOMERS
Not applicable.
7
8. EFFECT OF ANY EXISTING OR PROPOSED GOVERNMENT REGULATIONS
The Company is not currently subject to direct regulation by any domestic
or foreign governmental agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to access to online
commerce. However, due to the increasing popularity and use of the Internet and
other online services, it is possible that a number of laws and regulations may
be adopted with respect to the Internet or other online services covering issues
such as user privacy, pricing, content, copyrights, distribution and
characteristics and quality of products and services. The adoption of any
additional laws or regulations may decrease the growth of the Internet or other
online services, which could, in turn, decrease the demand for the Company's
products and services and increase the Company's cost of doing business, or
otherwise have a material adverse effect on the company's business, prospects,
financial condition and results of operations. Moreover, the applicability to
the Internet and other online services of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to the Company's business, or
the application of existing laws and regulations to the Internet and other
online services could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
Permits or licenses may be required from federal, state or local government
authorities to operate on the Internet. No assurances can be made that such
permits or licenses will be obtainable. The Company may be required to comply
with future national and/or international legislation and statutes regarding
conducting commerce on the Internet in all or specific countries throughout the
world.
9. RESEARCH AND DEVELOPMENT COSTS.
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 our business-to-business goods and
services products. Since the Company began operations through December 31, 2000
it has spent approximately $800,000 on the research and development of its
proprietary technology. The revenues the Company achieve will be primarily from
strategic alliances and direct customer revenues. Fees generated, while paying
directly for research and technology costs accrued to date, will also fund the
operations of the Company, which includes funding on-going technological
development.
10. COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS AND
REGULATIONS
thehealthchannel.com's business does not involve the use of materials in a
manufacturing process where such materials are likely to result in the violation
of any existing environmental rules and/or regulations. Further, the Company
does not own any real property which would lead to liability as a landowner.
Therefore, the Company does not anticipate any costs associated with the
compliance of environmental laws and regulations.
11. EMPLOYEES
As of the date hereof, we have five full-time employees and five part-time
employees. We hire independent contractors on an "as needed" basis only. We have
no collective bargaining agreements with our employees. We believe that our
employee relationships are satisfactory. Long term, we will attempt to hire
additional employees as needed based on our growth rate.
8
ITEM 2 - PROPERTIES
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Our main administrative offices are located at 260 Newport Center Drive,
Suite 250, Newport Beach, California 92660, consisting of 1,284 square feet,
with a monthly lease payment of $3,852 per month, pursuant to a sublease
agreement.
ITEM 3 - LEGAL PROCEEDINGS
--------------------------
The Company is not a plaintiff or a defendant in any legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
The Company held their annual meeting of shareholders on October 12, 2000.
At that meeting and by proxy, a quorum was present and the Company received the
following votes on its proposals:
Proposal Yes No Abstain Shares Voted Result
-------- --- -- ------- ------------ ------
Election of Board of Directors
Mr. Donald J. Shea 45,815,507 0 948,972 46,764,479 Yes (98%)
Mr. Thomas Lonergan 45,788,107 0 976,372 46,764,479 Yes (98%)
Dr. Balazs Imre Bodai 46,117,907 0 646,572 46,664,479 Yes (99%)
Mr. Jeffrey H. Berg 46,089,107 0 675,372 46,667,479 Yes (99%)
Dr. Joseph Song 45,993,467 0 771,012 46,667,479 Yes (98%)
Approval of the 3:1 reverse stock split 43,061,359 3,520,364 182,756 46,667,479 Yes (92%)
Increase the number of authorized shares
Of Common Stock 43,877,979 2,579,734 306,766 46,667,479 Yes (94%)
Ratification of 2000 Stock Option Plan 42,947,996 3,064,985 751,498 46,667,479 Yes (92%)
Appointment of Stonefield, Josephson Inc. 45,565,699 191,678 1,007,102 46,764,479 Yes (97%)
As the Company's independent public
Accountants for the fiscal year ending
December 31, 2000
9
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------------------------------------------------------------------------------
(A) MARKET INFORMATION
The Company's Common Stock is currently quoted on the Over-The-Counter
Market under the Symbol "THCH". Set forth below is the trading history of the
Company's Common Stock consisting of the closing price of the Company's common
stock as of the last day of the month of the quarter indicated, without retail
mark-up, mark-down or commissions and the inter-dealer quotations over the month
indicated, all as displayed by Financial Web at www.financialweb.com:
================================================================================
1999 CLOSING PRICE HIGH RISK LOW BID
---- ------------- --------- -------
July 1 - September 30 0.75 0.87 0.75
October 1- December 31 0.48 0.53 0.41
2000
----
January 1 - March 31 0.55 0.58 0.52
April 1 - June 30 0.29 0.31 0.24
July 1 - September 30 0.26 0.26 0.26
October 1- December 31 0.07 0.07 0.06
2001
----
January 1 - March 31 0.09 0.09 0.09
================================================================================
The above quotations are inter-dealer quotations, and the actual retail
transactions may involve dealer retail mark ups, markdowns, or commissions for
market makers of the Company's stock.
Except for free trading shares, all shares issued by the Company are
"restricted securities" within the meaning of Rule 144 under the 1933 Act.
Ordinarily, under Rule 144, a person holding restricted securities for a period
of one year may, every three months, sell in ordinary brokerage transactions or
in transactions directly with a market maker an amount equal to the greater of
one percent of the Company's then-outstanding Common Stock or the average weekly
trading volume during the four calendar weeks prior to such sale. Future sales
of such shares and sales of shares purchased by holders of options or warrants
could have an adverse effect on the market price of the Common Stock.
In the absence of a security being quoted on the NASDAQ stock market, or
the Company having $2,000,000 in net tangible assets, trading in the Company
would be covered by Rule 15c2-6 of the Exchange Act for non-NASDAQ and
non-exchange listed securities. Under such rule, broker/dealers who recommend
such securities to persons other than established customers and accredited
investors (generally institutions with assets in excess of $5,000,000 or
individuals with a new worth in excess of $1,000,000 or an annual income
exceeding $200,000 or $300,000, jointly with their spouse) must make a special
written suitability determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale. Securities are also exempt
from this rule if the market price is at least $5.00 per share.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure related to the market for penny stocks and for trades in
any stock defined as a penny stock. Under SEC rules, "penny stock" is any
security that has a market price or exercise price of less than $5.00 per share.
In addition, unless exempt, the rules require the broker/dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule
explaining important concepts involving the penny stock market, the nature of
such market, terms used in such market, the broker/dealer's duties to the
customer, a toll-free telephone number for inquiries about the broker/dealer's
disciplinary history, and the customer's rights and remedies in case of fraud or
abuse in the sale. The broker/dealer must disclose commissions payable to both
the broker/dealer and the registered representative, current quotations for the
securities, and
10
if the broker/dealer is the sole market-maker. Finally, monthly statements have
to be sent disclosing recent price information for a penny stock held in the
account and information on the limited market in penny stocks.
These rules have a substantial effect on the liquidation of the Company's
common stock.
(B) DIVIDENDS
The Company has not paid any dividends on its Common Stock. The Company
currently intends to retain any earnings for use in its business, and therefore
does not anticipate paying cash dividends in the foreseeable future.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------
The following discussion regarding our financial statements should be read in
conjunction with our financial statements included herewith.
OVERVIEW
We are engaged in the business of providing healthcare information over the
Internet.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
financial information:
-------------------------------------------------------------------------------------------
Period from Inception
Year Ended Year Ended (September 4, 1996)
December 31, 1999 December 31, 2000 to December 31, 2000
-------------------------------------------------------------------------------------------
Total revenue $ -0- $ 10,765 $ 10,765
-------------------------------------------------------------------------------------------
Cost of revenue $ -0- $ -0- $ -0-
-------------------------------------------------------------------------------------------
Gross profit $ -0- $ 10,765 $ 10,765
-------------------------------------------------------------------------------------------
General, administrative,
and selling expenses $ (3,460,728) $ (3,884,782) $ (7,345,510)
-------------------------------------------------------------------------------------------
Loss from continuing
operations $ (3,460,728) $ (3,874,017) $ (7,334,745)
-------------------------------------------------------------------------------------------
Loss on discontinued
operations $ (466,264) $ ( - ) $ (2,213,648)
-------------------------------------------------------------------------------------------
Loss before taxes $ (3,926,992) $(3,874,017) $ (9,548,393)
-------------------------------------------------------------------------------------------
Taxes on income $ -0- $ -0- $ -0-
-------------------------------------------------------------------------------------------
Net loss $ (3,926,992) $(3,874,017) $ (9,548,393)
-------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO DECEMBER
31, 1999.
REVENUE
We are a development stage company. Revenues for the fiscal year ended
December 31, 2000 of $10,765 were derived from advertising associated with our
wireless strategy compared to no revenues for the fiscal year ended December 31,
1999.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses amounted to $3,884,782 for the
year ended December 31, 2000 as compared to $3,460,728 in 1999. This included
expenses for website development of $450,000 in 2000 as compared to $196,000 in
1999, depreciation and amortization expense of $333,830 in 2000 as compared to
$135,230 in 1999, rent of $45,000 in 2000 as compared to $1,000 in 1999,
non-cash stock based compensation of $1,290,671 in 2000 as compared to
$2,611,423 in 1999 and compensation of $477,000 in 2000 as compared to $96,000
in 1999. The increases reflect our upgraded website which was launched in July
2000, and the continued development of our wireless strategy, renting of our new
facility effective April 2000, and an increase in staffing as we implemented our
planned growth and development strategy. Additionally, the following expenses
were also recorded during the year ended December 31, 2000, (a) an expense of
approximately $345,000 in interest was recorded in relation o our bridge loan
financing in 2000, of which $330,835 was non-cash related and (b) a non-cash
expense of approximately $300,000 was recorded as settlement of litigation
expense related to Michael Grandon.
LOSS FROM OPERATIONS
We incurred a loss from operations of $3,874,017 for the year ended
December 31, 2000 compared to a loss of $3,460,728 for 1999. The operations of
our predecessor company, Innovative Tracking Solutions Corporation ("IVTX") in
1999 are presented as discontinued operations as a result of the transfer of its
assets and liabilities to a private company. The operations of the old IVTX are
not related to the operations of thehealthchannel.com business going forward.
NET LOSS
We had a net loss of $3,874,017, for the year ended December 31, 2000,
compared to a loss of $3,926,992 in 1999.
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 and are entitled to be included in this
prospectus. 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.
Company management has raised net proceeds of $1,410,780 under this private
offering. No NASD-registered broker-dealers were involved in this offering. This
private offering is exempt from the registration requirements pursuant
12
to Section 4(2) of the Securities Act of 1933, as amended.
We obtained a $30 million equity line from Swartz Private Equity LLC,
subject to registration with the SEC and governed by a percentage of our trading
volume. This equity line was governed by several agreements with Swartz. As a
result of our conversations with the SEC, we determined that it is highly
unlikely that the Swartz transaction would clear comments. As such, we
determined that it as not in the best interest of the company to continue with
this transaction and have terminated the agreement with Swartz and canceled the
warrants provided to Swartz as part of the transaction. We remain willing to
work with Swartz on future transactions should they be able to demonstrate that
their transaction structure could pass scrutiny. Nonetheless, termination of the
Swartz agreement, according to its terms, requires the payment of a "break-up"
fee of $200,000. While we believe that no fee is due Swartz and, we have the
legal right to cancel the warrants and terminate the agreements, Swartz may
attempt to pursue remedies against the company. While we firmly believe that
Swartz would not prevail in any action against us, there is no guarantee that
they will not recover substantial damages against us. These damages at a minimum
would include the break up fee and an order to reissue the warrants. Given the
current lack of revenues and funding available to the company, a damage award
could have an adverse effect on our business operations.
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 the earlier of
February 3, 2001 or the effective date of this prospectus. The due date of this
loan has been extended to the earlier of May 1, 2001, or the effective date of
this prospectus. 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 being registered under this registration statement 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 this prospectus. The due date of this loan has been extended
to the earlier of May 23, 2001, or the effective date of this prospectus. This
loan was issued in consideration for 526,556 shares of common stock. These
shares are being registered in this prospectus, and, upon repayment of this
loan; these shares are to be retained by Les Dube. On the effective date of this
prospectus, Les Dube may sell these shares.
As of December 31, 2000, we had outstanding current liabilities of
$1,639,857 of which $788,349 has been approved by the Board of Directors to be
settled by issuance of stock. The balance of $856,508 consists mainly of
accounts payable of approximately $145,000, accrued professional fees of
approximately $143,000, of which $95,000 will be satisfied by the issuance of
common stock, and accrued officers' salaries $190,000. All officers of the
company have agreed to defer their compensation or receive their compensation in
the form of equity until such time as the company has the financial ability to
pay them. It is anticipated that loans payable will be repaid from online and
wireless revenue. Our current ratio is .01. After adjusting for items that will
be satisfied by stock issuance and loans payable, the new current liabilities
would be $273,672 resulting in a current ratio of .09.
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.
We do not believe that inflation has had a significant impact on our
operations since our inception.
13
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 the next fiscal year.
PART II - OTHER INFORMATION
ITEM 7. FINANCIAL STATEMENTS
----------------------------
The Financial Statements that constitute Item 7 are included at the end of
this report beginning on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
The Company has engaged Stonefield, Josephson, Inc., certified public
accountants, 1620 26th Street, Suite 400 South, Santa Monica, California 90404
("Stonefield") as its independent accountants for all accounting purposes
related to the Company's business operations and the Company's reporting
requirements. Stonefield replaced Singer Lewak Greenbaum & Goldstein, LLP,
Certified Public Accountants & Management Consultants, as the Company's
principal accountants as of November 29, 1999 ("Singer Lewak") for this purpose.
Singer Lewak's report on the financial statements of the Company contained no
adverse opinion or a disclaimer of opinion, nor was qualified or modified as to
uncertainty, audit scope, or accounting principles. The engagement of Stonefield
and termination of Singer Lewak was approved by the Board of Directors.
On July 28, 1999, the Company engaged Singer Lewak to act as its
independent accountants for all accounting purposes related to the Registrant's
business operations and reporting requirements. Singer Lewak replaced Mr. Roger
G. Castro, C.P.A. Mr. Castro's report on the financial statements of the Company
contained no adverse opinion or a disclaimer of opinion, or was neither
qualified nor modified as to uncertainty, audit scope, or accounting principles.
The termination of Mr. Castro and engagement of Singer Lewak was approved by the
Board of Directors.
14
Other than stated herein, during the Company's two most recent fiscal years
and any subsequent interim period preceding such registration, declination, or
dismissal, there were no disagreements with the former accountants on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
--------------------------------------------------------------------------------
WITH SECTION 16(A) OF THE EXCHANGE ACT
--------------------------------------
(A) DIRECTORS AND EXECUTIVE OFFICERS
Our directors and officers are as follows:
Name Age Office
---------------------------------------------------------------------------
Donald J. Shea 67 Chief Executive Officer, President, and
Chairman of the Board of Directors
Thomas Lonergan 50 Chief Operating Officer, Vice
President, Secretary, Chief
Financial Officer, and Director
Balazs Imre Bodai,
M.S., M.D. 45 Director
Jeffrey H. Berg,
MBA, Ph.D. 59 Director
Joseph Song, M.D.,
F.A.C.C. 40 Director
DONALD J. SHEA, PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN. From 1995
through 1997, Mr. Shea was Marketing Consultant to Marketing Insights, Inc., a
new product development Company in Princeton, New Jersey. Prior to that he was
President of Avonwood Capital Corporation, Philadelphia, Pennsylvania, a Venture
Capital/Management Consulting firm; and President of Brilliant Enterprises,
Inc., Philadelphia, Pennsylvania, a dental products manufacturer. Mr. Shea was
also the former President and CEO of Clairol, Inc., a Division of Bristol-Myers
Squibb and former Vice-President of Bristol-Myers Squibb.
THOMAS F. LONERGAN, MA, CHIEF OPERATING OFFICER, VICE PRESIDENT, SECRETARY,
CHIEF FINANCIAL OFFICER, AND DIRECTOR. Mr. Lonergan was the co-founder and Vice
Chairman of The IQ NOW Corporation, a deliverer of healthcare information on the
Internet from 1992 through 1999. Previously, he was a Regional Director of
Cardiology for Tenet Medical Group, former Director of Clinical Services at
Downey Community Hospital, and has been a hospital administrator for 20 years.
For 11 years he has been an instructor and director of medical technology at
Coast College. Mr. Lonergan is co-founder of the American College of
Cardiovascular Administrators. He has an Associate of Arts (Pre-Medicine) from
Cerritos Junior College (1971), a Bachelor of Science (Pre-Medicine) from the
University of California, Irvine (1973), and an Executive Masters Degree of
Business Administration from Pepperdine University (1990).
15
BALAZS IMRE BODAI, M.D., DIRECTOR. From 1985 and continuing through the present,
Dr. Bodai is the Chief of Surgery at Kaiser Permanente Medical Center,
Sacramento, California. He is also President of B and B Medical Research
Technology, Inc., Sacramento, California; an Associate Clinical Professor of
Surgery at the University of California at Davis; a Consultant to COAT, Johnson
& Johnson, Newark, New Jersey; and a Senior Consultant to Sontek Medical, Inc.,
Higham, and Massachusetts. "Ernie" holds a Bachelor of Science and Master of
Science Degrees from the School of Medicine at the University of California at
Los Angeles, and a Doctor of Medicine Degree from the University of California
at Davis. He is author and co-author of over 120 scientific and clinical
publications in several of the leading medical journals, and author of a surgery
textbook.
JEFFREY H. BERG, PH.D., DIRECTOR. Dr. Berg holds an MBA and Ph.D. in Chemistry
from New York University. From September 1995 through the present, he is a
senior research analyst for M.H. Meyerson & Co., Inc. From 1991 through the
present, he is the President of Health Care Insights. Mr. Berg was Chicago
Corporation's senior medical advisor from 1991 to 1992. Mr. Berg was security
analyst for William K. Woodruff & Co. from 1990 to 1991 and Vice-President of
Research for J.C. Bradford & Co. from 1987 to 1990. From 1981 to 1987, he was
Vice-President of the Health Care Division of PA Consulting Services, Inc. of
London, England, specializing in international technology and new product
surveillance, venture capital investment, acquisition studies, and
state-of-the-art for diverse areas of health care. During the 1970s, Mr. Berg
developed products and conducted research for General Foods, the Patient Care
Division of Johnson & Johnson Products, Inc., the Consumer Products Division of
Ortho Pharmaceutical Corporation; and staffed and supervised scientists and
engineers at the R&D laboratories for development of varied medical and health
care products within the Johnson & Johnson family of companies. Dr. Berg holds
several patents in the area of biosensor and disposable electrode technology. He
has published a number of articles on topics such as biosensors, cancer therapy,
biopharmaceuticals, drug infusion devices and industrial biotechnology. Dr. Berg
serves as a liaison with the investment banking and scientific communities.
JOSEPH SONG, M.D., F.A.C.C., DIRECTOR. From 1994 through the present, Dr. Song
has his own practice in Interventional Cardiology. From 1991 through 1994, he
was an Interventional Cardiologist with Internal Medicine Specialists Medical
Group, Inc. He is a Lecturer and Moderator at Downey Foundation Hospitals. Dr.
Song is Clinical Assistant Professor of Medicine/Cardiology at the College of
Osteopathic Medicine of the Pacific in California and a member of the Teaching
Staff of the Family Practice Internship/Residency Program at Rio Hondo/Downey
Community Hospital, California. He is certified by the American Board of
Internal Medicine and the American Board of Cardiovascular Diseases. Dr. Song
received an A.B. in Physics from Washington University in St. Louis Missouri in
1982 and his M.D. from University of Missouri-Columbia School of Medicine in
1986.
(B) COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of the
Company's Common Stock, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). Officers, directors and
greater than ten percent stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
its review of the copies of such forms received by it, or written
representations from certain reporting persons, the Company believes that during
its 2000 fiscal year, all such filing requirements applicable to its officers,
directors, and greater than 10% beneficial owners were complied with.
16
ITEM 10 - EXECUTIVE COMPENSATION
--------------------------------
(A) SUMMARY COMPENSATION
The following table and attached notes sets forth the compensation of our
executive officers and directors during the last fiscal year.
Long Term Compensation
------------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------------------- ------------------------ ------------------------
Restricted Securities
Name and Principal Other annual Stock Underlying LTIP All other
Position Year Salary Bonus Compensation Awards Options/SARs Payouts Compensation
------------------------------------------------------------------------------------------------------------------------------------
Donald J. Shea, Chief 1999 -0- -0- None 32,000 -0- None None
Executive Officer(1) 2000 $144,000 -0- None 486,957 -0- None None
------------------------------------------------------------------------------------------------------------------------------------
Thomas P. Lonergan, Chief
Operating Officer, Vice 1999 -0- -0- None 52,000 -0- None None
President, Chief Financial 2000 $144,000 -0- None 486,957 -0- None None
Officer, Secretary
------------------------------------------------------------------------------------------------------------------------------------
All officers as a group (2 1999 -0- -0- None 84,000 -0- None None
persons) 2000 $288,000 -0- None 973,914 -0- None None
------------------------------------------------------------------------------------------------------------------------------------
NOTES TO EXECUTIVE COMPENSATION
-------------------------------
The remuneration described in the table does not include our cost for
benefits furnished to the named executive officers, including premiums for
health insurance, reimbursement of expenses, and other benefits provided to such
individual that are extended in connection with the ordinary conduct of the
Company's business. The value of such benefits cannot be precisely determined,
but the executive officers named below did not receive other compensation in
excess of the lesser of $25,000 or 10% of such officer's cash compensation.
During the 1999 fiscal year, beginning July 28, 1999 (inception) through
December 31, 1999, no Officer or Director received any cash consideration for
salary, nor any aggregate remuneration for health insurance and expenses, in
excess of $40,000.
During the 1999 fiscal year, beginning July 28, 1999 through December 31,
1999, even though their employment agreements provide for salary on an annual
basis, all officers agreed to forego their cash compensation until we were
better financed. During the 2000 fiscal year, Thomas P. Lonergan received cash
compensation of $60,000 and took the remainder of his salary in common stock in
lieu of cash. Mr. Shea took his full 2000 salary in stock in lieu of cash.
(C) COMPENSATION OF DIRECTORS
The Company's By-laws state that Directors of the Company shall not receive any
stated salary for their services, but, by resolution of the Board of Directors,
a fixed sum and expense of attendance, if any, may be allowed for attendance at
each regular and special meeting of the Board of Directors. The Company
maintains directors and officers liability insurance. To date, the Company has
not paid any fixed sum for expenses to board members for attendance at Board of
Director meetings or in discharging their obligations as Board members.
17
ITEM 11- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-------- --------------------------------------------------------------
The following table sets forth certain information regarding
beneficial ownership of our Common Stock as of December 1, 2000 by each
stockholder known by us to be the beneficial owner of more than five percent of
the outstanding Common Stock, each of our directors, and all directors and
officers as a group.
Shares of Percent of
Name and Address Common Stock(1) Class(2)
---------------- --------------- --------
Donald J. Shea(2) 211,828 *
Thomas P. Lonergan(2) 742,003 2.7%
Balazs Imre Bodai, M.S., M.D.(2) 171,522 *
Jeffrey H. Berg, MBA, Ph.D.(2) 155,133 *
Joseph Song, M.D.(2) 845,208 3.1%
All Officers and Directors
as a Group (5 persons) 2,125,694 8.0%
---------------
* Less than one percent
(1) Except as otherwise indicated, we believe that the beneficial owners of
common stock listed above, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage of the person holding such
options or warrants, but are not deemed outstanding for purposes of computing
the percentage of any other person. Shares of Common Stock approved for issuance
but not yet issued is deemed outstanding.
(2) c/o our address: 260 Newport Center Drive, Suite 250, Newport Beach,
California 92660.
ITEM 12-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-------------------------------------------------------
The Company believes that each of the transactions set forth in this
section were on terms that were as favorable as those that could have been
obtained from unaffiliated parties, in that the Company has attracted limited
capital from unaffiliated parties as of the date of this filing, and those
transactions were conducted on terms similar or identical to the terms set forth
below.
We have an employment agreement with Donald J. Shea, our President, dated
September 1, 1999. This agreement has a term of three years and provides for
salary of $144,000 per year, four weeks of vacation per year, and eligibility to
participation in all our benefit programs. There is no severance provision.
We have an employment agreement with Thomas P. Lonergan, our Vice
President, Chief Operations Officer, Secretary, and Chief Financial Officer,
dated September 1, 1999. This agreement has a term of three years and provides
for salary of $144,000 per year, four weeks of vacation per year, and
eligibility to participation in all our benefit programs. There is no severance
provision.
We have entered into an employment agreement with Mr. Minh Chau Pham
wherein Mr. Pham receives a salary of $95,000 per year and options to purchase
300,000 shares of common stock of the company at $.06 per share. These options
vest on November 1, 2001 and are exercisable for a period of 2 years from the
vesting date. The options vest only if Mr. Pham is employed with the company on
the vesting date.
We have a Consulting Agreement with Jeffrey Berg, a director of the
Company, whereby, for a one-time payment of 2,444 shares of common stock, Mr.
Berg assists us in locating, negotiating, and managing our financing.
18
PART IV
-------
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------
(A) EXHIBITS
Exhibit No. Document Description
----------- --------------------
3.1 Certificate of Incorporation of Innovative Tracking Solutions
Corporation, a Delaware corporation, dated September 4, 1996*
3.2 Amendment to Articles of Incorporation of Innovative Tracking
Solutions Corporation, a Delaware corporation, dated May 21, 1997*
3.3 Certificate of Correction to Articles of Incorporation of Innovative
Tracking Solutions Corporation, a Delaware corporation dated June 16,
1999*
3.4 Amendment to Articles of Incorporation of Innovative Tracking
Solutions Corporation, a Delaware corporation, dated July 28, 1999*
3.5 Amendment to Articles of Incorporation of thehealthchannel.com, Inc.,
a Delaware corporation, dated August 4, 1999*
3.6 Amendment to Articles of Incorporation of thehealthchannel.com, Inc.,
a Delaware corporation, dated August 5, 1999*
3.7 Amended Bylaws of thehealthchannel.com, Inc., dated August 19, 1999*
10.1 Acquisition, Stock Purchase, and Exchange Agreement, dated July 28,
1999*
10.2 24/7 Media Inc. Network Affiliation Agreement, dated September 9,
1999*
10.3 Employment Agreement with Thomas P. Lonergan, dated September 1, 1999*
10.4 Employment Agreement with Donald A. Shea, dated September 1, 1999*
10.5 Agreement for Financial Public Relations Services with Market
Pathways, dated August 11, 1999*
10.6 Asset & Liability Purchase and Sale Agreement between Innovative
Tracking Solutions Corporation, a Nevada corporation and Innovative
Tracking Solutions Corporation, a Delaware corporation, dated April
14, 1999*
10.7 Exodus Communications, Inc. Master Services Agreement, dated November
19, 1999*
10.8 Content Agreement with EarthLink Network, Inc., dated October 27,
1999*
10.9 Website and Revenue Sharing Agreement between The Institute for
Medical Studies, Inc. and thehealthchannel.com, dated September 29,
1999*
10.10 Warrant Agreement between Institute for Medical Studies, Inc. and
thehealthchannel.com dated September 29, 1999*
10.11 Healthcompass Services Agreement between thehealthchannel.com, Inc.
and HealthMagic, Inc., dated February 16, 2000*
10.12 Content License Agreement between Integrative Medicine Communications,
Inc. and thehealthchannel.com, dated March 24, 2000*
10.13 LIVEware5, Inc. Agreement for Services between Liveware5, Inc. and
thehealthchannel.com, Inc., dated March 24, 2000*
10.14 Office Lease*
10.15 NewsEdge Contract, dated May 27, 2000*
10.16 6% Secured Note between thehealthchannel.com and Laguna Pacific
Partners, L.P., dated August 1, 2000 (Incorporated by reference from
Exhibit 10.2 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
10.17 Unit Warrant Agreement between thehealthchannel.com and Laguna Pacific
Partners, L.P., dated August 1, 2000 (Incorporated by reference from
Exhibit 10.3 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
19
10.18 Security Agreement between thehealthchannel.com and Laguna Pacific
Partners, L.P., dated August 1, 2000 (Incorporated by reference from
Exhibit 10.4 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
10.19 Investor Representation and Warranties Agreement between
thehealthchannel.com and Laguna Pacific Partners, L.P., dated August
1, 2000 (Incorporated by reference from Exhibit 10.5 to the
Registration Statement Form 10QSB filed November 20, 2000,
Registration Number 0-29822)*
10.20 Subscription Agreement between thehealthchannel.com and Laguna Pacific
Partners, L.P., dated August 1, 2000 (Incorporated by reference from
Exhibit 10.6 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
10.21 Subscription Agreement between thehealthchannel.com and Les Dube and
Irene Dube, dated August 21, 2000 (Incorporated by reference from
Exhibit 10.6 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
10.22 Investor Representation and Warranties Agreement between
thehealthchannel.com and Les Dube and Irene Dube dated August 21, 2000
(Incorporated by reference from Exhibit 10.15 to the Registration
Statement Form 10QSB filed November 20, 2000, Registration Number
0-29822)*
10.23 Employment Agreement with Minh-Chau Pham, dated May 15, 2000 *
10.24 Settlement Agreement and Release between thehealthchannel.com and
Michael Grandon dated August 31, 2000 (Incorporated by reference from
Exhibit 10.16 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
10.25 Consulting Agreement between thehealthchannel.com and Lawrence W.
Horwitz dated August 18, 2000 (Incorporated by reference from Exhibit
10.12 to the Registration Statement Form 10QSB filed November 20,
2000, Registration Number 0-29822)*
10.26 Content Partner Agreement between thehealthchannel.com and AvantGo,
dated July 31, 2000 (Incorporated by reference from Exhibit 10.1 to
the Registration Statement Form 10QSB filed November 20, 2000,
Registration Number 0-29822)*
10.27 Content Distribution Agreement between thehealthchannel.com and
OmniSky Corporation, dated September 6, 2000 (Incorporated by
reference from Exhibit 10.17 to the Registration Statement Form 10QSB
filed November 20, 2000, Registration Number 0-29822)*
10.28 Letter of Agreement between thehealthchannel.com and ServerLogic
Corporation, dated October 12, 2000 *
10.29 Consulting Agreement between thehealthchannel.com and Lawrence W.
Horwitz, dated January 5, 2000*
25 Power of Attorney (See Signature Page hereto)
* Previously filed
20
(B) REPORTS ON FORM 8-K
On January 4, 2000, the Company filed a current report on Form 8-K
announcing the termination of Roger G. Castro, C.P.A. pursuant to a Form 8-K
dated, dated August 12, 1999 and Form 8-K/A, dated October 12, 1999, as of July
28, 1999. Mr. Castro's report on the financial statements of the Company
contained no adverse opinion or a disclaimer of opinion, or was neither
qualified nor modified as to uncertainty, audit scope, or accounting principles.
The termination of Mr. Castro was approved by the Board of Directors.
21
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THEHEALTHCHANNEL.COM, INC.
By: /s/ Donald Shea
------------------------------------
Donald Shea, Chief Executive Officer, President
Chairman of the Board of Directors
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas Lonergan Chief Operating Officer, April 13, 2001
--------------------- Vice President
Thomas Lonergan Secretary, Chief Financial
Officer and Director
/s/ Balazs Imre Bodai Director April 13, 2001
---------------------
Balazs Imre Bodai, M.S., M.D.
/s/ Jeffrey H. Berg Director April 13, 2001
---------------------
Jeffrey H. Berg, MBA, Ph.D.
/s/ Joseph Song Director April 13, 2001
---------------------
Joseph Song, M.D., F.A.C.C.
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
CONTENTS
Page
----
INDEPENDENT AUDITORS' REPORT 1-2
FINANCIAL STATEMENTS:
Balance Sheet 3
Statements of Operations 4
Statement of Stockholders' Deficit 5-6
Statements of Cash Flows 7-8
Notes to Financial Statements 9-18
INDEPENDENT AUDITORS' REPORT
Board of Directors
thehealthchannel.com, Inc.
Newport Beach, California
We have audited the accompanying balance sheet of thehealthchannel.com, Inc. (a
development stage enterprise) as of December 31, 2000, and the related
statements of operations, stockholders' deficit and cash flows for the two years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements for the period from
inception of operations on September 4, 1996 to December 31, 1998 was audited by
other auditors whose report dated April 1, 1999, included an explanatory
paragraph which expressed substantial doubt about the Company's ability to
continue as a going concern.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of thehealthchannel.com, Inc. as
of December 31, 2000, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred net losses from operations, has negative cash flows
from operations, and its current liabilities exceeds its current assets. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
January 26, 2001
1
REPORT OF INDEPENDENT AUDITOR
To the Shareholders and Board of Directors
thehealthchannel.com, Inc. (formerly
Innovative Tracking Solutions Corporation)
I have audited the balance sheets of thehealthchannel.com, Inc. (formerly
Innovative Tracking Solutions Corporation and a Development Stage Company) as of
December 31, 1998, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for periods then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audits.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of thehealthchannel.com, Inc.
(formerly Innovative Tracking Solutions Corporation and a Development Stage
Company) at December 31, 1998, 1997 and 1996, and the results of operations and
cash flows for the periods then ended, in conformity with generally accepted
accounting principles.
The financial statements have been prepared assuming the Company will continue
as a going concern. As discussed in Note 1, the Company has an accumulated
deficit at December 31, 1998. These factors raise substantial doubt about the
Company's ability to continue as going concern. Management's plan in regard to
these matters is also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Roger G. Castro
Oxnard, California
April 1, 1999
2
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - DECEMBER 31, 2000
ASSETS
CURRENT ASSETS:
Cash $ 2,429
Prepaid expenses and other receivables 20,855
------------
Total current assets $ 23,284
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 543,859
DEPOSITS 3,852
------------
$ 570,995
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 500,672
Loans payable, stockholders 25,000
Loans payable, net of unamortized discount
of $169,164 330,836
Accrued stock based compensation 783,349
------------
Total current liabilities $ 1,639,857
STOCKHOLDERS' DEFICIT:
Common stock; $.001 par value, 175,000,000
shares authorized, 27,610,954 shares
issued and outstanding 27,611
Additional paid-in capital 8,451,920
Deficit accumulated during the development stage (9,548,393)
------------
Total stockholders' deficit (1,068,862)
------------
$ 570,995
============
See accompanying notes to financial statements.
3
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
From inception on
Year ended Year ended September 4, 1996 to
December 31, 2000 December 31, 1999 December 31, 2000
----------------- ----------------- -----------------
NET REVENUES $ 10,765 $ -- $ 10,765
COST OF REVENUES -- -- --
------------ ------------ ------------
GROSS PROFIT 10,765 -- 10,765
------------ ------------ ------------
OPERATING EXPENSES:
Depreciation 333,830 135,230 469,060
Consulting and professional fees 1,509,420 2,512,039 4,021,459
Website related 561,914 195,829 757,743
Interest expense 343,335 -- 343,335
General and administrative 1,136,283 617,630 1,753,913
------------ ------------ ------------
3,884,782 3,460,728 7,345,510
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (3,874,017) (3,460,728) (7,334,745)
------------ ------------ ------------
DISCONTINUED OPERATIONS:
Loss on discontinued operations -- (367,014) (2,114,398)
Loss on disposal of segment -- (99,250) (99,250)
------------ ------------ ------------
Total discontinued operations -- (466,264) (2,213,648)
------------ ------------ ------------
NET LOSS $ (3,874,017) $ (3,926,992) $ (9,548,393)
============ ============ ============
NET LOSS PER SHARE, BASIC AND DILUTED:
Continuing operations $ (0.15) $ (0.16)
============ ============
Discontinued operations $ -- $ (0.02)
============ ============
Net loss per share $ (0.15) $ (0.18)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING, BASIC AND DILUTED 26,332,188 22,125,497
============ ============
See accompanying notes to financial statements.
4
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
(Continued)
See accompanying notes to financial statements.
5
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
Deficit
Accumulated
Common stock Additional Stock during the Total
------------------------- paid-in subscriptions development stockholders'
Shares Amount capital receivable stage equity/(deficit)
----------- ----------- ----------- ----------- ----------- -----------
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 27,610,954 $ 27,611 $ 8,451,920 $ -- $(9,548,393) $(1,068,862)
=========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
6
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From inception on
Year ended Year ended September 4, 1996 to
December 31, 2000 December 31, 1999 December 31, 2000
----------------- ----------------- -----------------
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net loss $ (3,874,017) $ (3,926,992) $ (9,548,393)
------------ ------------ ------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
Depreciation and amortization 333,830 135,230 469,060
Loss on disposal of division -- 99,250 99,250
Interest expense 330,835 -- 330,835
Non cash expenses from stock issuances 1,290,671 2,611,423 5,096,232
Settlement of litigation 300,000 -- 300,000
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable -- 189 3,147
Inventory -- (10,312) 83,077
Prepaid expenses (60,620) (108,447) (190,020)
Deposits (3,852) 2,597 (6,449)
(INCREASE) DECREASE IN LIABILITIES -
accounts payable and accrued expenses 261,371 661,157 615,789
------------ ------------ ------------
Total adjustments 2,452,235 3,391,087 6,800,921
------------ ------------ ------------
Net cash used for operating activities (1,421,782) (535,905) (2,747,472)
------------ ------------ ------------
(Continued)
See accompanying notes to financial statements.
7
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From inception on
Year ended Year ended September 4, 1996 to
December 31, 2000 December 31, 1999 December 31, 2000
----------------- ----------------- -----------------
CASH FLOWS USED FOR INVESTING ACTIVITIES -
payments to acquire property, equipment and other assets (39,266) (25,818) (65,083)
------------ ------------ ------------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Assets and liabilities transferred out (See Note 1) -- (26,329) (26,329)
Stock subscription receivable 25,000 (25,000) --
Loans receivable 21,000 -- --
Proceeds from loans, including related parties 425,000 -- 425,000
Proceeds from issuance of capital stock, net 900,240 682,738 2,416,313
------------ ------------ ------------
Net cash provided by financing activities 1,371,240 631,409 2,814,984
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (89,808) 69,686 2,429
CASH, beginning of year 92,237 22,551 --
------------ ------------ ------------
CASH, end of year $ 2,429 $ 92,237 $ 2,429
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES -
Non-cash consideration from debt and equity transactions $ 1,990,671 $ 2,611,423 $ 5,999,401
============ ============ ============
Proceeds from loan payable paid directly to Horwitz
and Beam by Laguna Pacific on behalf of the Company $ 100,000 $ -- $ 100,000
============ ============ ============
Acquisition of website technology and related assets $ -- $ 947,835 $ 947,835
============ ============ ============
See accompanying notes to financial statements.
8
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GOING CONCERN:
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. The Company has no current source of
material revenues. Without realization of additional capital, it would
be unlikely for the Company to continue as a going concern. This
factor raises substantial doubt about the Company's ability to
continue as a going concern.
Management recognizes that the Company must generate additional
resources to enable it to continue operations. Management's plans
include the sale of additional equity and debt securities to various
private equity funds ranging from $2,000,000 to $15,000,000. In
addition, with infusion of capital from equity funding, the Company's
management plans to generate significant revenues resulting in
positive cash flows by year end. However, no assurance can be given
that the Company will be successful in raising additional capital.
Further, there can be no assurance, assuming the Company successfully
raises additional funding, that the Company 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, the Company will not be able to meet its obligations and
will have to cease operations.
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.
BUSINESS ACTIVITY:
In early 1999, IVTX management determined that the "public" status of
IVTX was detrimental to IVTX' operations due to the time and expense
burdens of being a public company. IVTX management then decided to
take the operations of IVTX "private" by transferring all IVTX assets
and liabilities to a newly formed private company and selling the
public shell to a suitable company, preferably in the healthcare
industry. On April 13, 1999, IVTX obtained written approval of 64.4%
of the total voting stock of IVTX, voting "for" taking the operations
of IVTX private and selling the public shell to a suitable company.
9
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
BUSINESS ACTIVITY, CONTINUED:
On April 14, 1999, IVTX transferred all of its assets and liabilities
based on majority stockholder approval to a newly formed private
company, Innovative Tracking Solutions Corporation, a private Nevada
corporation, incorporated on March 29, 1999. Innovative Tracking
Solutions Corporation was formed by IVTX management specifically for
the purpose of taking the operations of IVTX private. The former IVTX
officers and directors, Dianna Cleveland, Lee Namisniak and Lou Weiss
are the officers and directors of Innovative Tracking Solutions
Corporation, the private company. The consideration for the transfer
of assets was the assumption of all IVTX's liabilities by the newly
formed private company. As a result of this transfer of assets and
liabilities and the disposal of the segment of business on April 14,
1999 (which is unrelated to the present business of
thehealthchannel.com), the Company recorded a loss on discontinued
operations of $367,014 and a loss on disposal of a segment of $99,250
for the year ended December 31, 1999.
In June 1999, IVTX was introduced to thehealthchannel.com, a
consumer-based health Internet web site (http://www.thehealthchannel.
com). On July 28, 1999, IVTX, pursuant to its bylaws and general
Delaware corporate law, acquired a certain asset of Biologix
International, Ltd., a Delaware corporation ("Biologix") consisting of
thehealthchannel.com web site and its related technology in exchange
for the controlling interest in IVTX. In connection with this change
of control, IVTX's name was changed to thehealthchannel.com, Inc. on
July 28, 1999. The acquisition closed on July 28, 1999.
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.
FAIR VALUE:
Unless otherwise indicated, the fair values of all reported assets and
liabilities which represent financial instruments, none of which are
held for trading purposes, approximate the carrying values of such
amounts.
CASH:
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts.
10
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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. Website and related technology is being
amortized straight-line over its estimated useful life of three years.
INCOME TAXES:
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which
adopts the asset and liability approach to measurement of temporary
differences between financial reporting and income tax return
reporting. The principal temporary difference is the net operating
loss carryforward of approximately $8,000,000 at December 31, 2000.
Due to business activity during 1999 (Note 1), there are significant
limitations on the Company's ability to utilize this operating loss
carryforward. A deferred asset has been provided and completely offset
by a valuation allowance, because its utilization does not appear to
be reasonably assured. The federal net operating loss carryforward
starts to expire on December 31, 2019 and the California state net
operating loss carryforward starts to expire on December 31, 2004.
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 (Note
1) have been considered as part of the Company's development stage
activities. The operations of IVTX are presented as discontinued
operations as a result of the transfer of its assets and liabilities
to a private company (Note 1).
NET LOSS PER SHARE:
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.
11
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NEW ACCOUNTING PRONOUNCEMENTS:
In December 1999, the Securities and Exchange Commission (the
Commission) issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, which is to be applied beginning
with the fourth fiscal quarter of fiscal years beginning after
December 15, 1999, to provide guidance related to recognizing revenue
in circumstances in which no specific authoritative literature exists.
The adoption by the Company in the application of the Staff Accounting
Bulletin to the Company's financial statements did not have a material
change in the amount of revenues the Company ultimately realized.
In March 2000, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 44 (Interpretation 44), "Accounting for
Certain Transactions Involving Stock Compensation". Interpretation 44
provides criteria for the recognition of compensation expense in
certain stock-based compensation arrangements that are accounted for
under APB Opinion No. 25, Accounting for Stock-Based Compensation.
Interpretation 44 is effective July 1, 2000, with certain provisions
that are effective retroactively to December 15, 1998 and January 12,
2000. Interpretation 44 is not expected to have any material impact on
the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal
years beginning after June 15, 2000. SFAS No. 133 requires the Company
to recognize all derivatives as either assets or liabilities and
measure those instruments at fair value. It further provides criteria
for derivative instruments to be designated as fair value, cash flow
and foreign currency hedges and establishes respective accounting
standards for reporting changes in the fair value of the derivative
instruments. Upon adoption, the Company will be required to adjust
hedging instruments to fair value in the balance sheet and recognize
the offsetting gains or losses as adjustments to be reported in net
income or other comprehensive income, as appropriate. The Company is
evaluating its expected adoption date and currently expects to comply
with the requirements of SFAS 133 in fiscal year 2001. The Company
does not expect the adoption will be material to the Company's
financial position or results of operations since the Company does not
believe it participates in such activities.
(2) PROPERTY AND EQUIPMENT:
On July 28, 1999, the Company acquired an asset from Biologix
International, Ltd., consisting primarily of thehealthchannel.com
website and related technology in exchange for 850,000 restricted
shares of the Company's common stock. Website technology cost includes
the design (including software configuration and interfaces), coding,
installation costs to hardware and testing. The website asset (a
non-monetary asset) acquired was recorded at the transferors'
(Biologix International, Ltd.) historical cost basis determined under
generally accepted accounting principles.
12
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(2) PROPERTY AND EQUIPMENT, CONTINUED:
Property and equipment is comprised of the following:
Website and related technology $ 987,100
Software 25,819
------------
1,012,919
Less accumulated depreciation and amortization 469,060
------------
$ 543,859
============
Depreciation and amortization expense for the years ended December 31, 2000
and 1999 amounted to $333,830 and $135,230, respectively.
(3) STOCKHOLDERS' DEFICIT:
Biologix paid $250,000 for 850,000 shares of common stock of IVTX,
representing the majority controlling interest held by the officers and
directors of IVTX (see Note 2 for the recording of this issuance). This
purchase was made pursuant to the exemption from registration set forth in
Section 4(1) of the Securities Act of 1933, as amended (the "Act"), as a
non-issuer transaction. This exemption was available since the officers and
directors of IVTX sold their stock to Biologix; IVTX itself did not issue
any new stock. Further, Biologix agreed to contribute thehealthchannel.com
assets and technology to IVTX in exchange for the IVTX shareholders
agreeing to split their stock and exchange shares with the shareholders of
Biologix. This exchange was made pursuant to the exemption set forth in
Section 4(1) of the Act as a non-issuer transaction. This exemption was
available since IVTX shareholders transferred their shares of IVTX (newly
named thehealthchannel.com, Inc.) to the shareholders of Biologix who
elected to exchange their shares. The shares of stock of IVTX were forward
split 28.22-for-one and the IVTX shareholders opted to exchange each share
they held of IVTX stock for two shares of common stock of IVTX under its
new name of thehealthchannel.com, Inc. and contributed the remaining 26.22
shares each into a share exchange pool as presented in the statement of
stockholders' equity. Then approximately 800 Biologix shareholders were
provided with the alternative of retaining their Biologix shares or
retiring their Biologix shares in exchange for IVTX shares
(thehealthchannel.com shares) contained in the exchange pool on a one for
one share basis. Approximately 630 Biologix shareholders elected to
exchange their Biologix shares for thehealthchannel.com shares from the
pool (the "Exchange").
During October 2000, the shareholders approved a stock split of 1:3 shares,
the effect of which has been retroactively applied in the accompanying
financial statements. The number of authorized shares of common stock was
increased to 175,000,000.
13
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(3) STOCKHOLDERS' DEFICIT, CONTINUED:
The Exchange was announced to shareholders of both IVTX and Biologix
through press releases and a letter to IVTX shareholders. After the forward
stock split, the Company (thehealthchannel.com, Inc. formerly Innovative
Tracking Solutions Corporation) had 35,606,519 post split shares of common
stock issued and outstanding. The Exchange began on August 6, 1999 and
ended on October 31, 1999 to ensure that all shareholders had enough time
and notice to exchange their shares. Following the conclusion of the
Exchange period, the Company had approximately 12,667,000 post split shares
reserved for exchange with Biologix shareholders that were not exchanged.
During 2000, 1,528,369 shares were exchanged with Biologix shareholders.
During the year ended December 31, 1998, the Company sold 3,334,252
restricted (post split) shares of the Company's common stock for total
proceeds of $476,464 under Regulation D of the Securities Act of 1933.
During the year ended December 31, 1998, the Company recorded an expense
from the issuance of approximately 7,000,000 post split shares in exchange
for services and license agreements. Expense amounts totaling $1,061,539
were determined based on share value of consideration given and/or
consideration received, which ever was more clearly determinable.
Prior to the April 14, 1999 transfer of the IVTX assets and liabilities
(Note 1), the Company had concluded a private placement offering under Rule
504 of Regulation D, whereby 113,043 (post split) shares of common stock
were sold at an offering price of $1.52 (post split) per share. This
offering resulted in net proceeds of $172,199. Also, the Company issued
34,800 (post split) shares of common stock for services rendered. The
services have been recorded at a fair value of $1.50 (post split) per share
for a total of $52,200.
In September 1999, the Company initiated a Rule 506, Regulation D private
placement of 1,930,585 (post split) restricted shares of the Company's
common stock from shares available from the forward stock split and
1,930,585 (post split) warrants to purchase restricted shares of the
Company's' common stock with an exercise price determined at 70% of the
trading value at the date of grant, for net proceeds of $1,410,780. The
private placement offering was closed on August 29, 2000. The shares issued
and the shares issuable upon exercise of the warrants have piggyback
registration rights in the event the Company files a Registration Statement
with the Securities and Exchange Commission. The warrants vest immediately
and expire two years from the date of issuance.
The Company issued 501,667 shares of common stock for satisfaction of legal
settlement agreements the Company entered into for a total of $1,797,345.
During July 1999, the Company entered into a Consulting Agreement with
Ocean View Management, LLC. Under the Consulting Agreement, Ocean View
Management received a one time payment of 25,000 post split shares of
common stock of the Company, which is recorded in accrued stock based
compensation on the balance sheet. This issuance was exempt from the
registration provisions of the Act by virtue of Section 4(2) of the Act, as
transactions by an issuer not involving any public offering. The securities
issued pursuant to the Consulting Agreement are restricted securities as
defined in Rule 144.
14
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(3) STOCKHOLDERS' DEFICIT, CONTINUED:
During August 1999, the Company entered into an Agreement for Financial
Public Relation Services with Market Pathways Financial Relations
Incorporated. Under the Agreement for Financial Public Relations Services,
Market Pathways Financial Relations Incorporated received a one time
payment of 28,333 post split shares of common stock of the Company and is
included in accrued stock based compensation on the balance sheet. This
issuance was exempt from the Registration provisions of the Act by virtue
of Section 4(2) of the Act, as transactions by an issuer not involving any
public offering. The securities issued pursuant to the Agreement are
restricted securities as defined in Rule 144.
On December 15, 1999, shareholders conveyed 519,738 post split shares of
common stock to certain individuals and 84,000 shares of common stock to
officers of the Company for satisfaction of expenses and payment of
salaries these individuals and officers had rendered on the Company's
behalf. This resulted in recording a charge to expense and additional paid
in capital of $860,100 for the year.
During 2000, the Company entered into a Consulting Agreement with Lawrence
W. Horwitz pursuant to which Mr. Horwitz agreed to provide business
development and advisory services. For services rendered under this
Consulting Agreement, the Company issued 666,667 post split shares of
common stock of the Company (the "Shares"). The Shares were registered on
Forms S-8, for which, an expense of $500,000 has been recorded.
On August 5, 2000, the Company approved the issuance of 508,319 post split
restricted shares to 12 officers, directors and consultants in payment for
services rendered to the Company. The related expense amounts of $457,487
have been recorded in accrued stock based compensation as shares had not
yet been issued.
Bridge Financing
----------------
During August 2000, the Company entered into an agreement to borrow
$250,000 from Laguna Pacific Partners L.P., ("Laguna Partners") a Delaware
limited partnership. This loan is secured by all assets of the Company,
bears interest at 6% per annum and is payable on the earlier of 180 days or
within 30 days from the effective date of the Form SB-2 above. This loan
has been extended to May 1, 2001. In consideration for this loan, Laguna
Partners will receive warrants for common stock equal to the quotient of
$250,000 divided by the closing bid of the Company's stock price
immediately preceding the effective date of the Form SB-2 above. The term
of this warrant is five years and the exercise price is $1. The Company
will record interest expense using the fair value of $0.165 per warrant
granted, measured at the date of grant using the Black Scholes model with a
70% volatility. This discount of $250,000 is being amortized over the loan
term using the imputed interest method.
During August 2000, the Company entered into an agreement to borrow
$250,000 from Les and Irene Dube, ("Dube") individuals. This loan bears
interest at 6% per annum and is payable on the earlier of 180 days or
within 30 days from the effective date of the Form SB-2 above. This loan
has been extended to May 23, 2001. In consideration for this loan, Dube
received 526,556 (post-split) common stock shares for which an amount of
$250,000 is being amortized over the life of the loan using the imputed
interest method.
15
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(3) STOCKHOLDERS' DEFICIT, CONTINUED:
Stock Options
-------------
On July 27, 2000, the Company enacted the 2000 Incentive and Nonstatutory
Stock Option Plan (the "Plan"), which has reserved for issuance, 5,000,000
options to purchase shares of Common Stock of the Company for key employees
and consultants. To date, no options have been granted under the plan.
(4) ADVERTISING COSTS:
Advertising costs are expensed when incurred and amounted to approximately
$615,000 and $400,000 for the years ended December 31, 2000 and 1999,
respectively.
(5) EMPLOYMENT AGREEMENTS:
The Company has employment agreements with its chief operating officer and
president. The employment agreements provide for a monthly salary of
$12,000 each. The agreements commenced on September 1, 1999 and are in
effect for three years from that date.
(6) CONTINGENCIES:
The Company is involved in other various routine legal proceedings
incidental to the conduct of its normal business operations. The Company's
management believes that none of these legal proceedings will have a
material adverse impact on the financial condition or results of operations
of the Company.
The Securities and Exchange Commission ("SEC") has alleged that the
exchange of shares involving the Biologix shareholders may have been in
violation of the Securities Act of 1933 and thereby constituted the making
of an unregistered public offering to which the Company continues to
disagree. If the SEC were to prevail in its position, it would have a
severe and adverse impact on the Company, and the Company's ability to
continue as a going concern would be adversely affected. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty, as the amounts are not estimable.
The Company initiated a private placement of securities during September
1999 which closed on August 29, 2000. During this period of time, the
Company sold securities to investors based on the most recent closing price
on the OTC Bulletin Board or the Pink Sheets. The prices at which these
securities were sold fluctuated widely, based on fluctuations in the
closing prices. The Company is contingently liable in the event that an
investor or investors who purchased securities in this private placement
asserts a claim that the Company failed to fully disclose the fact that
fluctuations in the market would cause adjustments in the price of the
private placement. The Company believes that they fully disclosed this
risk, however, in the event any shareholder(s) were to successfully
prosecute an action against the Company, it may have a severe and adverse
effect on the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty, as the amounts are not estimable.
16
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(6) CONTINGENCIES, CONTINUED:
Termination of Swartz Equity Line
---------------------------------
During 2000, the Company entered into an agreement with Swartz Private
Equity LLC ("Swartz") for a $30,000,000 equity offering, subject to
registration with the SEC and governed by a percentage of our trading
volume. This equity line was governed by the investment agreement with
Swartz that provided that the Company may place puts to Swartz over a
three-year period. The Company has determined that it was highly unlikely
that the Swartz transaction would clear comments based upon certain
insurmountable aspects of the Swartz deal. As such, the Company terminated
the agreement with Swartz. Termination of the Swartz agreement, according
to its terms, requires the payment of a "break-up" fee of $200,000. While
the Company believes that no fee is due Swartz, based on the legal
impossibility of this agreement, Swartz may attempt to pursue remedies
against the company. Based on discussions with legal counsel, management
does not believe that Swartz would prevail in any action against the
Company. Accordingly, no amounts have been recorded in the accompanying
financial statements as the probability of a negative outcome is remote.
Litigation
----------
During 2000, the Company was named as a cross-defendant in a
cross-complaint filed by its Former President in an action pending in the
Superior Court State of California for the County of San Francisco, Case
No. 307364. This action was initiated by Biologix International, Ltd.
("Biologix") against the Former President on October 22, 1999 alleging
causes of action against the former President for: (1) temporary
restraining order and preliminary and permanent injunction; (2) breach of
fiduciary duty; (3) fraud by intentional misrepresentation; (4) conversion;
(5) possession of personal property; (6) declaratory relief; and (7)
accounting. The claims alleged by Biologix relate to the actions and
conduct of the former President as an officer and director of Biologix.
Thehealthchannel.com was named as a cross-defendant in the cross-complaint
of the former President in a cause of action for breach of contract based
upon an alleged employment agreement between the former President and
Biologix. The former President claimed that the alleged employment
agreement was the responsibility of thehealthchannel.com based upon
thehealthchannel.com's purchase of the internet related assets from
Biologix. Thehealthchannel.com was served with the cross-complaint on
December 14, 1999. The former President seeks $400,000 in damages and
options to purchase one million shares of Biologix stock. The Company
entered into a Settlement Agreement and Release with its Former President.
Pursuant to the settlement agreement, (a) the Former President was required
to transfer 266,667 thehealthchannel.com post split shares which had
erroneously been issued to a Company under his control and contribute the
proceeds from the sale of 66,667 thehealthchannel.com post split shares to
the Company, withdraw all pending claims or rights to any monetary
compensation, whether asserted or unasserted, stock options or stocks and
waive his right to future claims or lawsuits against the Company and (b)
the Company was to issue approximately 333,333 post split shares
immediately, 166,667 post split shares if the weighted average trading
price as determined in the agreement was at least $2.25, 166,666 post split
shares if the weighted average trading price as determined in the agreement
was at least $3.75 and 66,667 post split shares if the weighted average
trading price as determined in the agreement was at least $6.00. Pursuant
to this agreement, the Company recorded an obligation of $300,000 arising
from the initial 333,333 shares at $0.90 per share, which approximated the
post split trading price per share. The transfer of 266,667 shares under
the Settlement Agreement and Release with the Former President is not
classified as redeemable equity in the balance sheet, as no cash payment
are attached to redeem his stock. This obligation of $300,000 is included
in accrued stock based compensation on the balance sheet. The Company is
contingently liable to issue 400,000 additional post split shares based
upon certain stock price goals as disclosed above, and no amounts have been
recorded in the accompanying financial statements
17
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(6) CONTINGENCIES, CONTINUED:
Litigation, Continued
---------------------
To the best knowledge of management, there is no other material litigation
pending or threatened against the Company.
18