ITEM 1. BUSINESS.
Overview
We are an emerging ecommerce software and services company. In 2006, we began development of an online search application for retailers and consumers and launched www.itrackr.com, a social networking website designed to enable consumers the ability to search for products and services at brick-and-mortar retail stores on location-based, and inventory-available basis, within their geographic communities.
In 2009, iTrackr purchased online customer support software technology from Chatstat for approximately $95,000. The chat technology enables us to provide retailers with a support and sales tool for agents with the goal of increasing transactional business. We serve customers primarily in North America in a variety of industries with a particular emphasis on ecommerce markets.
Corporate Information
We were incorporated in the State of Wyoming on May 10, 2006 to develop, market and commercialize a product and inventory search application through a social networking site designed to leverage the best of Internet and mobile technologies.
On November 27, 2007 we adopted Articles of Merger to merger iTrackr, the Wyoming corporation with and into iTrackr, Inc., a Florida corporation.
On December 10, 2009, Must Haves, Inc., iTrackr Acquisition, Inc. (“Merger Sub”) and iTrackr, Inc., a Florida corporation (“iTrackr”), entered into an Agreement and Plan of Merger (the “Agreement”), which closed January 12, 2010. On the Closing Date, iTrackr was merged with and into Merger Sub, which is the surviving corporation and became a wholly-owned subsidiary of the Registrant.
For the year ended December 31, 2010 and 2009, the Company had a net loss of $981,805 and $856,942, respectively. As a result, our auditor has issued an uncertainty paragraph about our ability to continue as a going concern in their 2010 and 2009 audit report stating the Company has suffered recurring losses and has yet to generate an internal cash flow that raises substantial doubt about our ability to continue as a going concern.
Our principal executive offices are located at 433 Plaza Road, Ste 275 Boca Raton, FL 33432, and our telephone number is (561) 962-4111. Our website address is http://www.itrackr.com. Information on or accessed through our website is not incorporated into this prospectus and is not a part of this prospectus.
With respect to this discussion, the terms “we”, “our”, “iTrackr” and the “Company” refer to iTrackr Systems, Inc., and its wholly-owned subsidiary, iTrackr, Inc..
Chat and Online Customer Support
Industry
Consumer migration to the Internet is driving a dramatic shift in the way consumers buy products and services from companies. As more and more content, social media sites and web applications become ubiquitous, consumers are spending an increasing amount of time online. In 2010, consumers will spend 40-50% of their media time on the Internet. Most analysts predict usage of offline media, including television, radio and print, will continue to decline. There is a major paradigm shift taking place in e-Commerce. According to Forrester Research 58% of consumers start their Product Research on the web and companies have eight (8) seconds to hook a visitor through their landing page. Product and service sales through e-retail channels are expected to grow at a compounded growth 10% annually through 2013. E-Commerce is the third fastest growing industry behind Voice over Internet Phone (VoIP) and Search Engines (IBIS World). In the world where consumers are spending a huge proportion of their time online, companies are looking at ways to provide live help and interaction when visitors are online. Interactive live chat is increasingly becoming a way for companies to interact with their online visitors, answer their questions and build trust thus enabling them to sell products and services.
As the supply of page views and online content grows faster with a lot of information online, consumers are getting increasingly frustrated as they seek answers to simple questions. Consumers have to browse through a number of online pages, self help and FAQ’s to find answers to their questions which on many occasions does not provide the information consumers are seeking. Satisfaction for researching retail products online and buying them over the phone is only 44-53%, with the younger age group being most dissatisfied at 44%. According to Forrester Research 57% of US Online consumers say they are likely to abandon an online purchase if they cannot find quick answers to their questions. 25-32% of online consumers abandon their shopping carts (eMarketer). The most compelling statistic comes from a research conducted by Internet Retailer which concluded that 10-15% of Consumers who browse online will complete a sale if engaged in a text chat versus 2% for those who do not engage in a chat.
Companies doing business online are paying attention to this shift in consumer behavior and the increasing demand for live interaction online by deploying “Click2Chat” and “Click2Call” solutions to provide live help while visitors are online. Most of these companies are providing the live interaction (Chat) as an afterthought and primarily to provide customer service or technical support. A few online companies are actively using this as an additional channel to generate new sales besides the Online and Call Center channels.
Similarly in the area of generating leads though online websites very few lead generation companies with presence online are generating qualified leads in various verticals such as education, payday loans, financial services, insurance etc., using live interaction on their websites. Most online lead generation companies today have online visitors fill out a lead form which is subsequently sent to automated lead verifiers for scrubbing followed by low cost call centers from offshore locations further cleansing the data. A click2chat solution with live agents for online lead generators would result in cost savings for generating qualified leads online while saving time on the three step process for getting good quality leads.
Our Strategy
Our mission is to change these fundamentals. Our solutions will help companies doing business in the online world by increasing their sales thus contributing to their top line revenue and maximize their marketing dollars spent online. In the online lead generation space our solutions will provide companies with qualified leads in a very efficient and cost effective manner. Our unique value proposition of providing an end-to-end solution for live online interaction with a hosted chat platform combined with a unique sales process and highly trained sales agents will change the way companies sell products and services online. Our solutions will fill a meaningful gap in the online sales and online lead generation market by bridging the gap between visitor traffic and successful business outcomes. Our business solutions deliver measurable return on investment by enabling clients to:
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Increase conversion rates and reduce abandonment by selectively engaging website visitors;
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Accelerate the sales cycle, drive repeat business and increase average order values;
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Increase customer satisfaction, retention and loyalty while reducing service costs;
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Harness the knowledge of subject-matter experts by allowing consumers to engage with major online brands;
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Refine and improve performance by understanding which initiatives deliver the highest rate; and
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Lower operating costs in the call center by deflecting costly phone and email interactions.
Competition
The markets for online engagement technology and online consumer services are intensely competitive and characterized by aggressive marketing, evolving industry standards, rapid technology developments, and frequent new product introductions.
Our business solutions compete directly with companies focused on technology that facilitates real-time sales, email management, searchable knowledgebase applications and customer service interaction. These markets remain fairly saturated with small companies that compete on price and features. iTrackr faces competition from online interaction solution providers, including software-as-a-service (SaaS) providers such as LivePerson, Art Technology Group, Instant Service, RightNow Technologies and TouchCommerce. We face potential competition from Web analytics and online marketing service providers, such as Omniture. The most significant barriers to entry in this market are knowledge of:
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Online consumer purchasing habits;
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Methodologies to correctly engage customers;
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Metrics proving return on investment; and
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Technology innovation opportunities.
iTrackr also faces potential competition from larger enterprise software companies such as Oracle and SAP. In addition, established technology and/or consumer-oriented companies such as Microsoft, Yahoo and Google may leverage their existing relationships and capabilities to offer online engagement solutions that facilitate real-time assistance and live advice.
Finally, iTrackr competes with in-house online engagement solutions, as well as, to a lesser extent, traditional offline customer service solutions, such as telephone call centers.
iTrackr believes that competition will increase as our current competitors increase the sophistication of their offerings and as new participants enter the market. Compared to iTrackr, some of our larger current and potential competitors have:
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Stronger brand recognition;
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A wider range of products and services; and
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Greater financial, marketing and research and development resources. Additionally, some competitors may enter into strategic or commercial relationships with larger, more established and better-financed companies, enabling them to:
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Undertake more extensive marketing campaigns;
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Adopt more aggressive pricing policies; and
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Make more attractive offers to businesses to induce them to use their products or services.
Agreements
iTrackr has entered into an agreement with Saveology and RespondQ which presently represents 100% of our current business. Key terms and conditions of these contracts are:
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iTrackr Systems will license certain hosted “Click2Chat software as a service” and provide all other services, data import/export, monitoring, support, backup and recovery, change management. technology upgrades, and training necessary for productive use of such software (the "Services"),
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the Services are offered on a non-exclusive basis
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iTrackr shall not enter into any subcontracts for the performance of the Services, or assign or transfer any of its rights or obligations under this Agreement, without prior written consent and any attempt to do so shall be void and without further effect. Consent to iTrackr's right to subcontract any of the Services shall not relieve iTrackr of any of its duties or obligations under this Agreement, and iTrackr shall indemnify and hold the parties harmless from any payment required to be paid to any such subcontractors.
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The parties may, upon written notice, request increases or decreases to the scope of the Services
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The initial term of the agreement is 12 months and following the initial term, the agreement will automatically renew for successive one-year terms (each, a "Renewal Term") until such time as the parties provide iTrackr with written notice of termination.
Social Networking and Online Retail Search
Industry
Social technologies continue to grow substantially. Forrester Research reports that three out of four Americans use social technology. Nielsen reports that 2/3rd of the global internet population visits social networks and that social sites are the fourth most popular online activity ahead of personal email. Facebook estimates to have 500 million active users, of whom half log in on any given day, and of which more than 200 million active users access through mobile devices.
By the year 2013, 43% of global mobile internet users (607.5 million people worldwide) will be accessing social networks from their mobile devices, according to eMarketer, which characterizes mobile and social as still-emerging channels that are each helping drive the adoption of the other. In the US, mobile social networkers will total 56.2 million by 2013, and will account for nearly half (45%) of the mobile internet user population.
Social networking has dramatically reshaped the Internet landscape and is now generating more than $1 billion annually. Industry giants such as Microsoft and Google continue to court these social networking sites with the intention toward establishing the mechanism for monetizing advertising content.
Mobile data services (e.g. text messaging, ringtones, wallpaper) have become a hundred billion dollar business worldwide. ABI Research estimates that between 2008 and 2014, the total market for mobile messaging will grow at a CAGR (Compound Annual Growth Rate) of nearly 8 percent, increasing from $132 billion in 2008 to $208 billion by 2014.
Products and Services
The iTrackr community brand has created one of the first mobile shopping communities which is fully integrated with the online and mobile world. Our community bridges cyberspace and the mobile space with the real world for the benefit of our users, retailers and merchants. iTrackr is recognized nationally for locating hard to find products and major media organizations such as U.S. News and World Report, The Wall Street Journal and CNET have consulted with us for reference retail statistics.
Our current product line consists of our online customer support application, “TrackiT!”, “PriceiT!”, Groups, Calendar and status update messaging for mobile and Internet.
TrackiT, PriceiT and iTrackr Community Applications
These products are based on a “pull/push” model where the consumers tell us what products they are interested in via the Retail “TrackiT!” button and iTrackr pulls the information from the retailers’ inventory and pushes it to the consumer. The consumer establishes their messaging preferences of site only, mobile text messaging and/or email. The main product is the “TrackiT!” function which allows consumers to search local stores’ inventory for products like the Wii Console, Guitar Hero video game as well as a host of other products.
Our products are focused on creating value by and to the consumer, the retailer and the marketing firm. The success of our business is predicated on our ability to effectively achieve and maximize value on each of these fronts.
Our business and technology was created first and foremost with the individual consumer, and the consumer’s “interests” in mind. More than ever, consumers are challenged with issues of time and convenience in fulfilling their purchases. This factor has been one of the primary catalysts for the growth of online shopping which addresses both of these constraints directly. But the fact is that online commerce remains less than 5% of total retail, according to the Q1 2010 Census Bureau of the Department of Commerce Report and is forecast to only reach about 8% of total retail by 2014, according to Forrester Research. Tracking and utilizing the expressed interests of our users allows us to maintain our relevance to the consumer and to provide information that keeps them engaged with our Community.
The vast majority of consumers are committed to fulfilling their shopping purchases at brick-and-mortar locations. This creates another significant inconvenience, or “pain”, for the consumer - namely, the need to find the product they are looking for in stock and in their area now. We believe that the best solution, or resolution, for the consumer’s need is to help them mitigate and eliminate altogether the hassle of locating stores that have the products they want in stock and to provide them with an opportunity to secure that in-stock product with an immediate purchase. We leverage the power and ubiquitous nature of the Internet and mobile marketplace to provide this intelligence to the consumer in an on-demand, real-time capability. We simplify the process in a turnkey fashion and with immediate resolution.
The value proposition that we offer to the retailer is equally compelling. We drive purchases to the retailer. Our presence and content will greatly influence where our users fulfill their transactions. Our powerful e-commerce driven, social networking platform cost-effectively pushes consumers that are ready to purchase to retail locations. Retailer’s can market incentives and promotions on a local and even store-by-store basis to our consumers. That is the essence of social merchandising. iTrackr can provide layers of intelligence to retailers that can be parsed all-the-way down to the zip-code layer. The implications to the retailer range well beyond target marketing and extend directly to inventory management, fulfillment and settlement in the consumer supply chain.
Substantiating “return-on-investment remains the biggest challenge for marketing firms catering to online advertisers. Much of the problem online advertiser’s face is related to the measurement tools currently available and the data which is ultimately produced from those tools. Additionally, it is also difficult to determine the quality of placement and the impact of advertising amongst the online audience at a particular destination.
The primary advantage that we offer marketing firms is the assurance that the ads and promotional campaigns launched within the iTrackr Community are both highly targeted and are being sought by the confirmed consumers that are at our site first and foremost for retail interests. This is a significant advantage and a key differentiator from other platforms. We believe that marketing firms can more effectively demonstrate ROI to their clients on our platform, and we can provide them with the statistics to prove it.
We are working with our commercial partners to provide inventory and service tracking functions within the branded image of their existing online presence. This is the fundamental building block of social merchandising. From these services, our Retail partners will extend product and service fulfillment messaging with derivative sales offerings, associated mobile advertising and mobile couponing. iTrackr subscribers will benefit from brand affinity offerings through our Retailers’ partners.
Transaction Fulfillment
Consumers can complete the process of searching for products and services by securing them with a “BuyiT!” purchase when they locate what they want. Goods and services can be secured when they become available, and the consumer will know that their products will be waiting for them when they go to pick them up.
Group Messaging
Consumers can communicate or forward received messages to any of their groups, regardless of which devices they are using, where each member receives messages according to their individual profiles and permissions that they have established. Retailers can leverage this group messaging functionality to push special offers and incentives to relevant groups, notifying them of brick-and-mortar locations where they can locate products and take advantage of special offers.
MyiTrackr Dashboard
When a community member signs in, their home page is also their personal dashboard. Whether from the web or from the mobile device, the MyiTrackr Personal Dashboard is the interface to the world of iTrackr services. From a user’s personal dashboard they can personalize and configure their view of the iTrackr community. From here they can set up their communications settings, their group affiliations and their personal preferences. Community members can research subscriber submitted opinions of products and services, or they may wish to submit reviews of their own. The MyiTrackr Personal Dashboard is the member’s one-stop for personalization of the iTrackr Community experience.
iTrackr Trackit Reports
iTrackr’s TrackiT Reports provide commercial subscribers with invaluable data provided by the iTrackr consumer. We have unique insight into the purchasing trends of groups of consumers by product. When a community member stops tracking a product, we glean specific information about the retail experience, and while we never release specific user information, we can aggregate very specific information about consumer behavior. As our membership grows many consumer trends can be noted and quantified. iTrackr TrackiT Reports are the only place where that data can be found.
Our Strategy
iTrackr Technologies has built a community-driven website at www.itrackr.com where consumers can create user-generated content focused on feedback and recommendations about popular products. What is truly unique about our website is that the users all have something in common; they are confirmed consumers. They have found www.itrackr.com because they are looking for one item or another in their local shopping area for immediate purchase.
In addition to our web presence we are working with retailers to extend iTrackr’s fulfillment tracking applications to their branded web sites. Our mobile suite of applications are also extensible with our commercial partners’ look and feel, giving them an iTrackr enabled mobile presence under their existing corporate brand. We will augment our offering with transaction settlement capabilities to complement our existing capabilities and provide our partners with a complete fulfillment solution.
Our objective is to reach critical mass as quickly as possible in order to establish the iTrackr Community as viable and attractive to marketing firms and online and mobile advertisers. We will achieve critical mass when revenue from our Community presence approaches our current cost of operations. We intend to leverage our suite of applications over wired and mobile devices in order to achieve the broadest possible uptake and the greatest potential market penetration.
We have employed a “freemium” model to maximize consumer uptake for our social shopping tools. In other words, we offer product tracking and notification, as well as the consumer social network capabilities to our users and members without a charge. We believe this will provide us with the most efficient path to establishing critical mass and validation of our offering. We believe that as traffic and usage increases on our network we will be able to generate revenues through sales of marketing and advertising campaigns, usage fees for premium content and services and subscriptions.
We believe that our user base will be driven by the content that we propagate to our iTrackr database, the number of consumers that will employ mobile data applications, and more generally mirror the broader online consumer demographic. Our strategy is to populate our database initially with the most sought after, or the “hottest” consumer products, demand for which is generated by the community members themselves. This category of products is, by nature, more difficult to locate in-store due to the fact that demand is higher. These will be the products which will highlight the value of our offering to the consumer, and create the largest viral “buzz” amongst all consumers. Around the holidays, these hot items are typically new releases of consumer electronics, games and communications devices, but can be any consumer good or service for which supply is constrained regionally or nationally.
Over time, other factors will contribute to the products available for tracking on our network, including consumer user-generation of product tracking requests as well as our development of partnerships and affiliation with retail and marketing firms.
We have developed the iTrackr platform to scale on a distributed basis, where consumers have the capability to add products for tracking, as well as for reviews and commentary to propagate within our community. We are seeking to maximize the relevance of the tracking services, while increasing the likelihood of longer and more frequent site visits. This increases the attractiveness of our site as a merchandising destination for online advertisers and marketing firms.
Our plan for 2010 is to grow by promoting our mobile networking tools and retail search capabilities to community and affinity groups that will benefit the most from mobile social networking. These groups include retailers, students, affinity groups and mobile device manufacturers. By soliciting participation from retail sponsors, we will provide free services to our target communities.
Viral Promotion Strategy
iTrackr has been lauded on websites and in the media with no direct marketing expenditures or outlays on our behalf. For example, U.S. News & World Report mentioned the iTrackr service on December 6, 2007, within the context of “Tracking the Elusive Wii”. Almost immediately after we made our application available on the world wide web, mention of our service and positive reviews appeared on Google searches for the term iTrackr. We will continue to promote our community virally, and will expand our blog presence for the foreseeable future.
Consumer Reach Strategy
Today most consumers utilizing iTrackr do so for products that can be found and purchased at their local store. Our new product offerings will allow consumers to form private communities and to exchange group messages or discuss things within groups of their making. By offering these features, we extend the consumers ability to seek fulfillment for services as well as goods. These services include event ticketing such as movie tickets, concerts or sporting events, and they will also include packages combining events with merchandise and entertainment. iTrackr’s messaging and community products will offer consumer’s the ability to organize the events in a one step process including the purchase of the service via the Internet. This can occur from any Internet or mobile device.
Retailer Promotion Strategy
We intend to solicit commercial participation from big box consumer electronics and pharmaceutical retailers, but our service is not limited to any particular set of retail categories. Consider the following examples:
Pharmaceutical Retailer: we provide the retailer with the ability to notify customers via text message or email that their prescription has been filled and is available for pickup. With these highly-qualified messages, we can extend the retailers the ability to offer special coupons or exclusive promotional opportunities. By combining our service with an exclusive marketing opportunity, we will drive derivative sales from the subsequent store visit by the consumer.
Electronic Retailer: our utilities give retailers the ability to notify their customers that a product at a particular location has become available, and iTrackr will facilitate the transaction. In addition, the retailer can drive additional sales by offering additional incentives or bundles when the customer visits the store to purchase the originally tracked item. We have identified several major retailers with whom we have engaged or intend to engage. These include Best Buy, Target, Radio Shack, Circuit City and Costco. Additionally, other retail areas will be pursued as commercial adoption grows. These secondary retailers include book stores such as Barnes & Noble and manufacturing retailers such as Apple.
Mobile Supply Chain Distribution
Making iTrackr an integral part of the mobile technology supply chain is one of our ultimate, long-term goals. Strategically placing the iTrackr Community button on mobile devices gives us one of the strongest opportunities to extend our community brand. Placement on the deck of PDA’s and cell phones will give us a true advantage in the marketplace. Developing relationships with manufacturers and service providers will allow us to pursue this goal, and having service providers as commercial partners will only further strengthen our offerings to potential subscribers. Even one partner in this arena greatly expands our reach and brand presence to a broad consumer group. Those consumers will drive new communities to the iTrackr offering and further expand mobile social networking in today’s wireless world.
Competition
While our business concept is unique, our revenue streams come from intensely competitive markets. Our users can find, buy, sell and pay for similar items and services through a variety of competing channels. These include, but are not limited to, online and offline retailers, distributors, liquidators, import and export companies, catalog and mail-order companies, classifieds, directories, search engines, products of search engines, virtually all online and offline commerce participants (consumer-to-consumer, business-to-consumer and business-to-business), online and offline shopping channels and networks. As our product offerings continue to broaden into new categories of items and new commerce formats, we expect our competition to continue to broaden to include other online and offline channels for those new offerings.
Whether it is driving product sales to traditional businesses or providing targeted marketing opportunities for derivative sales to a retailer’s consumer, iTrackr is in the business of social merchandizing. Other social networking ventures, such as MySpace and Facebook have seen tremendous growth over the last five years in terms of the user community.
Facebook has garnered more than 500 million users worldwide and Twitter reportedly has more than 190 million users. These numbers are impressive for building social networking destinations, but the business behind these offerings still relies on revenue primarily derived from online advertising. According to comScore, total ad impressions delivered on U.S. publisher sites in September 2010 was 417.2 billion up 26% versus a year ago, while Facebook led all online publishers with 297 billion ad impressions in the third quarter of 2010. iTrackr competes with these and other larger and more established social networking sites for users, but we believe we are well positioned to excel at per subscriber revenue generation given our multi-channel approach to revenue generation. The major difference between iTrackr and sites like Facebook or Twitter is that they offer blogs and pictures, and we focus on consumers and merchandising.
Other competitors include social shopping sites. Groupon launched in 2008 pools buyers for local business discounts for daily pre determined deals. Hearst Corporation acquired Kaboodle for an estimated $40 million. Kaboodle is one of the new social shopping sites started in the last few years. They had managed to grow their site to 2.2 million unique visitors by June 2007, prior to being purchased. Several social shopping sites focus on a specific community segment. Stylehive is vying to become a destination for women’s fashion. Crowdstorm is focusing exclusively on online shopping. All of these sites are looking to establish a niche community with retail extensions. Very few offerings have direct queries of existing retailers, and none have in-stock checking or sell through capabilities with existing retailers. iTrackr does complete point-of-sale transactions, and provides sell through capabilities to our commercial partners.
A key differentiator of our offering is our focus on mobile social networking and merchandizing. Most mobile offerings only tie into existing sites like MySpace. An example of this is the mobile offering from Earthlink and SK Telecom called Helio. This is a premium service requiring a specific device and running as much as $135 per month. While Helio is going after the premium content consumer, the remainder of the mobile marketplace is unserved. iTrackr will change that with our mobile community. A wide variety of mobile devices work with our community utilities, and the service does not come with a premium price tag.
We are a commerce facilitator. With other eCommerce sites, when you buy a product, you have to wait for fulfillment which often takes weeks. Our service is designed for consumers that want products today. Our consumers want to know where they can find a product, if it is available and what is the best price for the product. This is our service offering, and this is what both differentiates us from eCommerce stores and what enables us to serve as a partner to brick and mortar retailers.
Another key differentiator of our service from others, is that we proactively notify consumers when products or services that they are looking for become available and from where. We are not a retailer, so we do not compete directly with other retailers. Rather, we support them. iTrackr identifies groups of people who are looking for a product or service, and we provide opportunities for our commercial partners to fulfill their need. We identify further opportunities for retailers to take advantage of derivative sales opportunities when the right mix of consumer interest, product availability and pending purchase come together.
Competitive Strengths
Experienced management team
Our senior management team has extensive business and industry experience, including an understanding of changing market trends, consumer needs and technologies, which gives us the ability to capitalize on the opportunities resulting from these market changes. Our Chief Executive Officer, John Rizzo, has over 16 years of experience in developing technology businesses. Other members of our senior management team also have significant experience with respect to key aspects of our operations, including research and development, product design, and sales and marketing.
Early market mover
We were the first to market in the “Buy-Online, Pick-Up-In-Store” category, which we believe has enabled us to build strong brand value.
Open Source Technology
We have developed the iTrackr platform based on an “Opensource Architecture” much the same way as Facebook, Google, Yahoo, Youtube and other fast growing internet companies. This architecture enables us to quickly to scale our infrastructure to adapt to a rapidly growing user/customer base and to integrate with retailers API as most source code is readily available.
Mobility
We are the only company in the space that relies heavily on mobile computing. We are the only company using SMS to enable the end user for increased mobility. We estimate that 25% of all messages sent through the iTrackr platform are SMS. We are also developing mobile and GPS-enabled applications to continue to dominate in this space.
Research and Development
Companies such as us are under pressure for customers to respond more quickly with new designs and product innovations to support rapidly changing consumer tastes and regulatory requirements. We believe that the engineering and technical expertise of our management and key personnel, together with our emphasis on continuing research and development, allows us to efficiently and timely identify and bring new, innovative products to market for our customers using the latest technologies, materials and processes. We believe that continued research and development activities are critical to maintaining our offering of technologically-advanced products to serve a broader array of our customers.
We focus our product design efforts on both improving our existing products and developing new products. In an effort to enhance our product quality, reduce costs and keep up with emerging product trends, we work with our key customers to identify emerging product trends and implement new solutions intended to meet the current and future needs of the markets we serve.
We are a technology company, and approximately 45% of our costs are related to research and development. We anticipate that research and development costs will continue to be a material component of our overall business expenditures for the foreseeable future.
Intellectual Property
We do not own, either legally or beneficially, any patents or trademarks.
Some of our products are also designed to include software or other intellectual property licensed from third parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products and business methods, based on past experience and industry practice we believe that such licenses generally could be obtained on commercially reasonable terms. However, there is no guarantee that such licenses could be obtained at all. Because of technological changes in the portable electronics industry, current extensive patent coverage and the rapid rate of issuance of new patents, it is possible certain components of our products may unknowingly infringe existing patents or intellectual property rights of others.
Government Regulation
There are an increasing number of laws and regulations pertaining to the Internet and e-commerce over the Internet. Other laws or regulations may be adopted with respect to online content regulation, user privacy, pricing, restrictions on email solicitations, taxation and quality of products and services. Any new legislation or regulation, or the application or interpretation of existing laws, may decrease the growth in the use of the Internet, which could in turn decrease the demand for our service, increase our cost of doing business or otherwise have a material adverse effect on our prospects and revenues.
Employees
At December 31, 2010 we had 2 full-time employees. There are no collective bargaining contracts covering any of our employees. We believe our relationship with our employees is satisfactory.
ITEM 1A.
ITEM 1A. RISK FACTORS.
You should carefully consider the risks described below before making a decision to buy our common stock. If any of the following risks actually occurs, our business, financial condition and results of operations could be harmed. In that case, the trading price of our common stock could decline and you might lose all or part of your investment in our common stock. You should also refer to the other information set forth in this 10-K, including our financial statements and the related notes.
Risks Related to Our Business
Because there is doubt about our ability to continue as a going concern, an investor may lose all of his investment in our company.
Our auditor’s report for the year ending December 31, 2010 financial statements expresses an opinion that substantial doubt exists as to whether we can continue as an ongoing business. Since our sole officer and director may be reluctant or unable to loan or advance additional capital to the Company, we believe that if we do not raise additional capital, we may be required to suspend or cease the implementation of our business plans.
iTrackr has a history of losses and may not be able to generate sufficient net revenue from its business in the future to achieve or sustain profitability.
iTrackr has incurred losses since inception. To date, iTrackr’s revenues have largely come from click through referral fees and call center service revenue from ChatTracker. iTrackr’s primary expenses relate to personnel, website development and maintenance, professional and stock based compensation and significantly exceed revenues. iTrackr’s consolidated financial statements have been prepared assuming that iTrackr will continue as a going concern. Successful transition to profitable operations is dependent upon obtaining a level of sales adequate to support the Company’s cost structure. The Company has suffered recurring losses resulting in a stockholders’ deficit of approximately $4,074,259 and a working capital deficiency of $958,093 as of December 31, 2010. Historically, the Company has been able to finance operations from the capital obtained through the issuance of convertible debt. Management intends to continue to finance the operations of the Company through future cash flows from operations and future financings. However, iTrackr’s expenses are expected to increase as it incurs additional costs of becoming publicly traded, and increasing operational infrastructure, and there is no assurance that iTrackr will be able to obtain sufficient financing (or financing on acceptable terms) or earn sufficient revenues to generate positive cash flow and attain profitability.
iTrackr’s cash on hand and anticipated near term sales may be insufficient to fund operations for the next 12 months.
As of December 31, 2010 our cash balance was $9,051. We believe that approximately $15,000 to $20,000 per month or $180,000 to $300,000 will be required to cover our minimum cash outflows for the next 12 months. Our current cash balance and anticipated near term sales may be insufficient meet this requirement. As a result our management continues to work diligently to secure additional sales and either debt or equity based financing for which we are currently in discussions. In the short term, as a result of our S-1/A registration statement being declared effective, we hope to receive commitments from certain warrant holders that they intend to exercise their warrants. The cash to be realized upon exercise of these warrants is expected to be approximately $550,000. In the event no outside funding is achieved Mr. Rizzo, our CEO will continue to provide personal funds as needed to fund our required minimum cash outflows. During 2010, Mr. Rizzo has loaned the Company $41,500. Mr. Rizzo is an accredited investor and has committed to fund up to an additional $250,000.
If iTrackr is unable to fund its operations and capital expenditures, iTrackr may not be able to continue to develop and market its products and services which would have a material adverse effect on its business.
iTrackr has experienced significant negative cash flow since its inception. In order to fund iTrackr’s operations and capital expenditures, iTrackr may be required to incur borrowings or raise capital through the sale of debt or equity securities. The Company’s ability to borrow or access the capital markets for future offerings may be limited by its financial condition at the time of any such offering as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. iTrackr’s failure to obtain the funds for necessary future capital expenditures would limit its ability to develop and market its services and could have a material adverse effect on our business, results of operations and financial condition.
iTrackr is dependent upon key personnel whose loss may adversely impact iTrackr’s business.
iTrackr depends on the expertise, experience and continued services of its senior management employees, especially John Rizzo, its founder, Chairman, Chief Executive Officer and Chief Financial Officer, and Ramesh Anand, its Chief Operating Officer. Both Mr. Rizzo and Mr. Anand have acquired specialized knowledge and skills with respect to iTrackr and its operations and most decisions concerning the business of iTrackr will be made or significantly influenced by them. iTrackr does not maintain life insurance with respect to Mr. Anand and Rizzo. The loss of Mr. Anand and Rizzo or other senior management employees, or an inability to attract or retain other key individuals, could materially adversely affect the Company. The Company seeks to compensate and incentivize its key executives, as well as other employees, through competitive salaries and bonus plans, but there can be no assurance that these programs will allow iTrackr to retain key or hire new employees. As a result, if Mr. Anand and Rizzo were to leave iTrackr, the Company could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any such successors obtain the necessary training and experience. In January, 2010, iTrackr entered into an ongoing employment agreement with Mr. Anand, and extended its existing employment agreement with Mr. Rizzo through May 2011. There can be no assurance that a successor employment agreement will be entered into with Mr. Anand and Rizzo or that the terms of their employment agreements will be sufficient to retain Mr. Anand and Rizzo.
iTrackr’s management systems and personnel may not be sufficient to effectively manage its growth.
iTrackr’s growth strategy involves expanding its customer based amongst online retailers with high transaction websites, increasing agent-hours for its customer support software and increasing consumer demand for its product search applications. Achieving iTrackr’s growth strategy is critical in order for its business to achieve economies of scale and to achieve profitability. Any condition that would deny, limit or delay its ability to manage and support existing accounts, as well as market to new customers in the future will constrain iTrackr’s ability to grow. There can be no assurance that iTrackr will be able to successfully expand its business in its highly competitive environment, and if iTrackr fails to do so, its business could be harmed.
Expansion of iTrackr’s business will also strain its existing management resources and operational, financial and management information systems to the point that they may no longer be adequate to support its operations, requiring iTrackr to make significant expenditures in these areas. There can be no assurance that iTrackr will be able to develop such additional systems or procedures to accommodate its future expansion on a timely basis, and the failure to do so could harm its business.
If we are not competitive in the market for online sales, marketing and customer service solutions, or online consumer services our business could be harmed.
The market for online sales, marketing and customer service technology is intensely competitive and characterized by aggressive marketing, evolving industry standards, rapid technology developments and frequent new product introductions. Established or new entities may enter the market in the near future, including those that provide solutions for real-time interaction online, or online consumer services related to real-time advice.
We compete directly with companies focused on technology that facilitates real-time sales, conversion of online shoppers to buyers, email management, searchable knowledgebase applications, and customer service interaction. These markets remain fairly saturated with small companies that compete on price and features. We face significant competition from online interaction solution providers, including SaaS providers such as LivePerson, Art Technology Group, Instant Service, RightNow Technologies and TouchCommerce. We face potential competition from Web analytics and online marketing service providers, such as Omniture. The most significant barriers to entry in this market are knowledge of:
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Online consumer purchasing habits;
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Methodologies to efficiently engage customers and consumers;
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Metrics proving return on investment; and
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Technology innovation opportunities.
Furthermore, many of our competitors offer a broader range of customer relationship management products and services than we currently offer. We may be disadvantaged and our business may be harmed if companies doing business online choose real-time sales, marketing and customer service solutions from such providers.
We also face potential competition from larger enterprise software companies such as Oracle and SAP. In addition, established technology companies such as Microsoft, Yahoo and Google may leverage their existing relationships and capabilities to offer real-time sales, marketing and customer service applications or consumer services similar to our consumer offerings.
Finally, we compete with clients and potential clients that choose to provide a real-time sales, marketing and customer service solution in-house as well as, to a lesser extent, traditional offline customer service solutions, such as telephone call centers.
We believe that competition will increase as our current competitors increase the sophistication of their offerings and as new participants enter the market. As compared to our company, some of our larger current and potential competitors have:
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Greater brand recognition;
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More diversified lines of products and services; and
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Significantly greater financial, marketing and research and development resources.
Additionally, some competitors may enter into strategic or commercial relationships with larger, more established and better-financed companies. These competitors may be able to:
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Undertake to make more extensive marketing campaigns;
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Adopt more aggressive pricing policies and
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Make more attractive offers to business or individuals to induce them to use their products or services.
Any change in the general market acceptance of the real-time sales, marketing and customer service solution business model or in online, real-time consumer advice services may harm our competitive position. Such changes may allow our competitors additional time to improve their service or product offerings, and would also provide time for new competitors to develop real-time sales, marketing, customer service and Web analytics applications or competitive consumer service offerings and solicit prospective clients within our target markets. Increased competition could result in pricing pressures, reduced operating margins and loss of market share.
We are dependent on technology systems and third-party content that are beyond our control.
The success of our services depends in part on our clients’ online services as well as the Internet connections of visitors to websites, both of which are outside of our control. As a result, it may be difficult to identify the source of problems if they occur. In the past, we have experienced problems related to connectivity which has resulted in slower than normal response times to Internet user chat requests and messages and interruptions in service. Our services rely both on the Internet and on our connectivity vendors for data transmission. Therefore, even when connectivity problems are not caused by our services, our clients or Internet users may attribute the problem to us. This could diminish our brand and harm our business, divert the attention of our technical personnel from our product development efforts or cause significant client relations problems.
In addition, we rely in part on third-party service providers and other third parties for Internet connectivity and network infrastructure hosting, security and maintenance. These providers may experience problems that result in slower than normal response times and/or interruptions in service. If we are unable to continue utilizing the third-party services that support our Web hosting and infrastructure or if our services experience interruptions or delays due to third party providers, our business could be harmed.
Our business service also depends on third parties for hardware and software and our consumer services depend on third parties for content, which products and content could contain defects or inaccurate information. Problems arising from our use of such hardware or software or third party content could require us to incur significant costs or divert the attention of our technical or other personnel from our product development efforts or to manage issues related to content. To the extent any such problems require us to replace such hardware or software, we may not be able to do so on acceptable terms, if at all.
Our agreement with Saveology and RespondQ are material contracts, and presently represent 100% of our current business. Our business would be materially and negatively impacted if either service agreement were terminated. (See “Agreements” in Business section above).
Our services are subject to payment-related risks.
For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower our profit margins. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from our customers or facilitate other types of online payments, and our business and operating results could be adversely affected.
Through our consumer-facing platform, we facilitate online transactions between individual service providers who provide online advice and information to consumers. In connection with these services, we accept payments using a variety of methods, such as credit card, debit card and PayPal. These payments are subject to “chargebacks” when consumers dispute payments they have made to us. Chargebacks can occur whether or not services were properly provided. Susceptibility to chargebacks puts a portion of our revenue at risk. We take measures to manage our risk relative to chargebacks and to recoup properly charged fees, however, if we are unable to successfully manage this risk our business and operating results could be adversely affected. As we offer new payment options to our users, we may be subject to additional regulations, compliance requirements, and fraud.
We are also subject to a number of other laws and regulations relating to money laundering, international money transfers, privacy and information security and electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to civil and criminal penalties or forced to cease our payments services business.
We may be liable if third parties misappropriate personal information belonging to our clients’ Internet users.
We maintain dialogue transcripts of the text-based chats and email interactions between our clients and internet users and store on our server’s information supplied voluntarily by these Internet users in surveys. We provide this information to our clients to allow them to perform internet user analyses and monitor the effectiveness of our services. Some of the information we collect may include personal information, such as contact and demographic information. If third parties were able to penetrate our network security or otherwise misappropriate personal information relating to our clients’ Internet users or the text of customer service inquiries, we could be subject to liability. We could be subject to negligence claims or claims for misuse of personal information. These claims could result in litigation, which could have a material adverse effect on our business, results of operations and financial condition. We may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches.
The need to physically secure and securely transmit confidential information online has been a significant barrier to electronic commerce and online communications. Any well-publicized compromise of security could deter people from using online services such as the ones we offer, or from using them to conduct transactions, which involve transmitting confidential information. Because our success depends on the general acceptance of our services and electronic commerce, we may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by these breaches.
Our products and services may infringe upon intellectual property rights of third parties and any infringement could require us to incur substantial costs and may distract our management.
We are subject to the risk of claims alleging infringement of third-party proprietary rights. Substantial litigation regarding intellectual property rights exists in the software industry. In the ordinary course of our business, our services may be increasingly subject to third-party infringement claims as the number of competitors in our industry segment grows and the functionality of services in different industry segments overlaps. Some of our competitors in the market for real-time sales, marketing and customer service solutions or other third parties may have filed or may intend to file patent applications covering aspects of their technology. Any claims alleging infringement of third-party intellectual property rights could require us to spend significant amounts in litigation (even if the claim is invalid), distract management from other tasks of operating our business, pay substantial damage awards, prevent us from selling our products, delay delivery of the iTrackr services, develop non-infringing software, technology, business processes, systems or other intellectual property (none of which might be successful), or limit our ability to use the intellectual property that is the subject of any of these claims, unless we enter into license agreements with the third parties (which may be costly, unavailable on commercially reasonable terms, or not available at all). Therefore, such claims could have a material adverse effect on our business, results of operations and financial condition.
Technological or other defects could disrupt or negatively impact our services, which could harm our business and reputation.
We face risks related to the technological capabilities of our services. We expect the number of interactions between our clients’ operators and internet users over our system to increase significantly as we expand our client base. Our network hardware and software may not be able to accommodate this additional volume. Additionally, we must continually upgrade our software to improve the features and functionality of our services in order to be competitive in our markets. If future versions of our software contain undetected errors, our business could be harmed. If third-party content is flawed, our business could be harmed. As a result of major software upgrades at iTrackr, our client sites have, from time to time, experienced slower than normal response times and interruptions in service. If we experience system failures or degraded response times, our reputation and brand could be harmed. We may also experience technical problems in the process of installing and initiating the iTrackr services on new Web hosting services. These problems, if not remedied, could harm our business.
Our services also depend on complex software which may contain defects, particularly when we introduce new versions onto our servers. We may not discover software defects that affect our new or current services or enhancements until after they are deployed. It is possible that, despite testing by us, defects may occur in the software. These defects could result in:
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Damage to our reputation;
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Lost sales;
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Delays or loss of market acceptance of our products; and
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Unexpected expenses and diversion of resources to remedy errors.
Our promotion and marketing of our websites may not result in generation of significant revenue which may cause our business to fail.
We believe that successful marketing, development and promotion of our websites are crucial to our success in attracting business. If our marketing and promotion is not successful in developing strong public recognition of our websites, then we may not be able to earn significant revenues and our business may fail.
Unauthorized disclosure of sensitive or confidential client and customer data, whether through breach of our computer systems or otherwise, could expose us to protracted and costly litigation and cause us to lose clients which may result in our going out of business and for you to lose your investment.
We may be required to collect and store sensitive data in connection with our services, including names, addresses, social security numbers, credit card account numbers, checking and savings account numbers and payment history records, such as account closures and returned checks. If any person, including any of our employees, penetrates our network security or otherwise misappropriates sensitive data, we could be subject to liability for breaching contractual confidentiality provisions and/or privacy laws, which would devastate our business, and may result in the loss of your investment.
Competition in the social networking, online marketing and e-commerce industry is intense and our competitors have greater financial resources and development capabilities than we have, and we may not have the resources necessary to successfully compete with them.
Our business plan involves providing consumers with online real-time product and inventory information, retailers with access to targeted consumer demand for their products and marketing firms with targeted content for their campaigns. These business areas are highly competitive. There are numerous companies that compete in these markets, most of whom have greater financial resources and more expertise in this business than we do. Our ability to develop our business will depend on our ability to successfully market our services in this highly competitive environment. We cannot guarantee that we will be able to do so successfully.
Our services may become obsolete and unmarketable if we are unable to respond adequately to rapidly changing technology and customer demands.
Our services may quickly become obsolete and unmarketable. Our future success will depend on our ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. We may be unsuccessful in responding to technological developments and changing customer needs. In addition, our applications and services offerings may become obsolete due to the adoption of new technologies or standards.
We may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, we may not be able to adapt new or enhanced services to emerging industry standards, and our new products may not be favorably received by our target market.
The loss of our executive officers or directors, could adversely affect our business.
Our success depends largely upon the efforts, abilities, and decision-making of our executive officers and directors. The loss of any of these individual would have an adverse effect on our business prospects. We do not currently maintain “key-man” life insurance and there is no contract in place assuring the services our executive officers and directors for any length of time. In the event that we should lose our sole officer or directors and we are unable to find suitable replacements, we may not be able to develop our business.
Our Controls and Procedures may not prevent misstatements.
The Company has limited segregation of duties amongst its employees with respect to the Company’s preparation and review of the Company’s financial statements due to the limited number of employees, which is a material weakness in internal controls, and if the Company fails to maintain an effective system of internal controls, it may not be able to accurately report its financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in the Company’s financial reporting which could harm the trading price of the Company’s stock.
Management has found it necessary to limit the Company’s administrative staffing in order to conserve cash, until the Company’s level of business activity increases. As a result, there is limited segregation of duties amongst the employees, and the Company and its independent public accounting firm have identified this as a material weakness in the Company’s internal controls. The Company intends to remedy this material weakness by hiring additional employees and reallocating duties, including responsibilities for financial reporting, among the employees as soon as there are sufficient resources available. However, until such time, this material weakness will continue to exist.
Our Financial Statements for the year ended December 31, 2009 and the quarterly periods ended March 31, 2010 and June 30, 2010 were Restated as a Result of a Re-Audit by our New Independent Accountant Which was Necessitated Due to Revocation of our Former Auditor’s Public Company Accounting Oversight Board (“PCAOB”) Registration.
Management received notification that our former auditor’s PCAOB registration had been revoked as of August 12, 2010 pursuant to PCAOB Release No. 105-2010-007. As a result, the Company engaged a new auditor, Bedinger and Company, effective August 25, 2010 and had our financial statements for the years ending December 31, 2008 and 2009 re-audited and our financial statements for the quarterly periods ending March 31, 2010 and June 30, 2010 re-reviewed. Our auditors discovered material misstatements in our financial statements that required the Company to restate our financial statements for the year ending December 31, 2009 and the quarterly periods ended March 31, 2010 and June 30, 2010. As a result Management concluded that our disclosure controls and procedures were not effective during the aforementioned periods. In addition, management recognizes that our new auditor may also not discover potential misstatements due to our currently assessed ineffective controls which are due to our lack of segregation of duties discussed above.
Risks Related to Our Common Stock
There will be a substantial number of shares of iTrackr’s common stock available for sale in the future that may be dilutive to its current stockholders and may cause a decrease in the market price of its common stock.
As of December 31, 2010, the Company had 20,319,997 shares of common stock outstanding, 45,000,000 shares of common stock available for future issuance under its 2007 Long-Term Stock Incentive Plan and warrants and options to purchase 7,610,333 shares of common stock. The 19,629,893 shares of common stock outstanding and underlying certain options and warrants registered pursuant to our S-1/A Registration Statement are freely tradable upon the effectiveness of our Registration Statement declared effective on February 10, 2011 by the Securities and Exchange Commission without restriction or further registration under the Securities Act, unless the shares are purchased by “affiliates” as that term is defined in Rule 144 under the Securities Act. Any shares purchased by an affiliate may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including an exemption under Rule 144 of the Securities Act. These restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act.
Future sales or issuances of the Company’s common stock or securities convertible into common stock, the perception such sales or issuances may occur or the availability for sale in the public market of substantial amounts of our common stock could adversely affect the prevailing market price of our common stock and could impair our ability to raise capital through future sales of equity securities at a time and price that we deem appropriate.
Our common stock is considered “a penny stock” and may be difficult to sell.
The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. Presently, our common stock is considered a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares. In addition, when and if our common stock trades on the OTC Bulletin Board, investors may find it difficult to obtain accurate quotations for our common stock and may experience a lack of buyers to purchase such stock or a lack of market makers to support the stock price.
iTrackr may be unable to receive a listing of its securities on NASDAQ or another national securities exchange, and this may make it more difficult for its stockholders to sell their securities.
We intend that shares of iTrackr’s common stock will be traded in the over-the-counter market and quoted on the OTCBB. The Company’s common stock and units are not currently eligible for inclusion in The NASDAQ Stock Market. If the Company is unable to receive a listing or approval of trading of securities on NASDAQ or another national securities exchange, then it may be more difficult for stockholders to sell their securities.
One stockholder owns a majority of our common stock and may act, or prevent certain types of corporate actions, to the detriment of other stockholders.
John Rizzo owns 5,250,000 common shares, holds options to acquire 2,000,000 options at an average exercise price of $0.325 per share until July 1, 2017, has accrued salary and health insurance of $687,500 and $207,691 in related party debt owed to him by iTrackr Systems, Inc. as of December 31, 2010. Accordingly, Mr. Rizzo beneficially owns approximately 32.5% of our issued and outstanding common stock. Accordingly, Mr. Rizzo may exercise significant influence over all matters requiring stockholder approval, including the election of a majority of the directors and the determination of significant corporate actions. This concentration could also have the effect of delaying or preventing a change in control that could otherwise be beneficial to our stockholders.
If we issue additional shares of common stock in the future this may result in dilution to our existing stockholders.
On October 26, 2009, we simultaneously completed a 4-1 reverse split of our common stock and amended our articles of incorporation to authorize the issuance of 110,000,000 shares of stock consisting of 100,000,000 shares of common stock and 10,000,000 shares of preferred stock. Our board of directors has the authority to issue additional shares of common stock up to the authorized capital stated in the articles of incorporation. Our board of directors may choose to issue some or all of such shares to provide additional financing in the future. The issuance of any such shares may result in a reduction of the book value or market price of the outstanding shares of our common stock. It will also cause a reduction in the proportionate ownership and voting power of all other stockholders.
There is currently no market for trading our common stock, and when such a market does develop, the trading price of our common stock may be volatile, with the result that an investor may not be able to sell any shares acquired at a price equal to or greater than the price paid by the investor.
Our common shares are currently not quoted for trading. We intend to have our common shares quoted on the OTC Bulletin Board. Companies quoted on the OTC Bulletin Board have traditionally experienced extreme price and volume fluctuations. In addition, our stock price may be adversely affected by factors that are unrelated or disproportionate to our operating performance. Market fluctuations, as well as general economic, political and market conditions such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock. In addition, to date, there has been no trading volume for our shares on the over-the-counter markets. As a result of this potential volatility and potential lack of a trading market, an investor may not be able to sell any of our common stock that they acquire that a price equal or greater than the price paid by the investor.
The trading price of iTrackr’s common stock is likely to be volatile, and you might not be able to sell your shares at or above the public offering price.
The trading price of iTrackr’s common stock is likely to be subject to wide fluctuations. Factors, in addition to those outlined elsewhere in this 10-K, that may affect the trading price of the Company’s common stock include:
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Actual or anticipated variations in the Company’s operating results;
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Announcements of technological innovations, new products or product enhancements, strategic alliances or significant agreements by the Company or its competitors;
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Changes in recommendations by any securities analysts that elect to follow the Company’s common stock;
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The financial projections the Company may provide to the public, any changes in these projections or its failure to meet these projections;
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The loss of a key customer;
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The loss of a key supplier;
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The loss of key personnel;
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Lawsuits filed against the Company;
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Changes in operating performance and stock market valuations of other companies that sell similar products and services;
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Price and volume fluctuations in the overall stock market;
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Market conditions in our industry, the industries of our customers and the economy as a whole; and
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Other events or factors, including those resulting from war, incidents of terrorism or responses to these events.
If securities analysts do not publish research or reports about iTrackr’s business or if they downgrade its stock, the price of its stock could decline.
The research and reports that industry or financial analysts publish about iTrackr or its business will likely have an effect on the trading price of its common stock. If an industry analyst decides not to cover the Company, or if an industry analyst decides to cease covering the Company at some point in the future, the Company could lose visibility in the market, which in turn could cause its stock price to decline. If an industry analyst downgrades iTrackr’s stock, its stock price would likely decline rapidly in response.
The concentration of iTrackr’s capital stock ownership with insiders will likely limit your ability to influence corporate matters.
iTrackr’s insiders, (its executive officers, directors, current five percent or greater stockholders and affiliated entities) together beneficially own approximately 73.1% of our outstanding common stock. As a result, these stockholders, acting together, will have significant influence over all matters that require approval by the Company’s stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders, including those who purchased shares in this offering, oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control that other stockholders may view as beneficial.
The Company does not expect to pay any cash dividends for the foreseeable future.
The Company does not anticipate that it will pay any cash dividends to holders of its common stock in the foreseeable future. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends in the foreseeable future should not purchase the Company’s common stock.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES.
We entered into a lease agreement with Regus in February 2009, where the initial term was for a three month period through April 2009. According to the terms of the lease agreement, the lease extends automatically for successive periods equal to the initial term but no less than 3 months (or such other renewal term that has been agreed between Regus and us) until brought to an end by us or Regus.
Our lease is for a property located at 433 Plaza Road, Ste 275, Boca Raton Florida for a fee of $800 per month.
We believe our facilities are currently suitable and adequate for our current needs.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
There are not any material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
ITEM 4.
ITEM 4. (REMOVED AND RESERVED)
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
There has never been a public trading market for our common stock and our shares of common stock are not currently listed or quoted for trading on any national securities exchange or national quotation system. We intend to apply for our shares to be traded on the over-the-counter bulletin board (“OTCBB”).
If and when our common stock is quoted for trading, the price of our common stock will likely fluctuate in the future. The stock market in general has experienced extreme stock price fluctuations in the past few years. In some cases, these fluctuations have been unrelated to the operating performance of the affected companies. Many companies have experienced dramatic volatility in the market prices of their common stock. We believe that a number of factors, both within and outside our control, could cause the price of our common stock to fluctuate, perhaps substantially. Factors such as the following could have a significant adverse impact on the market price of our common stock:
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Our ability to obtain additional financing and, if available, the terms and conditions of the financing;
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Our financial position and results of operations;
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Concern as to, or other evidence of, the reliability and efficiency of our proposed products and services to our competitors’ products and services;
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Announcements of innovations or new products or services by us or our competitors;
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Federal and state governmental regulatory actions and the impact of such requirements on our business;
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The development of litigation against us;
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Period-to-period fluctuations in our operating results;
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Changes in estimates of our performance by any securities analysts;
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The issuance of new equity securities pursuant to a future offering or acquisition;
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Changes in interest rates;
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The issuance of new equity securities pursuant to a future offering or acquisition;
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Changes in interest rates;
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Competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
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Investor perceptions of our Company; and
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General economic and other national conditions.
Holders
As of December 31, 2010, we had 102 stockholders of record of 20,319,997 shares of our common stock.
Dividends
We do not expect to declare or pay any cash dividends on our common stock in the foreseeable future, and we currently intend to retain future earnings, if any, to finance the expansion of our business. The decision whether to pay cash dividends on our common stock will be made by our board of directors, in their discretion, and will depend on our financial condition, operating results, capital requirements and other factors that the board of directors considers significant. We did not pay cash dividends in the years ended December 31, 2010 and 2009.
Transfer Agent
The transfer agent and registrar for our common stock is Manhattan Transfer Registrar Company. Their address is 57 Eastwood Road, Miller Place, NY 11764 and its telephone number at that location is 631-928-6171.
Equity Compensation Plans
Information regarding our equity compensation plans may be found in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Form 10-K.
Recent Sales of Unregistered Securities
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On June 30, 2010, the Company issued 101,000 shares of common stock to ChatStat in exchange for the settlement of $32,000 owing from the purchase of their chat software technology.
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On June 30, 2010, the Company issued 100,000 shares of common stock to Chris Maggiore in exchange for services value at $30,000 (See “Selling Stockholders” Footnote 114 above).
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On June 5, 2010, the Company issued 125,000 shares of common stock to Mihir Sevak, Chief Technology Officer of iTrackr in exchange for services value at $37,500.
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On March 11, 2010, the Company issued 360,000 shares of common stock valued at $108,000 as a result of a legal settlement with Marc Falcone a former business development consultant to the Company. Said shares were distributed to Marc Falcone (240,000 shares), Alan Frank (108,000 shares) and Alexander Palamarchuk (12,000 shares) (See “Selling Stockholders” Footnote 69-71 above). The Company relied on Section 4(2) of the Securities Act.
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On March 15, 2010, the Company received $50,000 in exchange for the issuance of 166,666 shares of common stock to Chris Maggiore. In addition, on June 3, 2010, Mr. Maggiore exercised a warrant to purchase an additional 166,666 shares of common stock in exchange for $50,000. Mr. Maggiore provides business advisory services to the Company (See “Selling Stockholders” Footnote 114 above). The Company relied on Section 4(2) of the Securities Act.
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On February 16, 2010, the Company converted $42,466.48 of shareholder loans to 119,999 shares of common stock which were distributed to Maplehurst Investment Group (36,260 shares), American Capital Ventures, Inc. (56,402 shares) and Jason Lyons (28,670 shares) (See “Selling Stockholders” Footnote 72-74 above). The Company relied on Section 4(2) of the Securities Act.
·
On February 5, 2010, the Company sold a warrant to an accredited investor for $50,000. Under the terms of the warrant, the investor has the right to purchase up to 1,000,000 shares of the Company’s common stock at an exercise price of $0.40 per share (See “Selling Stockholders” Footnote 75 and 100 above). The Company relied on Section 4(2) of the Securities Act.
·
During December, 2009, the Company converted $29,944 of shareholder loans due to Stella Gostfrand, founder and former CEO of Must Haves, Inc. to 59,888 shares of common stock (See “Selling Stockholders” Footnote 65 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, Delivery Technology Solutions (formerly Inflot Holdings Corp.) converted $270,000 of convertible debt principle and interest into 1,386,322 shares of common stock (See “Selling Stockholders” Footnote 98 and 110 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, Ted Cooper converted $559,302 of convertible debt principle and interest into 1,118,603 shares of common stock (See “Selling Stockholders” Footnote 88 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, Robert Gleckman converted $110,825 of convertible debt principle and interest into 221,649 shares of common stock (See “Selling Stockholders” Footnote 87 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, The Borg Trust converted $55,844 of convertible debt principle and interest into 111,688 shares of common stock (See “Selling Stockholders” Footnote 86 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, Robert Klinek & Susan Pack converted $57,139 of convertible debt principle and interest into 114,277 shares of common stock (See “Selling Stockholders” Footnote 85 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, The Winston Family Trust converted $34,631 of convertible debt principle and interest into 69,261 shares of common stock (See “Selling Stockholders” Footnote 84 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, Dominick & Judy Aprile converted $28,879 of convertible debt principle and interest into 57,758 shares of common stock (See “Selling Stockholders” Footnote 83 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, Charlie Bonafede converted $5,683 of convertible debt principle and interest into 11,366 shares of common stock (See “Selling Stockholders” Footnote 82 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, Dawn Maywood converted $5,781 of convertible debt principle and interest into 11,562 shares of common stock (See “Selling Stockholders” Footnote 81 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, Sam Maywood converted $5,781 of convertible debt principle and interest into 11,562 shares of common stock (See “Selling Stockholders” Footnote 80 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, Dr. Michael Gelbar converted $116,666 of convertible debt principle and interest into 233,332 shares of common stock (See “Selling Stockholders” Footnote 79 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, Patricia Scarpella converted $87,510 of convertible debt principle and interest into 175,019 shares of common stock (See “Selling Stockholders” Footnote 78 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, Shirley Harnick converted $58,347 of convertible debt principle and interest into 116,693 shares of common stock (See “Selling Stockholders” Footnote 77 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On October 31, 2009, Michael Nielsen converted $41,083 of convertible debt principle and interest into 82,165 shares of common stock (See “Selling Stockholders” Footnote 76 and 112 above). The Company relied on Section 4(2) of the Securities Act.
·
On May 5, 2008, Mark MacDougal received 100,000 shares of common stock as an employee bonus valued at $50,000 (See “Selling Stockholders” Footnote 15 above). The Company relied on Section 4(2) of the Securities Act.
·
On May 5, 2008, Justin Van Winkle received 100,000 shares of common stock as an employee bonus valued at $50,000 (See “Selling Stockholders” Footnote 13 above). The Company relied on Section 4(2) of the Securities Act.
·
On February 20, 2008, Steve Danzo earned 14,025 shares of common stock in exchange for services valued at $7,013 (See “Selling Stockholders” Footnote 92 above). The Company relied on Section 4(2) of the Securities Act.
·
On August 21, 2007, Red Rock Strategies Ltd. converted $55,313.70 of convertible debt principle and interest into 2,765,685 shares of common stock at an exercise price of $0.02 per share (See “Selling Stockholders” Footnote 107 above). The Company relied on Section 4(2) of the Securities Act.
·
On August 21, 2007, New Link Ltd. Corp converted two notes totaling $211,403.29 of convertible debt principle and interest into 3,385,280 shares of common stock. Note 1 total principle and interest was $156,193 and converted into 624,773 shares of common stock at an exercise price of $0.25 per share (See “Selling Stockholders” Footnote 109 above). Note 2 total principle and interest was $55,210 and converted into 2,760,507 shares of common stock at an exercise price of $0.02 per share (See “Selling Stockholders” Footnote 107 above). The Company relied on Section 4(2) of the Securities Act.
·
On August 21, 2007, Landmark, Inc. converted $26,069.86 of convertible debt principle and interest into 104,279 shares of common stock at an exercise price of $0.25 per share (See “Selling Stockholders” Footnote 109 above) The Company relied on Section 4(2) of the Securities Act.
·
On August 21, 2007, Beatrice Anne Rizzo, wife of John Rizzo, CEO and Chairman of iTrackr Systems, Inc. converted $98,516.85 of convertible debt principle and interest into 985,169 shares of common stock.
·
On July 1, 2007 (See “Selling Stockholders” Footnote 11 and 108 above) The Company relied on Section 4(2) of the Securities Act.
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Jarem Archer, founder of iTrackr, Inc. received 750,000 shares of common stock on July 1, 2007 in lieu of salary valued at $37,500 (See “Selling Stockholders” Footnote 1 above) The Company relied on Section 4(2) of the Securities Act.
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On July 1, 2007, John Rizzo received 5,000,000 shares of common stock in lieu of salary valued at $250,000 (See “Selling Stockholders” Footnote 2 above) The Company relied on Section 4(2) of the Securities Act.
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On October 26, 2006, The John Rizzo Family Trust received 250,000 shares of founder’s common stock at no value; Jarem Archer received 250,000 shares of founder’s common stock at no value; the Christopher Smith Family Trust received 200,000 shares of founder’s common stock at no value; and Alejandro Sintas received 100,000 shares of founder’s common stock at no value.
All funds received from the sale of our shares were used for working capital purposes.
All shares bear a legend restricting their disposition.
The foregoing securities may not be offered or sold in the United States unless registered under the Act, or pursuant to an exemption from registration.
The shares were issued in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act. Each investor took his securities for investment purposes without a view to distribution and had access to information concerning us and our business prospects, as required by the Securities Act. In addition, there was no general solicitation or advertising for the purchase of our shares. Our securities were sold only to an accredited investor and a limited number of sophisticated investors, as defined in the Securities Act with whom we had a direct personal preexisting relationship, and after a thorough discussion. Finally, our stock transfer agent has been instructed not to transfer any of such shares, unless such shares are registered for resale or there is an exemption with respect to their transfer.
Each purchaser was provided with access to our filings with the SEC, including the following:
· Our annual report to stockholders for the most recent fiscal year, the definitive proxy statement filed in connection with that annual report, and, if requested by the purchaser in writing, a copy of our most recent Form 10-K under the Exchange Act.
· The information contained in an annual report on Form 10-K under the Exchange Act.
· The information contained in any reports or documents required to be filed by iTrackr Systems under sections 13(a), 14(a), 14(c), and 15(d) of the Exchange Act since the distribution or filing of the reports specified above.
· A brief description of the securities being offered, the use of the proceeds from the offering, and any material changes in iTrackr Systems’ affairs that are not disclosed in the documents furnished.
Additional Information
Copies of our annual reports, quarterly reports, current reports, and any amendments to those reports, are available free of charge on the internet at www.sec.gov. All statements made in any of our filings, including all forward-looking statements, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
A registrant that qualifies as a smaller reporting company, as defined by §229.10(f)(1), is not required to provide the information required by this Item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and the other financial information included in this prospectus.
This prospectus contains forward-looking statements. The words “anticipated,” “believe,” “expect, “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may,” and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation, general economic and business conditions, changes in foreign, political, social, and economic conditions, regulatory initiatives and compliance with governmental regulations, the ability to achieve further market penetration and additional customers, and various other matters, many of which are beyond our control. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated or otherwise indicated. Consequently, all of the forward-looking statements made in this prospectus are qualified by these cautionary statements and there can be no assurance of the actual results or developments.
The following discussion and analysis of the results of operations and financial condition of the Company on a consolidated basis for the years ended December 31, 2010 and 2009 and should be read in conjunction with iTrackr’s consolidated financial statements, and the notes to those consolidated financial statements that are included elsewhere in this Prospectus. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Prospectus. We use words such as “anticipate,” “estimate,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expression to identify forward-looking statements.
Recent Events
On February 1, 2010, Must Haves, Inc. amended its articles of incorporation with the State of Florida, changing its name to iTrackr Systems, Inc.
On December 10, 2009, Must Haves, Inc., iTrackr Acquisition, Inc. (“Merger Sub”) and iTrackr, Inc., a Florida corporation (“iTrackr”), entered into an Agreement and Plan of Merger (the “Agreement”), which closed January 12, 2010. On the Closing Date, iTrackr was merged with and into Merger Sub, which is the surviving corporation and became a wholly-owned subsidiary of the Registrant.
At the closing of the Merger, subject to and pursuant to the terms and conditions of the Agreement, each outstanding share of Purchaser common stock was converted into one share of common stock of the Registrant. Upon consummation of the Merger, the shareholders of the Purchaser received an aggregate of 17,875,695 shares of Registrant common stock and thus owned 93.5% of Must Have’s common stock. Must Haves also assumed 6,555,000 options and warrants of iTrackr, which are exercisable at prices from $0.01 to $0.40.
In addition, pursuant to the Plan of Merger Agreement, on January 12, 2010 Stella Gostfrand submitted her resignation as an officer and director of the Company, and also on January 12, 2010 Michael Uhl, Dave Baesler and John Rizzo were appointed to serve as members of the board of directors of the Company, all of which will be effective following the expiration of the ten day period following the mailing of the information statement required by Rule 14f-1 under the Exchange Act. Upon the consummation of the Reverse Merger on January 12, 2010 Ramesh Anand was appointed to serve as Chief Operating of the Company, and Mr. Rizzo was appointed to serve as Chief Executive Officer and Chief Financial Officer of the Company.
Overview
iTrackr Systems, Inc. (“iTrackr”, the “Company”, “we”, “us” or “our”) was formed in May 2006 to develop, market and commercialize a product and inventory search application through a social networking site designed to leverage the best of Internet and Mobile technologies. We have taken the best of several burgeoning markets, including eCommerce, social networking and mobile content, and developed what we believe is a powerful platform that drives value to consumers, retailers and advertising and marketing firms.
iTrackr Systems intends to introduce and commercialize Internet and Mobile social merchandizing technology platforms to retailers and consumers. “Social merchandizing” applies the variety of traditional marketing practices to promote products and services to a community of individuals via social networking technologies. iTrackr is similar to MySpace and Facebook; however, our members’ interests are not in diary or event blogging, but in the timely location of products and services which can be acquired and consumed on a local level.
iTrackr Systems’ technology enables consumers to search and track merchandise, letting the consumer know which retail locations in a local zip code are stocking the queried merchandise, as well as the comparative prices. In addition, if the item is not in stock, the consumer can request that iTrackr Systems notify them via mobile text message or email when the item is delivered to a local retailer and where that retailer is located.
In 2009, iTrackr purchased online customers support software technology from Chatstat for approximately $95,000. iTrackr has subsequently launched its customer support chat software (“ChatTrackr”) which facilitates real-time customer support and expert advice, and paid transactions.
iTrackr generates revenues primarily through the licensing of its ChatTrackr to Saveology and RespondQ. These customers use our application service provider (“ASP”) system, outsourcing our chat applications for a monthly fee-per-agent, or license fee and in certain cases, an annual enterprise fee.
In addition, we offer customers a hosted ChatTrackr solution, enabling them to download our software on their website, where agents download a fee-based desktop application, while we manage the service on our network for an additional fee. Examples of websites we manage include www.buycomcast.com and www.buytimewarner.com. We also bill customers for maintenance and upgrades to our service.
Our plans to grow our customer support business is to position ChatTrackr as a sales tool for online retailers, increasing fees through customer additions, traffic and through the number of agents using ChatTrackr. We intend to expand our product search business by offering this service to existing ChatTrackr customers as a means of driving further traffic to their own websites and transactional volume. Our target markets include all ecommerce businesses, financial services, healthcare and automotive.
Our primary sources of operating funds have been historically through the issuance of debt and equity. For the year ended December 31, 2010 we raised $50,000 from the sale of a warrant, $100,000 from the sale of common stock and $139,500 in debt. For the year ended December 31, 2009, we raised $333,312 in debt. To finance our growth strategy, we may continue to actively pursue additional funds through equity financing, including the sale of additional shares of common and preferred stock, asset sales, accelerated payments of maintenance and management fees, debt financing, or a combination thereof.
At December 31, 2010, iTrackr Systems had assets of $118,091, including cash on hand of $9,051 and accounts receivable of $45,168. For the years ended December 31, 2010 the Company had revenue of $106,409, and net losses of $981,805, of which $483,459 was related to stock compensation expense. iTrackr has incurred losses since inception and may not be able to generate sufficient net revenue from its business in the future to achieve or sustain profitability. The Company believes that its cash on hand is insufficient to continue operations. The Company currently receives approximately $16,000 to $23,000 per month in sales revenue. The Company currently needs approximately $15,000 to $20,000 per month to fund our minimum cash outflows and $43,300 to $53,300 per month to maintain and expand our sales and operations. The difference between the required minimum cash outflows of $15,000 to$20,000 per month and $43,300 to $53,300 per month primarily represents the salaries of 4 to 8 additional sales and administrative personnel, whom we intend to gradually hire as our cash flow increases. Thus, the Company will need approximately $180,000 to $300,000 to continue through September 30, 2011. In order to meet our cash needs, management is working to secure additional sales and debt and equity financing. In the event no outside funding is achieved or sales remain flat Mr. Rizzo, our CEO will continue to provide personal funds as needed to fund our required minimum cash outflows. During 2010, Mr. Rizzo loaned the Company $41,500. Mr. Rizzo is an accredited investor and has committed to fund up to and additional $250,000. However, the Company does not expect to need the full commitment amount primarily as a result of increasing sales.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions and estimates that affect the amounts reported. Note A of Notes to Financial Statements describes the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.
A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes:
·
We are required to make assumptions about matters that are highly uncertain at the time of the estimate; and
·
Different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations.
In preparing our financial statements to conform to accounting principles generally accepted in the United States, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. These estimates include useful lives for fixed assets for depreciation calculations and assumptions for valuing options and warrants. Actual results could differ from these estimates.
Stock-Based Compensation
The Company accounts for all compensation related to stock, options and warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. We use the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees.
In calculating this fair value, there are certain assumptions that we use consisting of:
1)
The expected life of the option. No incentive stock options have been granted to date. In the event the Company issues employee options, we will base our determination of expected life on the guidance in ASC 718-10-55-29 to 34. The Company utilizes the contract term of each non qualified option except in the event that the option is not transferrable in which case we apply the aforementioned guidance in determining the expected term.
2)
Risk-free interest rate. We use the treasury bill rate that most closely aligns with the duration of the derivative.
3)
Dividend yield. Until a dividend is offered this input will always be zero.
4)
Volatility. We use the Dow Jones Internet Composite Index (Ticker: FDN) from inception of the index to the date of grant.
5)
Forfeiture rate. To date this rate has been zero.
6)
Stock price (see discussion below).
The use of a different estimate for any one of these components could have a material impact on the amount of calculated compensation expense.
We periodically issue common stock as compensation. Pursuant to ASC 505-50-30-6 issuances are valued using the market price of the stock or value of the services rendered on the date of the related agreement, whichever is more readily determinable. To date, common stock granted and issued for services has been issued free of obligation to the recipient and for no consideration. The shares are valued at the price non-employees are willing to accept as payment in lieu of cash, which, historically, has been the price per share of recent sales of unregistered securities or value of debt converted to common stock.
Long-lived Assets
Long-lived assets, comprised of equipment, and identifiable intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that may cause an impairment review include significant changes in technology that make current computer-related assets that we use in our operations obsolete or less useful and significant changes in the way we use these assets in our operations. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset’s estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based on estimated future cash flows (discounted and with interest charges). We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. The new cost basis will be depreciated (amortized) over the remaining useful life of that asset. Using the impairment evaluation methodology described herein, there have been no long-lived asset impairment charges for each of the last two years.
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.
We have not made any material changes in our impairment loss assessment methodology during the past two fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.
Goodwill
Goodwill is no longer amortized, but evaluated for impairment annually, or immediately if conditions indicate that impairment could exist. Goodwill represents the excess of the purchase price over the fair value of current financial assets, property and equipment, and separately reportable intangible assets. The tangible assets, intangible assets, and goodwill acquired are then assigned to reporting units. Goodwill is then tested for impairment at least annually for each reporting unit. Step one of the goodwill impairment test involves comparing the fair value of the reporting unit to its carrying value. If the fair value exceeds the carrying value, no further testing is required. If the carrying value exceeds the fair value, a step two test must be performed. Step two includes estimating the fair value of all tangible and intangible assets for the reporting unit. The fair value of goodwill is then estimated by subtracting the fair value of tangible and intangible assets from the fair value of the reporting unit total assets determined in step one. The goodwill impairment is the excess of the recorded goodwill over the estimated fair value of goodwill.
We acknowledge the uncertainty surrounding the key assumptions that drive the estimated fair value. Any material negative change in the fundamental outlook of our business, our industry or the capital market environment could cause the reporting unit to fail step one. Accordingly, we will be monitoring events and circumstances each quarter (prior to the annual testing date) to determine whether an additional goodwill impairment test should be performed.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for the current period and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.
When accounting for Uncertainty in Income Taxes, first, the tax position is evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company underwent a change of control for income tax purposes on October 8, 2003 according to Section 381 of the Internal Revenue Code. The Company’s utilization of U.S. Federal net operating losses will be limited in accordance to Section 381 rules. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
RESULTS OF OPERATIONS
Results of Operations
Year Ended December 31, 2010 Compared With the Year Ended December 31,
Revenues
Revenues for the year ended December 31, 2010 were $106,409 compared to revenues of $7,493 for the year ended December 31, 2009. The increase in revenue is primarily due to the purchase of ChatStat and resulting sales of live chat software which began in our fourth quarter of 2009. Of the $106,409 in 2010 sales, $229 relates to click through referral fees and $106,180 to sales related to ChatTrackr. Two customers, Saveology and RespondQ, accounted for 53% and 47%, respectively of our ChatTrackr related sales. These results compare to 2009 where $1,707 related to click through referral fees and $5,786 to sales related to ChatTrackr made to Saveology.
During the year ended December 31, 2010, Saveology and RespondQ were our only ChatTrackr customers. Both customers’ contracts are identical except for the payment terms where the Company bills Saveology monthly on net 30 day payment terms at the rate of $0.75 per chat hour and RespondQ pays a flat $12,700 per month on net 30 day payment terms with an initial fee of $25,000 due 90 days from the agreement date. The Saveology agreement was entered into on September 1, 2009 and the Respond Q agreement was entered into on November 1, 2010. Under both agreements, the Company provides Click2Chat (i.e., ChatTrackr) software as a service. The initial contract term is 12 months and renews for successive 12 month periods unless terminated by the Company. Services that are voluntarily terminated are payable to the Company through the then current 12 month term. both contracts are currently in force.
Operating Expenses
Total operating expenses for the year ended December 31, 2010 were $1,101,073 or 80% higher compared to $610,973 for the year ended December 31, 2009. The $490,100 increase in operating expenses is primarily the result of a $451,790 increase in non-cash stock compensation expense recorded as a result of warrant issuances and stock paid for services and $122,860 increase in professional services offset by a $87,636 decrease in personnel costs. Excluding stock compensation costs incurred during both 2010 and 2009, the Company incurred operating expenses of $617,614 and $579,304 during 2010 and 2009, respectively, representing a $38,310, or 7% increase in operating expenses during 2010 compared to 2009.
Other Income and Expense
Total other income and expense was income of $12,859 for the year ended December 31, 2010 compared to expense of $253,462 for the year ended December 31, 2009. The $266,321, decrease was due to a decrease of 1) $74,149 in interest expense as our debt balance during 2010 decreased compared to 2009 where we converted $1,437,467 of principle accrued interest into 3,721,257 shares of stock in October of 2009; 2) $25,000 accrued for the settlement of a legal claim by a former consultant; and 3) $138,000 write-off of a worthless strategic investment recognized in 2009 and not 2010 offset by a gain recognized as a result of the Company writing off $29,172 of liabilities assumed in the merger with Must Haves, Inc..
Net Loss
Our net loss was $981,805 for the year ended December 31, 2010, compared to a loss of $856,942 for the year ended December 31, 2009. The $124,863 or 15% increase in net loss in 2010 compared to 2009 was primarily due to increases in professional fees, stock compensation expense offset by decreases in personnel costs and other income and expense. Excluding stock compensation costs incurred during both 2010 and 2009, the Company’s net loss for 2010 was $498,346 compared to $825,273 during 2009 representing an improvement of $326,927, or 40% during 2010 compared to 2009.
Liquidity and Capital Resources
From inception to December 31, 2010, we have incurred an accumulated deficit of $4,074,259. This loss has been incurred through a combination of stock compensation of $1,154,316, professional fees and expenses supporting our plans to develop our website and brand our services as well as continued operating losses. Since inception, we have financed our operations primarily through debt and equity financing. However, we cannot provide assurance that management will be successful in acquiring such sources of capital in the future. During the year ended December 31, 2010 we had a net increase in cash of $5,827. Total cash resources as of December 31, 2010 was $9,051 compared with $3,223 at December 31, 2009.
Our accounts payable and accrued expense balance as of December 31, 2010 was approximately $763,500 and includes $687,500 due to our CEO for unpaid salary and benefits and $76,000 of accounts payable and accrued liabilities. As of December 31, 2010, we have $45,168 of accounts receivable and cash of $9,051. Between accounts receivable and cash on hand we have enough to fund approximately ten to thirteen weeks of required minimum cash outflows (See discussion below).
Our available working capital and capital requirements will depend upon numerous factors, including the sale of live chat services, the timing and cost of expanding into new markets, the cost of developing competitive technologies, the resources that we devote to developing new products and commercializing capabilities, the status of our competitors, our ability to establish collaborative arrangements with other organizations, and our ability to attract and retain key employees. We believe that approximately $43,300 to $53,300 per month or $520,000 to $640,000 will be required to maintain and expand our sales and operations and cover our operating and public company administrative expenses for the next 12 months. These costs are comprised of wages, professional fees, communications (i.e., cell phone and internet service) internet hosting and supplies. In addition to covering our operating expenses, we may require additional cash resources due to changing business conditions or other future developments, including any acquisitions we may decide to pursue. At present, the Company does not have any proposed business combination, agreements, the consummation of which is probable.
The Company currently receives approximately $16,000 to $23,000 per quarter in sales revenue compared to $15,000 to$20,000 per month in required minimum cash outflows. Due to our limited operating history, we cannot estimate the level of future sales and may not generate enough cash to cover our required minimum cash outflows. With the acquisition of RespondQ in November 2010 as a new customer combined with Saveology, we are in a much better position to fund our required minimum cash outflows. However, in order to expand our sales efforts we will gradually need approximately $43,300 to $53,300 per month. The difference between the required minimum cash outflows of $15,000 to$20,000 per month and $43,300 to $53,300 per month primarily represents the salaries of 4 to 8 additional sales and administrative personnel, whom we intend to gradually hire as our cash flow increases. In order to meet this increase our management continues to work diligently to secure either debt or equity based financing for which we are currently in discussions. In the event no outside funding is achieved or sales remain flat Mr. Rizzo, our CEO will continue to provide personal funds as needed to fund our required minimum cash outflows. During 2010, Mr. Rizzo loaned the Company $41,500. Mr. Rizzo is an accredited investor and has committed to fund up to an additional $250,000. However, the Company does not expect to need the full commitment amount primarily as a result of increasing sales.
Net cash used by operating activities was $258,768 for the year ended December 31, 2010 as compared to $414,379 for the year ended December 31, 2009.
Net cash provided by investing activities was $95 for the year ended December 31, 2010 as compared to cash used of $98,854 for the year ended December 31, 2009.
Net cash provided by financing activities was $264,500 for the year ended December 31, 2010 as compared to $333,312 for the year ended December 31, 2009.
31, 2008.
During the year ended December 31, 2010, iTrackr Systems, Inc.:
·
Received $50,000 in exchange for the issuance of 166,666 shares of restricted common stock.
·
Received $50,000 upon the exercise of warrants to purchase 166,666 shares of restricted common stock.
·
Received $50,000 in exchange for a warrant to purchase 1,000,000 shares of common stock.
·
Converted $42,000 of principle and $466 of accrued interest into 121,332 shares of restricted common stock.
·
Received gross proceeds of $139,500 from promissory notes.
·
Issued 360,000 shares of restricted common stock valued at $108,000 to settle a legal dispute with Marc Falcone.
·
Issued 101,000 shares of restricted common stock to settle accounts payable valued at $32,000.
·
Issued 350,000 shares of restricted common stock in exchange for services valued at 105,000.
During the year ended December 31, 2009, iTrackr, Inc.:
·
Issued 150,000 shares of restricted common stock in exchange for services valued at $75,000.
·
Converted $1,300,000 of principle and $137,467 of accrued interest into 3,721,257 shares of restricted common stock.
·
Received gross proceeds of $333,312 from promissory notes.
Off-Balance Sheet Arrangements
We have no off-balance sheet transactions.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Impact of Inflation
General inflation in the economy has driven the operating expenses of many businesses higher, and, accordingly we have experienced increased salaries and higher prices for supplies, goods and services. We continuously seek methods of reducing costs and streamlining operations while maximizing efficiency through improved internal operating procedures and controls. While we are subject to inflation as described above, our management believes that inflation currently does not have a material effect on our operating results. However, inflation may become a factor in the future.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
iTrackr Systems, Inc.
(formerly Must Haves, Inc.)
We have audited the accompanying balance sheets of iTrackr Systems, Inc. (formerly Must Haves, Inc.) (the “Company”), as of December 31, 2010 and 2009 and the related statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2010 and 2009. 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 audits
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of iTrackr Systems, Inc. as of December 31, 2010 and 2009 and the related statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2010 and 2009, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. However, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management plans in regards to these matters are described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Bedinger & Company
Certified Public Accountants
Concord, California
February 7, 2011
iTrackr Systems, Inc.
(formerly Must Haves, Inc.)
Balance Sheets
The accompanying notes are an integral part of these financial statements
iTrackr Systems, Inc.
(formerly Must Haves, Inc.)
Statements of Operations
For the Years Ended December 31, 2010 and 2009
The accompanying notes are an integral part of these financial statements
iTrackr Systems, Inc.
(formerly Must Haves, Inc.)
Statement of Stockholders' Equity (Deficit)
For the Years Ended December 31, 2010 and 2009
The accompanying notes are an integral part of these financial statements
iTrackr Systems, Inc.
(formerly Must Haves, Inc.)
Statements of Cash Flows
For the Years Ended December 31, 2010 and 2009
The accompanying notes are an integral part of these financial statements
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
Note A-Organization and Summary Of Significant Accounting Policies
Organization
iTrackr, Inc. (the “Company” or “iTrackr”) was formed on May 10, 2006 to develop, market and commercialize a product and inventory search application through a social networking site designed to leverage the best of Internet and Mobile technologies. iTrackr has taken several markets, including eCommerce, social networking and mobile content, and developed a platform that drives value to consumers, retailers and advertising and marketing firms.
In 2009, iTrackr purchased online customer support software technology from ChatStat for approximately $95,000. iTrackr has launched its customer support chat software which facilitates real-time customer support, expert advice, and paid transactions.
On January 12, 2010, the Company closed a share exchange transaction pursuant to which it (i) became the 100% parent of iTrackr, Inc., a Florida corporation (“iTrackr”), (ii) assumed the operations of iTrackr, and (iii) changed its name from Must Haves, Inc. to iTrackr Systems, Inc. iTrackr, Inc. was deemed to be the acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations of iTrackr, Inc. prior to the Merger are reflected in the financial statements and have been recorded at the historical cost basis of iTrackr, Inc. Our financial statements, after completion of the Merger, include the assets and liabilities of both Must Haves, Inc. and iTrackr, Inc. We accounted for the merger under recapitalization accounting whereby the equity of the acquiring enterprise (iTrackr, Inc.) is presented as the equity of the combined enterprise and the capital stock account of the acquiring enterprise is adjusted to reflect the par value of the outstanding stock of the legal acquirer (Must Haves, Inc.) after giving effect to the number of shares issued in the business combination (1,303,638 shares). Shares retained by the legal acquirer (Must Haves, Inc. 1,303,638 shares) are reflected as an issuance as of the reverse merger date (January 12, 2010) for the historical amount of the net assets of the acquired entity which is in this case is a net liability of $27,515.
During 2010 we completed the development of our Chat software and TrackiT, PriceiT and iTrackr community applications thereby leaving the Development Stage and focusing increasing attention on sales.
Going Concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplate continuation of the Company as a going concern. In the course of funding development activities and sales initiatives, the Company has sustained operating losses and has an accumulated deficit of $4,074,259 and $3,024,954 at December 31, 2010 and December 31, 2009, respectively. In addition, the Company has negative working capital of $958,093 and $692,182 at December 31, 2010 and 2009, respectively.
The Company has and will continue to use significant capital to commercialize its products. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management is proposing to raise any necessary additional funds not provided by operations through loans or through additional sales of their common stock. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
Accounting estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
Note A-Organization and Summary Of Significant Accounting Policies
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents may at times exceed federally insured limits. To minimize this risk, the Company places its cash and cash equivalents with high credit quality institutions.
Accounts Receivable
Accounts receivable are reported at the customers' outstanding balances. The Company does not have a history of significant bad debt and has not recorded any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable. The Company evaluates receivables on a regular basis for potential reserve.
Fixed assets
Fixed assets are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed. At the time fixed assets are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.
Depreciation of fixed assets is provided on the straight-line method over the estimated useful lives of the assets. The estimated useful lives used are 3 years for computer equipment, office equipment and software. Accelerated methods of depreciation of fixed assets are used for income tax purposes.
Revenue recognition policy
Revenue for our services is recognized when all of the following criteria are satisfied: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectibility is reasonably assured; and (iv) services have been performed.
Deferred Revenue: Revenue is deferred for any undelivered elements and is recognized upon product delivery or when the service has been performed.
Sales and marketing costs
Sales and marketing expenses include advertising expenses, seminar expenses, commissions and personnel expenses for sales and marketing. Marketing and advertising costs to promote the Company's products and services are expensed in the period incurred. For the year ended December 31, 2010 and 2009, the Company incurred no marketing and advertising expense.
Fair Value of Financial Instruments
The Company’s financial instruments include cash and accounts receivable. The carrying amount of these financial instruments has been estimated by management to approximate fair value.
“Disclosures about Fair Value of Financial Instruments,” requires disclosures of information regarding the fair value of certain financial instruments for which it is practicable to estimate the value. For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale of liquidation.
The company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1 - inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. We have no Level 1 instruments as of December 31, 2010.
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
Note A-Organization and Summary Of Significant Accounting Policies
Fair Value of Financial Instruments (Continued)
Level 2 - inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities. We have no Level 2 instruments as of December 31, 2010.
Level 3 - inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. We have no Level 3 instruments as of December 31, 2010.
Research and Development
Expenses related to present and future products are expensed as incurred.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on differences between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax provisions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods. Also included is guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company reports both basic and diluted earnings (loss) per share. Basic loss per share is calculated using the weighted average number of common shares outstanding in the period. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using the “treasury stock” method and convertible securities using the “if-converted” method.
Impairment of Long-Lived Assets
Accounting for the Impairment or Disposal of Long-Lived Assets requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may not be recovered. The Company assesses recoverability of the carrying value of an asset by estimating the fair value of the asset. If the fair value is less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value. The Company has never recognized an impairment charge.
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
Note A-Organization and Summary Of Significant Accounting Policies
Stock-Based Compensation
The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. We use the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. In calculating this fair value, there are certain assumptions that we use consisting of the expected life of the option, risk-free interest rate, dividend yield, volatility and forfeiture rate. The use of a different estimate for any one of these components could have a material impact on the amount of calculated compensation expense.
We periodically issue common stock as compensation. Pursuant to ASC 505-50-30-6 issuances are valued using the market price of the stock or value of the services rendered on the date of the related agreement, whichever is more readily determinable. To date, common stock granted and issued for services has been issued free of obligation to the recipient and for no consideration. The shares are valued at the price non-employees are willing to accept as payment in lieu of cash, which, historically, has been the price per share of recent sales of unregistered securities or value of debt converted to common stock.
Recent Accounting Pronouncements
On July 1, 2009, the FASB officially launched the FASB ASC 105 - Generally Accepted Accounting Principles, which established the FASB Accounting Standards Codification (“the Codification”), as the single official source of authoritative, nongovernmental, U.S. GAAP, in addition to guidance issued by the Securities and Exchange Commission. The Codification is designed to simplify U.S. GAAP into a single, topically ordered structure. All guidance contained in the Codification carries an equal level of authority. The Codification is effective for interim and annual periods ending after September 15, 2009. Accordingly, the Company refers to the Codification in respect of the appropriate accounting standards throughout this document as “FASB ASC”. Implementation of the Codification did not have any impact on the Company’s consolidated financial statements.
On June 30, 2009, the FASB issued Accounting Standard Update (ASU) No. 2009-01 (Topic 105) - Generally Accepted Accounting Principles - amendments based on - Statement of Financial Accounting Standards No. 168 -The FASB Accounting and Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. Beginning with this Statement the FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standard Updates. This ASU includes FASB Statement No. 168 in its entirety. While ASU’s will not be considered authoritative in their own right, they will serve to update the Codification, provide the bases for conclusions and changes in the Codification, and provide background information about the guidance. The Codification modifies the GAAP hierarchy to include only two levels of GAAP: authoritative and nonauthoritative. ASU No. 2009-01 is effective for financial statements issued for the interim and annual periods ending after September 15, 2009. The Company adopted this statement no significant financial impact.
In August 2009, the FASB issued ASU No. 2009-05 - Fair Value Measurements and Disclosures (Topic 820) - Measuring Liabilities at Fair Value. This ASU clarifies the fair market value measurement of liabilities. In circumstances where a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: a technique that uses quoted price of the identical or a similar liability or liabilities when traded as an asset or assets, or another valuation technique that is consistent with the principles of Topic 820 such as an income or market approach. ASU No. 2009-05 was effective upon issuance and it did not result in any significant financial impact on the Company upon adoption.
In September 2009, the FASB issued ASU No. 2009-12 - Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or its equivalent). This ASU permits use of a practical expedient, with appropriate disclosures, when measuring the fair value of an alternative investment that does not have a readily determinable fair value. ASU No. 2009-12 is effective for interim and annual periods
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
Note A-Organization and Summary Of Significant Accounting Policies
Recent Accounting Pronouncements (Continued)
ending after December 15, 2009, with early application permitted. Since the Company does not currently have any such investments, this statement had no impact on its financial statements.
In February 2010, the FASB issued ASU No. 2010-09, “Subsequent Events (Topic 855); Amendments to Certain Recognition and Disclosure Requirements.” This Statement addresses accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. FASB ASC 855 requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, the date issued or date available to be issued. The Company adopted this Statement in the second quarter of 2009. As a result the date through which the Company has evaluated subsequent events and the basis for that date have been disclosed in Note K, Subsequent Events.
In April 2009, the FASB issued an update to FASB ASC 820, “Fair Value Measurements and Disclosures,” related to providing guidance on when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. The update clarifies the methodology to be used to determine fair value when there is no active market or where the price inputs being used represent distressed sales. The update also reaffirms the objective of fair value measurement, as stated in FASB ASC 820, which is to reflect how much an asset would be sold in and orderly transaction, and the need to use judgment to determine if a formerly active market has become inactive, as well as to determine fair values when markets have become inactive. The Company adopted this Statement in the second quarter of 2009 without significant financial impact.
In April 2009, the FASB ASC 320, “Investments - Debt and Equity,” amends current other-than-temporary guidance for debt securities through increased consistency in the timing of impairment recognition and enhanced disclosures related to credit and noncredit components impaired debt securities that are not expected to be sold. Also, the Statement increases disclosures for both debt and equity securities regarding expected cash flows, securities with unrealized losses, and credit losses. The Company adopted this Statement in the second quarter of 2009 without significant impact to our financial statements.
In April 2009, the FASB issued an update to FASB ASC 825, “Financial Instruments,” to require interim disclosures about the fair value of financial instruments.” This update enhances consistency in financial reporting by increasing the frequency of fair value disclosures of those assets and liabilities falling within the scope of FASB ASC 825. The Company adopted this update in the second quarter of 2009 without significant impact to the financial statements.
In April 2009, the FASB issued an update to FASB ASC 805, “Business Combinations,” that clarifies and amends FASB ASC 805, as it applies to all assets acquired and liabilities assumed in a business combination that arise from contingencies. This update addresses initial recognition and measurement issues, subsequent measurement and accounting, and disclosures regarding these assets and liabilities arising from contingencies in a business combination. The Company adopted this Statement in the second quarter of 2009 without significant impact to the financial statements.
In November 2008, EITF issued new guidance under FASB ASC 350, “Intangibles - Goodwill and Other on accounting for defensive intangible assets.” The new guidance applies to all acquired intangible assets in which the acquirer does not intend to actively use the asset but intends to hold (lock up) the asset to prevent its competitors from obtaining or using the asset (a defensive asset). This guidance was adopted by the Company in January 2009 without impact to the financial statements.
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
Note A-Organization and Summary Of Significant Accounting Policies
Concentrations of credit risk
The Company performs ongoing credit evaluations of its customers. At December 31, 2010, two customers accounted for 100% (70% and 30%) of accounts receivable. At December 31, 2009, one customer accounted for 100% of accounts receivable.
During the year ended December 31, 2010, two customers accounted for 100% (53% and 47%) of revenue. During the year ended December 31, 2009, two customers accounted for 90% (77% and 13%) of revenue.
NOTE B - ACCOUNTS RECEIVABLE
The accounts receivable balance of $45,168 and $5,786 as of December 31, 2010 and 2009, respectively, is reported at the gross amount without an allowance. The Company has not experienced any bad debts to date. However, we periodically review accounts receivable for collectibility and will create an allowance for bad debts if our analysis so warrants.
NOTE C - FIXED ASSETS
Fixed assets consisted of the following:
During the years ended December 31, 2010 and 2009, the Company recognized $35,482 and $33,508, respectively in depreciation expense.
NOTE D - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 2010 consisted of $687,500 due to John Rizzo, CEO for unpaid salary and health insurance, $48,397 of professional services, $15,949 of accrued interest and $11,654 of trade payables.
Accounts payable and accrued expenses at December 31, 2009 consisted of $425,500 due to John Rizzo, CEO for unpaid salary and health insurance, $25,000 of accrued legal settlements, $15,126 of professional services, $102 of accrued interest, $40,000 remaining due to ChatStat for our technology purchase and $19,151 of trade payables.
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
NOTE E - NOTES
Promissory Notes - 3rd Party
During the year ended December 31, 2010, the Company 1) received $17,000 in exchange for two convertible notes that were also converted along with the $25,102 of notes outstanding on December 31, 2009, 2) received a short term loan totaling $25,000 that was repaid seven days later, and 3) received $56,000 in exchange for promissory notes that accrue interest at eight (8%) and nine (9%) per annum (see table above). In total, during the year ended December 31, 2010, the Company received $98,000 of notes, repaid $25,000 and converted $42,466, including $42,000 of principle and $466 of accrued interest into 121,332 shares of common stock.
During the year ended December 31, 2009, the Company received $292,000 of convertible promissory notes from third parties. The Company converted $1,300,000 of principle and $137,467 of accrued interest into 3,721,257 shares of restricted common stock. As of December 31, 2009, the Company had outstanding $25,102 related to 3rd party notes, including $25,000 of principle and $102 of accrued interest.
Promissory Notes - Related Party
During the year ended December 31, 2010, the Company received $41,500 from Bluewater Advisors as described in the table above. Interest expense during the year ended December 31, 2010 was $14,879.
During the year ended December 31, 2009, the Company received $25,000 from Bluewater Advisors and issued a new note for $151,312 or $135,000 of principle and $16,312 of accrued interest.
Accrued Interest
During the year ended December 31, 2010 and 2009, the Company recognized $16,313 and $90,462, respectively related to all our outstanding notes payable.
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
NOTE F - STOCKHOLDERS EQUITY
Preferred Stock
The Company has authorized 10,000,000 shares of no par value preferred stock available for issuance. No shares of preferred stock have been issued as of December 31, 2010.
Common Stock
The Company has authorized 100,000,000 shares of no par value common stock available for issuance. 20,319,997 shares have been issued as of December 31, 2010.
Stock Issued for Debt Repayment
During the year ended December 31, 2010, the Company converted $42,000 of principle and $466 of accrued interest into 121,332 shares of restricted common stock.
During the year ended December 31, 2009, the Company converted $1,300,000 of principle and $137,467 of accrued interest into 3,721,257 shares of restricted common stock which were issued on April 28, 2010.
Stock Issued for Cash
During the year ended December 31, 2010, the Company 1) received $50,000 as a direct purchase and issued 166,666 shares of restricted common stock, and 2) received $50,000 upon the exercise of warrants to purchase 166,666 shares of restricted common stock.
Stock Issued for Services
During the year ended December 31, 2010, the Company finalized a legal settlement with Marc Falcone whereby in exchange for $108,000 or $0.30 per share we issued 360,000 shares of restricted common stock.
During the year ended December 31, 2010, the Company:
1) Issued 100,000 shares of restricted common stock for services valued at $30,000 or $0.30 per share. The shares were issued for services to be provided through the end of 2010.
2) Issued 125,000 shares valued at $37,500, or $0.30 per share. The shares were issued for services performed during the quarter and have been fully expensed.
3) Is obligated to issue 125,000 shares which are valued at $37,500, or $0.30 per share and included in common stock payable.
During the year ended December 31, 2009, the Company agreed to issue 150,000 shares of restricted common stock in exchange for professional services rendered in 2009 and valued at $75,000. As of December 31, 2009 the stock had not been issued and is recorded in the equity portion of our balance sheet as common stock payable. The shares were issued on April 28, 2010.
Stock issued for Accounts Payable
During the year ended December 31, 2010, the Company issued 101,000 shares of restricted common stock at $0.32 per share to settle $32,000 of the balance owing ChatStat for the purchase of their Chat software.
Stock Options (See footnote I)
During the year ended December 31, 2010, no option activity occurred.
During the year ended December 31, 2009, the Company canceled 1 million options due to termination.
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and
NOTE G - COMMITMENTS
The Company has no commitments as of December 31, 2010.
NOTE H - WARRANTS
At December 31, 2010, the Company had 2,105,333 Warrants outstanding entitling the holder thereof the right to purchase one share of common stock for each warrant held as follows:
During the year ended December 31, 2010, the Company:
·
Issued 2,271,999 warrants to purchase one share of common stock for each warrant issued.
·
Received $50,000 upon the exercise of a warrant and issued 166,666 shares of restricted common stock.
·
Received $50,000 upon the sale of a warrant to an accredited investor.
·
Canceled two warrants totaling 800,000 shares as a result of expiration.
All the warrants issued through December 31, 2010 are classified as equity on our balance sheet as they require physical settlement, contain no performance contingencies, have a fixed exercise price and are exercisable by the holder at any time through the expiration date of the warrant. Each warrants fair value was calculated on the date of grant using the Black-Scholes Option Pricing Model using the following inputs: volatility; 250% based on the Dow Jones Internet Composite Index, risk free interest rate; 3.71%, spot price; $0.15, and the exercise price attributable to that warrant. The fair value of the warrants issued was $320,459 offset by the $50,000 warrant sale resulting in $270,459 of net stock compensation expense.
During the year ended December 31, 2009, the Company canceled 250,000 warrants issued to Marc Falcone as a result of the settlement agreement dated February 16, 2010. No warrants were issued or exercised in 2009.
NOTE I - 2007 LONG-TERM EQUITY INCENTIVE PLAN
In June 2007 the Board of Directors of the Company adopted the 2007 Long-Term Equity Incentive Plan. The purpose of this Plan is to attract and retain directors, officers and other employees of iTrackr, Inc. and its Subsidiaries and to provide to such persons incentives and rewards for performance.
The Company may issue each of the following under this Plan: Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted Stock Award or Performance Stock Award. The Plan was ratified at the 2007 shareholder’s meeting (the "Effective Date"). No Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted Stock Award or Performance Stock Award shall be granted pursuant to the Plan ten years after the Effective Date. The total number of shares available under the Plan is Fifteen Million (15,000,000). No Plan participant will be granted the right, in the aggregate, for more than Two Million (2,000,000) Common Shares during any calendar year.
During the year ended December 31, 2010, the Company made one grant of 250,000 fully vested common stock options. The options value was nominal as calculated on the date of grant using the Black-Scholes Option Pricing Model using the following inputs: volatility; 38% based on the Dow Jones Internet Composite Index, risk free interest rate; 3.28%, spot price; $0.20, expected term; 1.5 years and exercise price; $0.25.
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
NOTE I - 2007 LONG-TERM EQUITY INCENTIVE PLAN (Continued)
During the year ended December 31, 2009 1 million options were canceled due termination of the people to whom they were granted and their failure to exercise according to the terms of the option grant.
The following table summarizes the Company's stock option activity for the years ended December 31, 2010 and 2009:
The following table summarizes information about the Company's stock options outstanding at December 31, 2010:
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and
The following table summarizes information about the Company's stock options outstanding at December 31, 2009:
NOTE I - 2007 LONG-TERM EQUITY INCENTIVE PLAN (Continued)
The Company measures the fair market value of stock options granted using the Black-Scholes Option Pricing Model on the date of grant and recognizes related compensation expense ratably over the options vesting period for all future grants.
During the year ended December 31, 2010 and 2009, the Company recognized $0 and $24,169, respectively, of compensation expense related to stock options. From inception to date, the Company has recognized $178,844 of compensation expense related to stock options.
NOTE J - MERGER
On December 10, 2009, Must Haves, Inc., iTrackr Acquisition, Inc. and iTrackr, Inc. entered into an Agreement and Plan of Merger which closed January 12, 2010. On the Closing Date, iTrackr was merged with and into iTrackr Acquisition, Inc. which is the surviving corporation and became a wholly-owned subsidiary of Must Haves, Inc. In accordance with the merger agreement, iTrackr’s stockholder’s received restricted common stock at the rate of 1:1 share for each of their 17,875,695 shares issued and outstanding in exchange for 100 percent of the outstanding capital stock of iTrackr. In total 19,169,333 shares are outstanding following the closing of the merger.
The Merger was accounted for as a “reverse merger,” as the stockholders of iTrackr, Inc. owned a majority of the outstanding shares of Must Haves, Inc. common stock immediately following the Merger. iTrackr, Inc. was deemed to be the acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations of iTrackr, Inc. prior to the Merger are reflected in the financial statements and have been recorded at the historical cost basis of iTrackr, Inc. Our financial statements, after completion of the Merger, include the assets and liabilities of both Must Haves, Inc. and iTrackr, Inc. We accounted for the merger under recapitalization accounting whereby the equity of the acquiring enterprise (iTrackr, Inc.) is presented as the equity of the combined enterprise and the capital stock account of the acquiring enterprise is adjusted to reflect the par value of the outstanding stock of the legal acquirer (Must Haves, Inc.) after giving effect to the number of shares issued in the business combination (1,303,638 shares). Shares retained by the legal acquirer (Must Haves, Inc. 1,303,638 shares) are reflected as an issuance as of the reverse merger date (January 12, 2010) for the historical amount of the net assets of the acquired entity which is in this case is a net liability of $27,515.
The following unaudited financial information has been developed by application of pro forma adjustments to the historical financial statements of iTrackr, Inc. appearing elsewhere in this Current Report. The unaudited pro forma information gives effect to the Merger which has been assumed to have occurred on January 1, 2008 for purposes of the statement of operations. The Company evaluated the existence of intangible assets that should be recognized in business combinations, pursuant to ASC 805-20-25-4. No intangible assets were identified.
The unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what the results of operations or financial position of iTrackr Systems, Inc. would have been had the transactions described above actually occurred on the dates indicated, nor do they purport to project the financial condition of iTrackr Systems, Inc. for any future period or as of any future date. The unaudited pro forma financial information should be read in conjunction with the iTrackr Systems, Inc. financial statements and notes thereto included elsewhere in this Current Report.
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
The summarized balance sheet of Must Haves, Inc. on January 12, 2010 was as follows:
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
NOTE J - MERGER (Continued)
The condensed pro forma results of operations for the years ended December 31, 2009 and 2008 are as follows:
iTrackr Systems, Inc.
Unaudited Pro Forma Statements of Operations
For the Year ended December 31, 2009 and 2008
1) Represents Must Haves, Inc. pre merger shares outstanding.
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
NOTE J - MERGER (Continued)
The condensed pro forma balance sheet as of December 31, 2009 is as follows:
iTrackr Systems, Inc.
Unaudited Pro Forma Balance Sheet
As of December 31, 2009
1)
Due to the nominal assets and operations of Must Haves, Inc. we have accounted for the merger under recapitalization accounting whereby the equity of the acquiring enterprise (iTrackr, Inc.) should be presented as the equity of the combined enterprise. However, the capital stock account of the acquiring enterprise is adjusted to reflect the par value of the outstanding stock of the legal acquirer (Must Haves, Inc.) after giving effect to the number of shares issued in the business combination (1,303,638 shares). Shares retained by the legal acquirer (Must Haves, Inc. 1,303,638 shares) are reflected as an issuance as of the reverse merger date (January 12, 2010) for the historical amount of the net assets of the acquired entity which is in this case is a net liability of $27,515.
iTrackr Systems, Inc.
(Formerly Must Haves, Inc.)
Notes to Financial Statements
For the Years Ended December 31, 2010 and 2009
NOTE K - INCOME TAXES
For the year ended December 31, 2010, the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 2010 and 2009, the Company had approximately $2,755,000 and $2,250,000, respectively of accumulated federal net operating losses. The net operating loss carryforwards, if not utilized, will begin to expire in 2026. The components of the Company’s deferred tax asset are as follows:
For financial reporting purposes, the Company has incurred a loss since its inception. Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at December 31, 2010.
A reconciliation between the amounts of income tax benefit determined by applying the applicable U.S. and State statutory income tax rate to pre-tax loss is as follows:
NOTE L - LEGAL PROCEEDINGS
As of December 31, 2009, the Company was party to a lawsuit brought by Marc Falcone. In this action, Mr. Falcone asserted numerous claims against certain defendants arising out of his former service to iTrackr, Inc. as a contracted consultant. The Company asserted numerous defenses and affirmative defenses, including, but not limited to, the fact that Falcone failed to fulfill his obligations under the agreement. On February 16, 2010, the Company and Mr. Falcone executed a settlement agreement without either side admitting fault. The terms of the settlement agreement call for the payment of $25,000 and the issuance of 360,000 shares of common stock in exchange for a full release of all claims. As of December 31, 2010, the Company has paid all monies and issued all stock related to this settlement.
NOTE M - SUBSEQUENT EVENTS
Pursuant to FASB Accounting Standards Codification 855, Subsequent Events, Including ASC 855-10-S99-2, the Company evaluated subsequent events through February 11, 2011.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Effective August 25, 2010, the client-auditor relationship between iTrackr Systems, Inc. and Traci J. Anderson, CPA (the "Former Auditor") was terminated upon the dismissal of the Former Auditor as the Company’s independent registered accounting firm. Effective August 25, 2010, the Company engaged Bedinger and Company ("Bedinger") as its principal independent public accountant to audit the Company's financial statements for the year ending December 31, 2009 and 2008. The decision to change accountants was recommended and approved by the Company's Board of Directors, effective August 25, 2010, and was necessitated as a result of the revocation of the registration of the Former Auditors by the Public Company Accounting Oversight Board (“PCAOB”) because of deficiencies in the conduct of certain of its audits and procedures.
See our 8-K filed on August 27, 2010 pursuant to item 4.01; Changes in Registrant’s Certifying Accountant, and 8-K/A filed on September 21, 2010 pursuant to Item 4.02; Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of December 31, 2010, under the direction of the Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a - 15(e) under the Securities Exchange Act of 1934, as amended. Based on the evaluation of these controls and procedures required by paragraph (b) of Sec. 240.13a-15 or 240.15d-15 the disclosure controls and procedures have been found to be ineffective.
The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the securities Exchange Act, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Evaluation of Internal Control Over Financial Reporting
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. In management’s assessment of the effectiveness of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) as required by Exchange Act Rule 13a-15(c), our management concluded as of the end of the fiscal year covered by this Annual Report on Form 10-K, due to a lack of segregation of duties that our internal control over financial reporting has not been effective. However, at this time, our resources and size prevent us from being able to employ sufficient resources to enable us to have adequate segregation of duties within our internal control system. Management will periodically reevaluate this situation. If the volume of business increases and sufficient capital is secured, it is the Company’s intention to further increase staffing to mitigate the current lack of segregation of duties within the general, administrative and financial functions.
Our Board of Directors were advised by Bedinger and Company, our independent registered public accounting firm, that during their performance of audit procedures for the year ended December 31, 2010 and 2009, they have identified a material weakness as defined in Public Accounting Oversight Board Standard No. 5 in our internal control over financial reporting. Our auditors have identified the following material weaknesses in our internal control over financial reporting as of December 31, 2010:
A material weakness in the Company’s internal control over financial reporting exists in that there is limited segregation of duties amongst the Company’s employees with respect to the Company’s preparation and review of the Company’s financial statements. This material weakness is a result of the Company’s limited number of employees. This material weakness may affect management’s ability to effectively review and analyze elements of the financial statement closing process and prepare financial statements in accordance with U.S. GAAP.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this prospectus.
Changes in Internal Controls
Management of the Company has evaluated, with the participation of the Chief Executive Officer of the Company, any change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal year ended December 31, 2010. There was no change in the Company’s internal control over financial reporting identified in that evaluation that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting, other than what has been reported above.
Limitations on the Effectiveness of Controls and Other Matters
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Risk Factor Related to Controls and Procedures
The Company has limited segregation of duties amongst its employees with respect to the Company’s preparation and review of the Company’s financial statements due to the limited number of employees, which is a material weakness in internal controls, and if the Company fails to maintain an effective system of internal controls, it may not be able to accurately report its financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in the Company’s financial reporting which could harm the trading price of the Company’s stock.
Management has found it necessary to limit the Company’s administrative staffing in order to conserve cash until the Company’s level of business activity increases. As a result, there is limited segregation of duties amongst the employees. The Company and its independent public accounting firm have identified this as a material weakness in the Company’s internal controls. The Company intends to remedy this material weakness by hiring additional employees and reallocating duties, including responsibilities for financial reporting, among the employees as soon as there are sufficient resources available. However, until such time, this material weakness will continue to exist.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
During the fourth quarter of 2010, Mihir Sevak, Chief Technology Officer left the Company to pursue other opportunities. His employment contract contained an “at will” clause allowing either party to terminate the relationship without cause.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table sets forth the names, age and position of the executive officers and directors of iTrackr Systems, Inc. Directors are elected at annual meeting of shareholders and serve for one year or until their successors are elected and qualify. Officers are elected by the Board of Directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the Board of Directors of Directors.
Name
Age
Position
Term
John Rizzo
Chairman of the Board and Chief Executive Officer
January 12, 2010 thru Present
Ramesh Anand
Chief Operating Officer
January 12, 2009 thru Present
Dave Baesler
Director
January 12, 2009 thru Present
Michael Uhl
Director
January 12, 2009 thru Present
Ramesh Anand has served as iTrackr’s interim CEO since January, 2010. Mr. Anand currently also serves as VP of Global Sales and Marketing for Advanced Contact Solutions, since April, 2009. Prior to that, Mr. Anand served as Head of Sales, North America for HTMT Global Solutions, Ltd for the period of 2006 through 2008, and as Head of Sales of Hero ITES from 2005 through 2006. He has also served as VP Sales and Business Development at IBM Daksh Business Process Services, Director of Global Outsourcing of Ocwen Financial Corporation, and Founded Global E-Connect. Mr. Anand has a Master of Management Studies from Birla Institute of Technology and Science.
Michael Uhl was first elected to the Board of Directors in March, 2007. Mr. Uhl is regional VP of HelmsBriscoe. He previously served as Executive VP of Sales and Marketing at Caesar’s Entertainment, wherein he directed convention and travel industry sales for Bally’s Paris, Flamingo, Caesar’s Palace and the Las Vegas Hilton. Mr. Uhl has also held Director of Sales positions with Walt Disney World Swan & Dolphin and New York Hilton & Towers. Mr. Uhl holds a BBA from Hofstra University.
David Baesler was first elected to the Board of Directors in November, 2007. Mr. Baesler is VP of Sales for the Wireless Division of Kyocera Sanyo. In addition to Kyocera Sanyo, Mr. Baesler has held executive positions at several leading consumer electronics companies, including Executive VP of Brother International; Group VP of Toshiba North America’s Consumer Products Division; Senior VP of Pioneer Corporation’s Video Division; and VP of Sales for Pioneer Electronics. Mr. Baesler served as an officer in the US Army and holds a degree in mathematics and economics from North Dakota State University.
John Rizzo is the founder of iTrackr. Mr. Rizzo has more than a decade experience in the capital markets as well as maintaining key roles with start-up and early stage businesses. He has been integral in the completion of several successful transactions, including sale of a business to MasterCard and in Siebel Systems’ 1996 Initial Public Offering.
Except as noted above, the above persons do not hold any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act.
The Board of Directors and Committees
Our board consists of three directors. Although we are not required, a majority of the directors are “independent” as defined under and required by applicable securities laws. At each annual meeting our stockholders elect our full Board of Directors and our directors serve until their successors are elected or appointed, unless their office is vacated earlier. Directors may be removed at any time for cause by the affirmative vote of the holders of a majority of the voting power then entitled to vote.
Board Leadership
Our Board of Directors has adopted a Charter of the Lead Independent Director, providing that in circumstances where the Chairman of the Board of Directors is not independent, our Board considers it to be useful and appropriate to designate a Lead Independent Director to coordinate activities of the other independent directors and to perform such other duties and responsibilities as our Board may determine from time to time. Because John Rizzo is our Chief Executive Officer, as well as Chairman of the Board, we have designated a Lead Independent Director. Michael Uhl currently serves as the Lead Independent Director.
The Lead Independent Director (if so designated) is responsible for coordinating the activities of the independent directors. The designation of a Lead Independent Director is intended to facilitate communication between the independent directors and the Chairman/Chief Executive Officer and not to diminish the ability of any other independent director to communication directly with the Chairman/Chief Executive Officer at any time. Our Board of Directors believes that this leadership structure is best for the Company at the current time, as it appropriately balances the need for the Chief Executive Officer to run the Company on a day-to-day basis with significant involvement and authority vested in an outside independent director member - the Lead Independent Director. The roles of our Lead Independent Director are fundamental to our decision to maintain the combination of the Chief Executive Officer and Chairman of the Board positions. Under our Charter of the Lead Independent Director, our Lead Independent Director must be independent. The specific responsibilities of the Lead Independent Director include the following:
·
In consultation with other independent directors, consult with the Chairman as to an appropriate schedule of Board meetings, seeking to ensure that the independent directors can perform their duties responsibly without interfering with ongoing Company operations;
·
Consult with the Chairman regarding the information and agendas of the meetings of the Board of Directors;
·
Advise the Chairman as to the quality, quantity, and timeliness of information submitted by management that is necessary or appropriate for the independent directors to effectively and responsibly perform their duties;
·
Call meetings and prepare agendas for the independent directors, as appropriate;
·
Serve as the Chairman of, and prepare the agenda for the executive sessions of the independent directors and its non-employee directors;
·
Service as the principal liaison between independent directors and the Chairman and senior management;
·
Chair the meetings of the Board of Directors when the Chairman is not present; and
·
Respond directly to stockholder and other stakeholder questions and comments that are directed to the Lead Independent Director or to the independent directors as a group, with such consultation with the Chairman and the other directors as the Lead Independent Director may deem appropriate.
Director Qualifications
Each of our directors brings to our Board extensive management and leadership experience gained through their service in senior positions of diverse businesses. In these roles, they have taken hands-on, day-to-day responsibility for strategy and operations, including management of capital, risk and business cycles. In the biographies of each of the directors provided above, we describe specific individual qualifications and skills of our directors that contribute to the overall effectiveness of our Board of Directors.
In addition to the information presented above regarding each director’s specific experience, qualifications, attributes and skills that led our Board of Directors to the conclusion that he or she should serve as a director, we also believe that all of our directors have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to our company and our Board.
While we do not have a formal diversity policy, our Board of Directors believes it’s important for our Board to have diversity of knowledge base, professional experience and skills, and takes age, gender and ethnic background into account when considering director nominees. As part of its annual self-evaluation, our Board will assess whether it properly considered diversity in identifying director nominees.
Risk Management
Our Board of Directors is responsible for reviewing and assessing business enterprise risk and other major risks facing the Company, and evaluating management’s approach to addressing such risks. At each quarterly meeting, our Board reviews all key risks facing the Company, management’s plans for addressing these risks and the Company’s risk management practices overall. To assist the Board in this oversight role, our Board of Directors seeks to have one or more directors with experience managing enterprise risk.
Our management is responsible for day-to-day risk management and regularly reports on risks to our Board of Directors. Our management is also responsible to fulfill primary monitoring and testing functions for company-wide policies and procedures. Our Board of Directors is responsible to manage the oversight of the risk management strategy for our ongoing business. This oversight includes identifying, evaluating, and addressing potential risks that may exist at the enterprise, strategic, financial, operational, and compliance and reporting levels.
We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing our company and the leadership structure of our Board of Directors supports this approach.
Compensation Risk Management
In setting each element of executive compensation, our Board of Directors is also mindful of the level of risk-taking that any element may promote. Our Board of Directors believes it is important to incentivize our executive officers to achieve annual Company and individual objectives, but balance promotion of such short-term interests with incentives that promote building long-term stockholder value. Our Board of Directors believes the amount of long-term equity incentives included in our compensation packages mitigates the potential for excessive risk taking. All of our named executive officers’ equity awards vest over a period of time, rather than upon achievement of specific performance objectives, and our Board of Directors has historically granted additional equity awards annually, which incentivizes these officers to continue to focus on our long-term interest.
Our Board of Directors has conducted an internal assessment of our compensation policies and practice in response to current public and regulatory concern about the link between incentive compensation and excessive risk taking by corporations. We concluded that our program does not motivate excessive risk-taking and any risks involved in compensation are not reasonably likely to have a material adverse effect on the company. Included in the analysis were such factors as the behaviors being induced by our fixed compensation system, the absence of any incentive awards, the oversight of our Board of Directors in the operation of our incentive plans and the high level of Board involvement in approving material investments and capital expenditures.
Board Composition
iTrackr did not pay any director compensation during the years ended December 31, 2010 or 2009. The Company may begin to compensate its directors at some time in the future.
Board Committees and Independence
We are not required to have any independent members of the Board of Directors. The board of directors has determined that (i) Mr. Rizzo has a relationship which, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and is not an “independent director” as defined in the Marketplace Rules of The NASDAQ Stock Market. As we do not have any board committees, the board as a whole carries out the functions of audit, nominating and compensation committees, and such “independent director” determination has been made pursuant to the committee independence standards.
Our board of directors has determined that it currently has two members who qualify as “independent” as the term is used in Item 407 of Regulation S-K as promulgated by the SEC and as that term is defined under NASDAQ Rule 4200(a)(15). The independent directors are Michael Uhl and David Baesler.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s directors and officers, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of beneficial ownership and changes in beneficial ownership of the Company’s securities with the SEC on Forms 3, 4 and 5. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, all Section 16(a) filing requirements applicable to its officers, directors and beneficial owners holding greater than ten percent of the Company’s Common Stock have been complied with during the period ended December 31, 2009.
Code of Business Conduct and Ethics
Our board of directors has adopted a code of ethics, which applies to all our directors, officers and employees. Our code of ethics is intended to comply with the requirements of Item 406 of Regulation S-K. A copy of our code of ethics will be posted on our corporate website at www.itrackr.com. We will provide our code of ethics in print without charge to any stockholder who makes a written request to: Secretary, iTrackr Systems, Inc., 433 Plaza Road, Ste 275 Boca Raton, FL 33432. Any waivers of the application and any amendments to our code of ethics must be made by our board of directors and will be disclosed promptly on our corporate website.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The primary goals of iTrackr’s board of directors with respect to executive compensation are to attract and retain the most talented and dedicated executives possible, to tie annual and long-term cash and stock incentives to achievement of specified performance objectives, and to align executives’ incentives with stockholder value creation.
To achieve these goals, the Board of Directors recommends executive compensation packages to that are generally based on a mix of salary, discretionary bonus and equity awards. Although the Board of Directors has not adopted any formal guidelines for allocating total compensation between equity compensation and cash compensation, the Company intends to implement and maintain compensation plans that tie a substantial portion of its executives’ overall compensation to achievement of corporate goals and value-creating milestones such as the development of the Company’s products, the establishment and maintenance of key strategic relationships, reaching sales and marketing targets and the growth of its customer base as well as its financial and operational performance, as measured by metrics such as revenues and profitability.
The Board of Directors performs reviews based on surveys of executive compensation paid by peer companies in the customer support and Internet services industry, as well as reviews other industries of similar age and size, as it sees fit, in connection with the establishment of cash and equity compensation and related policies.
Elements of Compensation
The Board of Directors evaluates individual executive performance with a goal of setting compensation at levels the Board believes are comparable with executives in other companies of similar size and stage of development operating in the industry and are competitive and further the Company’s objectives of motivating achievement of its short and long term financial performance goals and strategic objectives, rewarding superior performance and aligning the interests of its executives and shareholders. The compensation received by the Company’s executive officers consists of the following elements:
·
Base salary;
·
Discretionary annual bonus;
·
Equity-based long-term incentives, including stock appreciation rights and performance-based restricted stock; and
·
Options.
Base Salary
Base salaries are reviewed annually, and adjusted from time to time taking into account individual responsibilities, performance and experience.
The primary considerations the Board undertook when establishing Mr. Rizzo’s salary were the amount of responsibilities that he has been accountable for, in addition to the fact that he founded the company. These responsibilities include: business development, oversight of operations, Chairman of the Board, financing and capitalization initiatives and sales and marketing. Essentially, Mr. Rizzo has performed all of these tasks since the inception of the business, enabling the company to maintain a reduced headcount.
Annual Incentive Compensation
In addition to base salaries, the Board of Directors has the authority to award discretionary annual bonuses to the Company’s executive officers. The annual incentive bonuses are intended to compensate officers for achieving corporate goals and for achieving what the committee believes to be value-creating milestones.
Long-Term Equity Incentive Plan
In June 2007 the Board of Directors of the Company adopted the 2007 Long-Term Equity Incentive Plan. The purpose of this Plan is to attract and retain directors, officers and other employees of the Company and its Subsidiary and to provide to such persons incentives and rewards for performance.
The Company may issue each of the following under this Plan: Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted Stock Award or Performance Stock Award. The Plan was ratified at the 2007 shareholder’s meeting (the "Effective Date"). No Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted Stock Award or Performance Stock Award shall be granted pursuant to the Plan ten years after the Effective Date. The total number of shares available under the Plan is Fifteen Million (15,000,000). No Plan participant will be granted the right, in the aggregate, for more than Two Million (2,000,000) Common Shares during any calendar year.
Summary Compensation Tables
The following table sets forth, for the last three fiscal years, the compensation earned for services rendered in all capacities by our chief executive officer, chief financial officer and the other highest-paid executive officers serving as such at the end of 2010 whose compensation for that fiscal year was in excess of $100,000. No other executive officer of iTrackr Systems, Inc. received compensation in excess of $100,000 during fiscal year 2010.
(1)
Stella Gostfrand submitted her resignation as an officer and director, effective following the expiration of the ten day period following the mailing of the information statement required by Rule 14f-1 under the Exchange Act.
(2)
All of Mr. Rizzo’s 2010 and 2008 salary was accrued. During 2009, $89,500 of Salary was accrued and $90,000 related to Mr. Rizzo’s 2009 salary was paid in cash in 2009.
(3)
Accrued reimbursement of unpaid health insurance and rent.
Long-Term Compensation- 2007 Long-Term Incentive Plan (“the Plan”)
The purpose of the Plan is to further and promote the interests of iTrackr and its stockholders by enabling iTrackr to attract, retain and motivate employees, non-employee directors and consultants or those who will become employees, non-employee directors or consultants, and to align the interests of those individuals and iTrackr’s stockholders.
Notwithstanding anything elsewhere in the Plan to the contrary, but subject as well to the other limitations contained in this Section 3 and subject to adjustment as provided in Section 13 of the Plan:
(i)
The aggregate number of Common Shares actually issued or transferred by the Company upon the exercise of Nonqualified Stock Options or Incentive Stock Options (after taking into account forfeitures and cancellations) shall not exceed Fifteen Million (15,000,000) Common Shares.
(ii)
The aggregate number of Common Shares issued as Restricted Stock and Restricted Stock Units (after taking into account any forfeitures and cancellations) shall not exceed Fifteen Million (15,000,000) Common Shares.
(iii)
The aggregate number of Common Shares issued as Performance Shares and Performance Units and other awards under Section 10 of this Plan (after taking into account any forfeitures and cancellations) shall not exceed Fifteen Million (15,000,000) Common Shares.
Equity Compensation Plan Information
(1)
Includes only stock options. Total options outstanding as of December 31, 2010 was 5,505,000
Employment Agreements
The information provided below, including the share numbers and dollar amounts, is after giving effect to the Reverse Merger and the change in control which will become effective following the expiration of the ten day period following the mailing of the information statement required by Rule 14f-1 under the Exchange Act.
Ramesh Anand
Under the terms of Mr. Anand’s contract, entered into in January, 2010, in lieu of cash payment for compensation, he received an option to purchase Two Hundred and Fifty Thousand (250,000) fully vested shares of the Company’s common stock at an exercise price of $0.25 and a life of five years. Mr. Anand is entitled to four (4) weeks of paid vacation in each twelve (12) month period during Executive’s employment hereunder which shall accrue on a monthly basis during Executives employment hereunder. At the discretion of the Board and in accordance with Company policy, Mr. Anand is eligible to participate in benefits under any employee benefit plan or arrangement made available by the Company now or in the future to its executives and its employees. As Chief Operating Officer, Mr. Anand’s performance shall be reviewed by the Board on a periodic basis (not less than once each fiscal year) and the Board may, in its sole discretion, award such bonuses to Mr. Anand as shall be appropriate or desirable based on Mr. Anand’s performance.
John Rizzo
Under the terms of Mr. Rizzo’s contract, entered into in January, 2007, which held an initial term of 3 years, and has been extended by the Company’s board of Directors through May 2011, Mr. Rizzo is to be paid a base annual salary at the rate of $250,000 dollars per year. Mr. Rizzo is entitled to Twelve (12) weeks vacation during each year of employment. And his family shall be eligible to participate in the Company’s paid health plan. However, if Mr. Rizzo so chooses, he can maintain his own family health plan and the Company will subsidize that plan in the amount of $1,000 per month.
Director Compensation
The Company did not and does not currently have an established policy to provide compensation to members of its board of directors for their services in that capacity. The Company intends to develop such a policy in the near future.
Compensation Committee Interlocks and Insider Participation
The Company does not have a separate compensation committee. During the fiscal year ended December 31, 2009, the sole officer and director of the Company, Stella Gostfrand was individually responsible for deliberations of the board concerning executive compensation.
Director Compensation
The Company did not and does not currently have an established policy to provide compensation to members of its board of directors for their services in that capacity. The Company intends to develop such a policy in the near future.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
As of December 31, 2010, we have authorized 100,000,000 shares of common stock, no par value, of which 20,319,997 shares were issued and outstanding and 10,000,000 shares of preferred stock, no par value, of which no shares are issued and outstanding. The following table sets forth certain information regarding beneficial ownership of our common stock as of December 31, 2010, by (i) each person known by us to be the beneficial ownership of more than 5 percent of the outstanding common stock, (ii) each director, (iii) each executive officer, and (iv) all executive officers and directors as a group. The number of shares beneficially owned is determined under the rules promulgated by the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under those rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days of the date hereof, through the exercise or conversion of any stock option, convertible security, warrant or other right. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Including those shares in the tables does not, however, constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares. Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares that power with that person's spouse) with respect to all shares of capital stock listed as owned by that person or entity. Unless otherwise indicated, the address of each of the following persons is 433 Plaza Road, Ste 275 Boca Raton, FL 33432.
1)
Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of Company common stock and except as indicated the address of each beneficial owner is 433 Plaza Road, Ste 275 Boca Raton, FL 33432.
(2)
Shares of common stock beneficially owned and the respective percentages of beneficial ownership of common stock assumes the exercise of all options, warrants and other securities convertible into common stock beneficially owned by such person or entity currently exercisable or exercisable within 60 days of December 31, 2010. Shares issuable pursuant to the exercise of stock options and warrants exercisable within 60 days are deemed outstanding and held by the holder of such options or warrants for computing the percentage of outstanding common stock beneficially owned by such person, but are not deemed outstanding for computing the percentage of outstanding common stock beneficially owned by any other person.
(3)
Including 250,000 shares of common stock underlying the Options.
(4)
Including 2,000,000 shares of common stock underlying the Options.
(5)
Including 375,000 shares of common stock underlying the Options.
(6)
Including 450,000 shares of common stock underlying the Options.
(7)
Including 2,000,000 shares of common stock underlying the Options.
Based upon a review of the forms furnished to iTrackr and written representations from its executive officers and directors, the Company believes that during fiscal 2010 all Section 16(a) filing requirements applicable to its executive officers, directors and beneficial owners of more than ten percent of its common stock were complied with.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
During the year ended December 31, 2010 AND 2009, the Company received $41,500 and $150,750, respectfully from Bluewater Advisors, a company owned by John Rizzo, CEO, in exchange for convertible promissory notes.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Bedinger and Company (“Bedinger”) served as the Company’s independent auditor for the years ended December 31, 2010 and 2009. The following is a summary of the fees billed to the Company by Bedinger for professional services rendered during the years ended December 31, 2010 and 2009, respectively:
Pre-Approval Policy
The Board of Directors pre-approves all auditing services and permitted non-audit services, if any, including tax services, to be performed for us by our independent auditor, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are approved by the Board of Directors prior to the completion of the audit. The scope of the pre-approval shall include pre-approval of all fees and terms of engagement. The Board of Directors may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the Board of Directors at its next scheduled meeting.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Exhibit No.
Description
3.1
Restated Articles of Incorporation of iTrackr Systems, Inc. (Incorporated by reference from Exhibit 3.1 to the Form S-1/A Registration Statement filed with the Securities and Exchange Commission on January 21, 2011).
3.2
By-laws of iTrackr Systems, Inc. (Incorporated by reference from Exhibit 3.2 to the Form S-1/A Registration Statement filed with the Securities and Exchange Commission on January 21, 2011).
10.1
Agreement and Plan of Merger. Previously filed as Exhibit 2.1 with Form 8-K on December 16, 2009, Commission File No. 000-21810; incorporated herein by reference.
10.2
Form of 2010 Employment Agreement entered into with John Rizzo (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2010).
10.3
Form of 2010 Employment Agreement entered into with Ramesh Anand (incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2010).
10.4
Form of Stock Option Plan (incorporated by reference from Exhibit 10.7 to the current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2010).
10.5
Saveology Contract. (Incorporated by reference from Exhibit 10.5 to the Form S-1/A Registration Statement filed with the Securities and Exchange Commission on August 17, 2010).
10.6
Bluewater note pursuant to Item 601(b)(10)(i) and (ii)(A) of Regulation S-K. (Incorporated by reference from Exhibit 10.6 to the Form S-1/A Registration Statement filed with the Securities and Exchange Commission on August 17, 2010).
10.7
Respond Q, LLC Contract. (Incorporated by reference from Exhibit 10.7 to the Form S-1/A Registration Statement filed with the Securities and Exchange Commission on December 21, 2010).
Code of Ethics. Previously filed as Exhibit 14.1 with Form 10-K, on March 31, 2008, incorporated herein by reference.
23.1
Consent of Auditor
31.1
Certification of Principle Executive Officer and Principal Financial Officer Pursuant to Section
of the Sarbanes-Oxley Act of 2002
32.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ John Rizzo
Chief Executive Officer and Chairman of the
February 11, 2011
John Rizzo
Board (Principal Executive Officer and Principal
Financial Officer)
/s/ David Baesler
Director
February 11, 2011
David Baesler
/s/ Michael Uhl
Director
February 11, 2011
Michael Uhl