PINX:IRYS Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012



U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q
 
þ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2012

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 0-52810
 


ITRACKR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Florida   05-0597678
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer  Identification Number)
     
1191 E Newport Center Drive
Suite PH-D
Deerfield Beach, FL
  33442
 (Address of principal executive offices)
 
(Zip Code)
 
(888) 505-9796
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.  Yes  þ No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act) Yes  ¨ No  þ
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  At April 25, 2012 the registrant had outstanding 28,593,613 shares of common stock, no par value per share.
 


 
 

ITRACKR SYSTEMS, INC.
FORM 10-Q
TABLE OF CONTENTS
 
 
 
PAGE 
PART I - FINANCIAL INFORMATION  
     
Item 1.
Financial Statements
 
     
 
Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and  December 31, 2011
1
     
  Consolidated Statements of Operations (Unaudited) For the Three Months Ended March 31, 2012 and 2011 2
     
 
Consolidated Statement of Stockholders' Equity (Unaudited) For the Three Months Ended March 31, 2012 and the Year Ended December 31, 2011
3
     
 
Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2012 and 2011
4
     
 
Notes to Consolidated Financial Statements (Unaudited)
5-11
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
12-18
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
19
     
Item 4.
Controls and Procedures
19
     
Item 4(T). 
Controls and Procedures
19
     
PART II - OTHER INFORMATION  
     
Item 1.
Legal Proceedings
21
     
Item 1A.
Risk Factors
21
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
21
     
Item 3.
Defaults Upon Senior Securities
21
     
Item 4.
Mine Safety Disclosures
21
     
Item 5.
Other Information
21
     
Item 6.
Exhibits
22
     
Signatures
  23
 
 
 

 
 
ITEM 1.
FINANCIAL STATEMENTS.
 
iTrackr Systems, Inc.
           
Consolidated Balance Sheets
           
 
   
March 31,
   
December 31,
 
   
2012
   
2011
 
Assets
 
(Unaudited)
   
(Audited)
 
Current Assets
           
Cash
  $ 46,333     $ 130,139  
Accounts receivable (Note B)
    137,852       125,376  
Other current assets
    10,124       2,121  
Total Current Assets
    194,309       257,636  
                 
Fixed assets (Note C)
    238,399       238,399  
Accumulated depreciation
    (189,973 )     (179,104 )
Net fixed assets
    48,426       59,295  
Deposits
    3,500       3,500  
Intangible assets (Note E)
    1,424,000       1,424,000  
Intangible asset amortization
    (382,667 )     (239,165 )
Goodwill (Note E)
    1,143,242       1,143,242  
Total Assets
  $ 2,430,810     $ 2,648,508  
                 
Liabilities and Stockholders' Equity
               
                 
Current Liabilities
               
Accounts payable & accrued expenses (Note D)
  $ 361,755     $ 346,304  
Accrue payroll (Note D)
    952,000       889,500  
Accrued Interest payable (Note E)
    45,342       36,946  
Convertible promissory notes (Note E)
    130,000       70,000  
Promissory notes - related party (Note E)
    222,812       222,812  
Total Current Liabilities
    1,711,909       1,565,562  
                 
Total Liabilities
    1,711,909       1,565,562  
                 
Stockholders' Equity (Note F)
               
Common stock, no par value 100,000,000 shares authorized; issued and outstanding 28,343,613 and 27,843,613 at March 31, 2012 and December 31, 2011, respectively.
    6,165,642       6,055,642  
Accumulated deficit
    (5,446,741 )     (4,972,696 )
Total Stockholders' Deficit
    718,901       1,082,946  
Total Liabilities and Stockholders' Equity
  $ 2,430,810     $ 2,648,508  
 
The accompanying notes are an integral part of these financial statements

 
1

 
 
iTrackr Systems, Inc.
     
Consolidated Statements of Operations (Unaudited)
     
For the Three Months Ended March 31, 2012 and 2011
     
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
             
Revenue
  $ 138,247     $ 46,250  
Cost of sales
    83,844       -  
Gross profit
    54,403       46,250  
                 
Operating expenses
               
Selling, General and administrative
    199,260       112,289  
Operations
    47,623       -  
Product development
    58,798       49,651  
Depreciation and amortization
    154,371       8,695  
Total operating expenses
    460,052       170,635  
                 
Loss from operations
    (405,649 )     (124,385 )
                 
Other Income and (Expense)
               
Interest expense
    (8,396 )     (5,445 )
Amortization of beneficial conversion feature
    (60,000 )     -  
Total other income and expense
    (68,396 )     (5,445 )
Earnings before taxes
    (474,045 )     (129,830 )
Provision for income taxes
    -       -  
Net loss
  $ (474,045 )   $ (129,830 )
                 
Net (loss) per common share basic
  $ (0.02 )   $ (0.01 )
Weighted average common shares outstanding basic
    28,018,955       20,319,997  
                 
The average shares listed below were not included in the computation of diluted losses per share because to do so would have been antidilutive for the periods presented:
               
                 
Warrants
    705,333       2,105,333  
Stock options
    3,380,000       5,505,000  
Convertible promissory notes
    2,694,710       1,608,809  
 
The accompanying notes are an integral part of these financial statements

 
2

 

iTrackr Systems, Inc.
                 
Consolidated Statement of Stockholders' Equity (Unaudited)
               
For the Three Months Ended March 31, 2012 and the Year Ended December 31, 2011
         
 
                               
   
Common Stock
         
Total
 
   
Number of
               
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Payable
   
(Deficit)
   
Equity (Deficit)
 
BALANCES December 31, 2010
    20,319,997     $ 3,142,538     $ 37,500     $ (4,095,092 )   $ (915,054 )
                                         
Stock issued in merger
    5,000,000       2,380,000                       2,380,000  
Stock issued for warrant exercise
    900,000       215,000                       215,000  
Stock issued upon option exercises
    1,300,000       180,000                       180,000  
Common stock issued in exchange for services
    100,000       43,350                       43,350  
Common stock issued upon the conversion of debt
    243,616       60,904                       60,904  
Common stock retired
    (20,000 )                             -  
Fair market value of warrants modified
            33,850                       33,850  
Stock to be issued for services reversed
                    (37,500 )             (37,500 )
Net loss
                            (877,604 )     (877,604 )
BALANCES December 31, 2011
    27,843,613     $ 6,055,642     $ -     $ (4,972,696 )   $ 1,082,946  
                                         
Stock issued upon option exercise
    500,000       50,000                       50,000  
Amortization of beneficial conversion feature
            60,000                       60,000  
Net loss
                            (474,045 )     (474,045 )
BALANCES March 31, 2012
    28,343,613     $ 6,165,642     $ -     $ (5,446,741 )   $ 718,901  
 
The accompanying notes are an integral part of these financial statements
 
 
3

 
 
iTrackr Systems, Inc.
   
Consolidated Statements of Cash Flows (Unaudited)
   
For the Three Months Ended March 31, 2012 and 2011
   
 
   
Three Months Ended
 
   
March 31,
 
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (474,045 )   $ (129,830 )
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
               
Depreciation and amortization
    154,371       8,695  
Amortization of beneficial conversion feature
    60,000          
Changes in operating accounts:
               
Accounts receivable
    (12,476 )     1,830  
Other current assets
    (8,003 )     -  
Accounts payable and accrued expenses
    15,451       42,594  
Accrued compensation
    62,500       62,500  
Accrued interest
    8,396       5,445  
CASH USED BY OPERATING ACTIVITIES
    (193,806 )     (8,766 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Acquisition of furniture and equipment
    -       -  
CASH PROVIDED BY INVESTING ACTIVITIES
    -       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Issuance of common stock for cash
    50,000       -  
Proceeds from promissory notes
    60,000       -  
CASH PROVIDED BY FINANCING ACTIVITIES
    110,000       -  
                 
NET INCREASE (DECREASE) IN CASH
    (83,806 )     (8,766 )
CASH, beginning of period
    130,139       9,051  
CASH, end of period
  $ 46,333     $ 285  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
               
CASH PAID DURING THE YEAR FOR:
               
Taxes paid
  $ -     $ -  
Interest paid
  $ -     $ -  
 
The accompanying notes are an integral part of these financial statements
 
 
4

 
 
ITRACKR SYSTEMS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2012 AND 2011

 
NOTE A - ORGANIZATION AND GOING CONCERN
 
Basis of Presentation
The unaudited financial statements of iTrackr Systems, Inc. as of March 31, 2012 and for the three months ended March 31, 2012 and 2011 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting.  Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2011 as filed with the Securities and Exchange Commission as part of our Form 10-K.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included.  The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.

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.

On July 12, 2011, iTrackr Systems, Inc. acquired 100% of the issued and outstanding membership interests (the “Units”) of RespondQ, LLC, a Florida limited liability company.  The purchase price for the Units was an aggregate of five million (5,000,000) shares of restricted common stock of the Company and promissory notes in the aggregate principal amount of $100,000.  The purchase consideration for the RespondQ Units was approximately $2,480,000 million, which consisted of the notes and the fair value of 5 million issued shares of iTrackr Systems, Inc. common stock.

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 and sales and marketing activities, the Company has sustained operating losses since inception and has an accumulated deficit of $5,446,741 and $4,972,696 at March 31, 2012 and December 31, 2011, respectively.  In addition, the Company has negative working capital of $1,517,600 and $1,307,926 at March 31, 2012 and December 31, 2011, 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
 
 
5

 
 
ITRACKR SYSTEMS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2012 AND 2011

 
NOTE A - ORGANIZATION AND GOING CONCERN (Continued)

Going Concern
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.

NOTE B – ACCOUNTS RECEIVABLE

The accounts receivable balance of $137,852 and $125,376 as of March 31, 2012 and December 31, 2011, respectively, is reported at the gross amount without an allowance.  The Company has not experienced any significant bad debts to date. Bad debts are written off once collectability is judged to be unlikely. We periodically review accounts receivable for collectability and will create an allowance for bad debts if our analysis so warrants. No accounts were written off during the three months ended March 31, 2012.

Concentrations of credit risk
The Company performs ongoing credit evaluations of its customers. At March 31, 2012, two customers accounted for 94% (78% and 16%) of accounts receivable.

During the three months ended March 31, 2012, two customers accounted for 90% (64% and 26%) of sales.

NOTE C – FIXED ASSETS

As of March 31, 2012, fixed assets consisted of the following:
 
   
March 31,
   
December 31,
 
   
2012
   
2011
 
Computers and office equipment
  $ 107,445     $ 107,445  
Software
    129,235       129,235  
Leasehold improvements
    1,719       1,719  
   Total fixed assets
    238,399       238,399  
Accumulated depreciation
    (189,973 )     (179,104 )
Fixed assets, net
  $ 48,426     $ 59,295  
 
During the three months ended March 31, 2012 and 2011, the Company recognized $10,869 and $8,695, respectively in depreciation expense.

NOTE D - GOODWILL AND INTANGIBLE ASSETS

As a result of the purchase of RespondQ, LLC on July 12, 2011, the Company recognized $1,424,000 of intangible assets and $1,143,242 of goodwill, which represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired.

Total intangible assets, which are being amortized, and goodwill consists of the following:
 
   
March 31, 2012
 
   
Gross Carrying
   
Accumulated
         
Net Book
 
   
Amount
   
Amortization
   
Impairment
   
Value
 
Customer relationships
  $ 324,000     $ (216,000 )   $ -     $ 108,000  
Purchased technology
    750,000       (166,667 )     -       583,333  
Marketing related
    350,000       -       -       350,000  
Goodwill
    1,143,242       -       -       1,143,242  
   Total
  $ 2,567,242     $ (382,667 )   $ -     $ 2,184,575  
 
 
6

 
 
ITRACKR SYSTEMS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2012 AND 2011

 
NOTE D - GOODWILL AND INTANGIBLE ASSETS (Continued)
 
The customer relationship intangible asset is being amortized on a straight-line basis over 12 months or the estimated useful life of that portion of the allocated purchase price of RespondQ, LLC whereas the purchased technology is being amortized over three years on a straight-line basis based on the estimated useful life of the technology purchased. The marketing related intangible asset relates to the trade name and internet domain name of RespondQ and, like goodwill, is not being amortized, but tested annually for impairment. No impairment of goodwill or intangible assets has been recorded. Amortization expense related to intangible assets was $143,502 during the three months ended March 31, 2012.

NOTE E – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at March 31, 2012 consisted of $11,180 of health insurance premium reimbursement due to John Rizzo, former CEO, $54,664 of professional services and $295,911 of trade payables.

Accounts payable and accrued expenses at December 31, 2011 consisted of $9,180 of health insurance premium reimbursement due to John Rizzo, former CEO, for which six payments totaling $50,820 were made during 2011 with no other payments made since January 2007, $37,471 of professional services and $299,653 of trade payables.
 
Accrued compensation of $952,000 and $889,500 as of March 31, 2012 and December 31, 2011, respectively, represents amounts accrued and unpaid as of the related balance sheet date and due to our former CEO, John Rizzo.  Pursuant to Mr. Rizzo’s employment agreement(s) effective each year starting in January 2007, the Company has been and is obligated to pay Mr. Rizzo and annual salary of $250,000.  Mr. Rizzo, received 5,000,000 shares in lieu of salary for the fiscal year ended December 31, 2007 and $90,000 in cash payments during 2009.  Mr. Rizzo has received no other salary based cash payments.

NOTE F – NOTES

Convertible Promissory Notes – 3rd Party
 
March 31,
   
December 31,
 
   
2012
   
2011
 
Note payable issued in connection with the purchase of RespondQ, LLC to Iselsa II, LLC, bears interest at 10% per year, is convertible into shares of common stock upon default at a conversion price of $0.10 per share, matured October 12, 2011 and is currently in default.
  $ 70,000     $ 70,000  
                 
On January 9, 2012, The company issued a convertible promissory note in the amount of $60,000. Ther terms of the note provide for interest at 12% per annum, maturity date of July 1, 2012 and is convertible into shares of the Company at a fixed conversion price of $0.15 per share. The Company determined that the Note was issued with a beneficial conversion feature (“BCF”) due to the conversion price ($0.15) being less than the closing stock price of $0.50 on the date of issuance, and the conversion feature being in-the-money.  Thus, the BCF has been determined based on the gross note amount, and recorded as a discount to reduce the carrying value of the note and increase additional-paid-in-capital.  The Company calculated the initial BCF on the closing date of the transaction to be $140,000 using the intrinsic value method.  Since this amount is greater than the $60,000 value of the note, the Company reduced the initial carry value of the note to zero effectively recording a BCF of $60,000 as additional-paid-in-capital.  The BCF discount was expensed when the note became convertible which was on the date of issuance.
  $ 60,000     $ -  
 
 
7

 
 
ITRACKR SYSTEMS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2012 AND 2011


NOTE F – NOTES (Continued)

During the year ended December 31, 2011, the Company: 1) issued a $70,000 convertible promissory note to Iselsa II, LLC (See table above); and 2) converted 100% of the debt held by three different parties, or $56,000 of principle and $4,904 of accrued interest into 243,616 shares of common stock.

On our non-related party notes payable, the Company recognized interest expense during the three months ended March 31, 2012 and 2011of $3,323 and $1,530, respectively. As of March 31, 2012 and December 31, 2011, the Company had outstanding $6,621 and $3,299, respectively, of accrued interest due for non-related party notes payable.

Promissory Notes - Related Party
 
March 31,
 
   
2012
   
2011
 
Note payable to Bluewater Advisors, Inc. a company wholly owned by John Rizzo, our former CEO; convertible into common stock (conversion price 50% below the previous 10 day average closing price) upon default, bears interest at 9% per year, Matured July 1, 2011 and is currently in default.
  $ 192,812     $ 192,812  
                 
Note payable issued in connection with the purchase of RespondQ, LLC to Idiama, LLC, bears interest at 10% per year, is convertible into shares of common stock upon default at a conversion price of $0.10 per share, matured October 12, 2011 and is currently in default.
  $ 30,000     $ 30,000  
 
During the year ended December 31, 2011, the Company issued a $30,000 convertible promissory note to Idiama, LLC (See table above) which is 100% owned by Mrs. Rizzo the spouse of our former CEO, John Rizzo and originated as part of the purchase price paid for RespondQ, LLC.

On our related party notes payable, the Company recognized interest expense during the three months ended March 31, 2012 and 2011 of $5,074 and $4,279, respectively. As of March 31, 2012 and December 31, 2011, the Company has outstanding $38,721 and $33,647, respectively, of accrued interest due under the notes above.

NOTE G – 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 March 31, 2012.

Common Stock Issued - Summary
The Company has authorized 100,000,000 shares of no par value common stock available for issuance.  During the year ended December 31, 2011, the Company issued 7,543,616 shares of common stock, including 5,000,000 as a part of the RespondQ, LLC purchase. During the three months ended March 31, 2012, the Company issued 500,000 shares of common stock bringing the balance of shares outstanding to 28,343,613 as of March 31, 2012 compared to 27,843,613 and 20,319,997 as of December 31, 2011 and 2010, respectively.

Stock Issued for Debt Repayment
During the three months ended March 31, 2012, no shares were issued in connection with the conversion of debt.

During the year ended December 31, 2011, the Company converted $56,000 of principle and $4,904 of accrued interest into 243,616 shares of restricted common stock.

 
8

 

ITRACKR SYSTEMS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2012 AND 2011

 
NOTE G – STOCKHOLDERS EQUITY (Continued)

Stock Issued for Cash
During the three months ended March 31, 2012, the Company issued 500,000 shares of common stock upon the exercise of options and received $50,000.

During the year ended December 31, 2011, the Company 1) received $315,000 upon the exercise of warrants to purchase 1,400,000 shares of common stock, and 2) received $80,000 upon the exercise of options to purchase 800,000 shares of common stock.

Stock Issued for Services
During the three months ended March 31, 2012, the Company did not issue any shares in exchange for services.

During the year ended December 31, 2011, the Company issued 100,000 in exchange for services valued at $43,350 and rendered during 2011. Also, 125,000 shares that were to be issued to a former employee were canceled and related expense of $37,500 reversed in the current period.

NOTE H – WARRANTS

At March 31, 2012, the Company had 705,333 Warrants outstanding entitling the holder thereof the right to purchase one share of common stock for each warrant held as follows:
 
         
Exercise
   
Issuance
 
Number of
   
Price Per
 
Expiration
Date
 
Warrants
   
Warrant
 
Date
1/19/2010
    36,000     $ 0.75  
1/19/15
1/19/2010
    56,000     $ 0.75  
1/19/15
2/1/2010
    13,333     $ 0.75  
2/1/15
3/1/2010
    600,000     $ 0.10  
10/31/12
Total
    705,333            

During the year ended December 31, 2011, the holder of the 3/1/2010 warrant in the table above exercised 400,000 warrants resulting in $40,000 to the company. Additionally, the Company modified one outstanding warrant to reduce the exercise price in order to induce the holder to exercise. Specifically, for 1,000,000 warrants the exercise price was reduced from $0.40 to $0.35. The holder then exercised 500,000 warrants resulting in $175,000 to the Company. Then, later in the year, in order to induce the same holder to exercise the remaining 500,000 warrants, the Company decreased the exercise price from $0.35 to $0.20. The holder then exercised 500,000 warrants resulting in $100,000 to the Company. As a result of the modifications, the Company determined the difference in the fair value of the warrants using the Black-Scholes Options Pricing Model and recorded $9,800 and $24,050 of stock compensation expense for the first and second modifications, respectively.

All the warrants issued through March 31, 2012 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.

 
9

 
 
ITRACKR SYSTEMS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2012 AND 2011


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 "Plan"). The Plan was ratified at the 2007 shareholder’s meeting (the "Effective Date"). The purpose of this Plan is to attract and retain directors, officers and other employees and non-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 the Plan: Incentive Options, Nonqualified Options, Stock Appreciation Rights, Restricted Stock Awards, Performance Stock Awards or any other award approved by the Board to employees, directors, officers and consultants..  No Award shall be granted pursuant to the Plan ten years after the Effective Date. Stock options to purchase shares of our common stock expire no later than ten years after the date of grant. 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.

We measure all stock-based compensation awards using a fair value method on the date of grant and recognize such expense in its consolidated financial statements over the requisite service period. We use the Black-Scholes option pricing model to calculate the fair value of warrants and stock option grants. The Black-Scholes option pricing model requires management to make assumptions regarding the option lives, expected volatility, and risk-free interest rates, all of which impact the fair value of the option and, ultimately, the expense that will be recognized over the life of the option.

During the three months ended March 31, 2012, the Company issued 500,000 shares of common stock pursuant to option exercises resulting in $50,000 to the Company

During the year ended December 31, 2011, the Company issued 800,000 shares of common stock pursuant to option exercises resulting in $80,000 to the Company, and canceled 825,000 options that expired due to termination of services by the related parties and their failure to exercise their respective options.

The following table summarizes information about options outstanding at March 31, 2012:

     
Options Outstanding
   
Options Exercisable
 
     
Number
   
Weighted
   
Weighted
         
Weighted
 
Range of
   
Outstanding
   
Average
   
Average
         
Average
 
Exercise
   
At March 31,
   
Contractural
   
Exercise
   
Number
   
Exercise
 
Prices
   
2012
   
Life (years)
   
Price
   
Outstanding
   
Price
 
                                 
$ 0.40       1,000,000       5.50     $ 0.40       1,000,000     $ 0.40  
  0.25       1,250,000       6.04       0.25       1,250,000       0.25  
  0.10       1,387,500       5.50       0.10       1,387,500       0.10  
  0.05       242,500       5.50       0.05       242,500       0.05  
                                             
Total
      3,880,000       5.66     $ 0.22       3,880,000     $ 0.22  
 
A summary of the Company’s stock option activity for the three months ended March 31, 2012 and the years ended December 31, 2011 and related information follows:

   
Number of Options
   
Weighted Average Exercise Price ($)
 
Options Exerciseable as of
 
Number of Options
   
Weighted Average Exercise Price ($)
 
Outstanding at December 31, 2010
    5,505,000     $ 0.18  
  December 31, 2010
    5,505,000     $ 0.18  
Forfeitures
    (825,000 )   $ 0.06  
  December 31, 2011
    3,880,000     $ 0.22  
Exercises
    (800,000 )   $ 0.10  
  March 31, 2012
    3,880,000     $ 0.22  
Outstanding at December 31, 2011
    3,880,000     $ 0.22                    
Outstanding at March 31, 2012
    3,880,000     $ 0.22                    
                                   
Available for grant at March 31, 2012
    2,138,001                            
 
During the year ended December 31, 2011 and 2010, the Company recognized no compensation expense related to stock options.  From inception to date, the Company has recognized $178,844 of compensation expense related to stock options.
 
 
10

 
 
ITRACKR SYSTEMS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2012 AND 2011


NOTE J – RELATED PARTY TRANSACTIONS

The Company has a note payable outstanding to Bluewater Advisors, Inc. and Idiama, LLC, companies wholly owned by John Rizzo, our former CEO and his wife, respectively. See NOTE F - NOTES for additional information.

NOTE K - COMMITMENTS

Upon the purchase of RespondQ, LLC on July 12, 2011, the Company assumed a lease for office space originally entered into on January 17, 2011 and expiring on January 17, 2012. We are currently on a month-to-month rental basis. The lease requires the Company to pay all executory costs such as maintenance and insurance totaling approximately $2,122 per month. Rent expense for the three months ended March 31, 2012 and 2011 was approximately $6,366 and $0, respectively.

On January 4, 2011, the Company entered into an Enterprise Cloud Master Services Agreement (the "Agreement") with Terremark North America where Terremark provides enterprise level cloud computing data center related services for our iTracker.com platform for an initial period of 24 months and automatically renewing on successive 12 month terms unless terminated 90 days prior to expiration of the then current term. The Agreement provides for a monthly payment of $6,000 billed monthly. During the three months ended March 31, 2012, the Company recognized $12,000 of expense under this agreement.

NOTE L – SUBSEQUENT EVENTS

Pursuant to FASB Accounting Standards Codification 855, Subsequent Events, Including ASC 855-10-S99-2, the Company evaluated subsequent events through April 30, 2012.

On April 11, 2012, the Company issued 250,000 shares of common stock upon the exercise of a warrant resulting in $25,000 to the Company.

 
11

 
 
ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
This quarterly report contains forward-looking statements including statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes” or similar language.  These forward-looking statements involve risks, uncertainties and other factors.  All forward-looking statements included in this quarterly report are based on information available to us on the date hereof and speak only as of the date hereof.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.  The factors discussed elsewhere in this quarterly report are among those factors that in some cases have affected our results and could cause the actual results to differ materially from those projected in the forward-looking statements.
 
The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report.
 
Overview

We are an emerging ecommerce and social media software and services company. We have developed two technology platforms branded as RespondQ (See www.RespondQ.com) and iTrackr (See www.itrackr.com) both of which enable web based and local businesses to increase sales through innovative technology and increased web presence.

Through our RespondQ chat communications platform, the Company offers a comprehensive suite of real-time, live interaction tools designed to allow our customers the information they need while interacting with potential purchasers, including our proprietary chat application, live web statistics, live visitor engaging, live web analytics and real time support ticketing for both enterprise and single site users.

In order to sustain RespondQ's growth, our strategy is to expand our customer base. To accomplish this, we are focused on the following initiatives:
 
Continuation of building brand strength within the home services vertical while expanding into New Markets. RespondQ continued to develop its market position by increasing its client base, and expanding its offerings within its existing customer base. In late 2011, we identified several markets that have a high potential for revenue growth and key industries within that are not currently utilizing chat technologies.  Several of these industries include but are not limited to; Affiliate Networks, Specialty Retail, Auto Insurance, Healthcare, Club and Membership Groups, Education, Government, and Travel.  Continuing to grow our client base will enable us to strengthen our recurring revenue stream.  Our primary focus of expansion being that of Full Service chat solutions.

Creating the RespondQ International Presence.  During 2011, we continued our investment in building out new sales collateral and services personnel to expand our customer base. We have identified the Latin America market, including Mexico, Panama, Columbia and Venezuela to present the best near-term opportunity for expansion. We are currently evaluating sales and marketing strategies and several partnership opportunities to support expansion directly into these countries.

Continuing to Build Brand Recognition.  As a pioneer of pay for performance chat solutions, RespondQ enjoys recognition and credibility due to our success with companies like Saveology, Acceller and Digital Mojo. We strategically target decision makers within key vertical markets, leveraging customer successes to generate increased awareness and demand for our unique chat technologies. In addition, we continue to develop relationships with the media, industry analysts and relevant business associations to reinforce our position and leadership within the industry. Our brand name is also visible to both business users and consumers where our software is present on a site. When a visitor engages in a chat session on a customer’s website, our brand name is displayed on the chat window as “Powered By RespondQ”. We believe that this high-visibility placement will continue to create brand awareness and increased demand for our solutions.
 
 
12

 

Increasing the Value of Our Service to Our Clients.  We regularly add new features and functionality to our services to further enhance value to our customers. In 2011, we continued to enhance our reporting, analysis and administrative tools as part of our overall portfolio of features, as well as our ability to capture, analyze and report on the substantial amount of online data we collect on behalf of our clients. Our clients may use these capabilities to increase productivity, manage call center staffing, develop one-to-one marketing tactics and pinpoint sales opportunities. Through these and other innovations, we intend to reinforce our value proposition to clients, which we believe will result in additional revenue from new and existing clients over time.

Our newly designed and currently in beta testing iTrackr direct deals platform represents the latest evolution of the daily deal business model by combining the benefits of social networking, daily deals and couponing onto a technology platform that significantly enhances web presence and allows both the local business owner and the consumer to create and request personalized discounts on the fly. The premise of iTrackr is that consumers should drive discounts based on their specific desires and needs and be able to easily find those discounts any time no matter where they are.

In order to grow iTrackr, our strategy is to complete our technology development and focus on the following initiatives:

·
open beta testing of iTrackr.com to solicit and garner feedback from users in order to eliminate bugs in the software, increase usability, and improve user friendliness;
·
populate our database with 1 million currently active merchant profiles determined by their SIC codes and continually increasing our profile base as we expand in to different local markets;
·
promote itrackr virally to enhance visibility across the social networks;
·
engage with an international B2B sales organization for outbound and direct marketing campaigns to rapidly solicit the businesses within our proprietary database to activate their profiles on iTrackr.com;
·
continue to invest in the depth of our website to provide the look, feel and experience our users demand.
·
Cross sell to the 1 million pre populated profiles currently in our database our RespondQ chat communication platform;
·
offer our platform to consumers free of charge on wired and wireless mediums;
·
reducing the cost of distributed advertising to merchants by offering 60 days free and a small $14.99 per month subscription fee thereafter;

Our primary sources of operating funds have been historically through the issuance of debt and equity.  During the three months ended March 31, 2012, we raised $110,000 from the exercise of options and a convertible promissory note in the amount of $50,000 and $60,000, respectively. During the year ended December 31, 2011 we raised $395,000 from the exercise of warrants and options. 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.  To finance our growth strategy, we  continue to actively pursue additional funds through equity financing, including the sale of additional shares of common and debt financing, or a combination thereof.

At March 31, 2012, iTrackr Systems had current assets of $194,309, including cash on hand of $46,333 and accounts receivable of $137,852 of which $94,000 has been collected as of the date of this report.  During the three months ended March 31, 2012, the Company had revenue of $138,247, and net losses of $474,045.  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 for the next twelve months.  On July 12, 2011, the Company purchased RespondQ, LLC. With the purchase of RespondQ and subsequent improvements made to the related product offerings, the Company anticipates improved financial performance and increases in sales. In the near term, we expect that the cash on hand and accounts receivable totaling $184,185 will be sufficient to cover approximately 3-4 months of operations. Management is working to secure additional sales and debt and equity financing.

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.

 
13

 
 
Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions and estimates that have a significant impact on the results that we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain Note B of the Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies require us to make critical accounting estimates, as defined below.

A critical accounting estimate 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.

Our most critical accounting estimates include:

·
the valuation of stock-based compensation, which impacts our operating expenses;
·
the assessment of recoverability of long-lived assets and goodwill, which impacts operating expenses when we record impairments or accelerate depreciation; and
·
the recognition and measurement of current and deferred income taxes, which impact our provision for taxes.
 
Below, we discuss these policies further, as well as the estimates and judgments involved.

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.  Due to the short amount of time the Company's stock has traded, we use the Dow Jones Internet Composite Index (Ticker: FDN) from inception of the index to the date of grant as a proxy for volatility.
5)
Forfeiture rate.  To date this rate has been zero.
6)
Stock price. As quoted on the OTC QB Tier.
 
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.
 
 
14

 

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. 

 
15

 
 
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
 
Three Months Ended March 31, 2012 Compared With the Three Months Ended March 31, 2011.
 
Revenues
 
Revenues for the three months ended March 31, 2012 were $138,247 compared to revenues of $46,250 for the three months ended March 31, 2011.  The $91,997 or 198.9% increase in revenue is primarily due to the purchase of RespondQ, LLC on July 12, 2011 and related sales. Our sales revenue represents the amounts charged to our customers on a monthly basis pursuant to contractual arrangements. During The three months ended March 31, 2012, two customers accounted for 90% (64% and 26%) of sales compared to the three months ended March 31, 2010 where one customer, RespondQ, LLC accounted for 95.9% of sales.

Cost of Revenue

During the three months ended March 31, 2012, cost of revenue was $83,844 or 60.6% of revenue resulting in a gross margin of 39.4%. Cost of revenue consists of amounts owed to KG Information Systems Private Ltd. ("KG") pursuant to services performed under a Master Services Agreement ("MSA") dated January 1, 2011 between KG and RespondQ. The MSA automatically renews on December 31, 2013 for successive 30 day periods. KG is a Business Process Outsource company ("BPO"). Under the MSA, KG is responsible for supplying the chat agents and tracking certain metrics related to the live chat sessions of our customers. KG sales agents primary goal is to initiate communications with website visitors through chat sessions on our customers websites and facilitate the close of a sale. The amount earned by KG is based on the number of sales of certain products made in a given month and to a lesser extent KG earns fees on a time and materials basis based on agent hours worked in a given month.
 
 
16

 
 
Operating Expenses

Selling, General and Administrative.  Our selling, general and administrative ("SG&A") expenses consist of compensation and related expenses for sales, executive, accounting, legal and administrative personnel, as well as office, phone, rent, postage, banking and related overhead. SG&A expenses increased by $86,971, or 77.5% to $199,260 during the three months ended March 31, 2012 compared to $112,289 during the three months ended March 31, 2011. This increase is primarily attributable to increases in personnel and professional fees resulting from increased sales and administrative activities.

Operations.  Operations costs consist of costs related to compensation of internal and external network support staff, the cost of supporting our servers and network infrastructure as well as allocated occupancy costs and related overhead. Operations expenses increased to $47,623 during the three months ended March 31, 2012 compared to $0 during the three months ended March 31, 2011. This increase is primarily attributable to an increase in website and related server hosting, licensing and network personnel costs.

Product Development.  Our product development expenses consist primarily of compensation and related expenses for internal and external product development personnel and related costs. Product development expenses increased by $9,147 to $58,798 during the three months ended March 31, 2012 compared to $49,651 during the three months ended March 31, 2011. The increase is primarily attributable to development of the iTrackr.com.

Depreciation and Amortization.  Depreciation and amortization expense was $154,371 and $8,695 during the three months ended March 31, 2012 and 2011, respectively as follows:

   
March 31,
 
   
2012
   
2011
 
Amortization
  $ 143,502     $ -  
Depreciation
    10,869       8,695  
    $ 154,371     $ 8,695  

Amortization relates primarily to acquisition costs recorded as a result of our acquisition of RespondQ, LLC in July 2011 (See NOTE D - GOODWILL AND INTANGIBLE ASSETS to our financial statements for additional disclosure).

Nonoperating Income and (Expense)

During the three months ended March 31, 2012 and 2011, interest expense totaled $8,396 and $5,445, respectively. Interest expense during the three months ended March 31, 2012 increased $2,951 compared to the same period of 2011 due to higher average loan balances outstanding during 2011 compared to 2010. Additionally, during the three months ended March 31, 2012 the Company recognized $60,000 of expense related to the beneficial conversion feature contained in the January 9, 2012 convertible promissory note (See NOTE F – NOTES to our financial statements for additional disclosure).
 
Net Loss and Net Loss per Share

During the three months ended March 31, 2012 and 2011, our net loss totaled $474,045 and $129,830, respectively resulting in a net loss per share of $0.02 and $0.01 during the three months ended March 31, 2012 and 2011, respectively. Common stock equivalents and outstanding options and warrants were not included in the calculations due to their being anti-dilutive.
 
 
17

 
 
Liquidity and Capital Resources
 
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. 

From inception to March 31, 2012, we have incurred an accumulated deficit of $5,446,741. This loss has been incurred through a combination of stock compensation of $1,194,016, professional fees and expenses supporting our plans to develop our business and brand our services as well as continued operating losses.

At March 31, 2012, iTrackr Systems had current assets of $194,309, including cash on hand of $46,333 and accounts receivable of $137,852 compared to accounts payable and accrued expenses of $361,755.  During the three months ended March 31, 2012, the Company had revenue of $138,247 and net losses of $474,045.  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 for the next twelve months.  On July 12, 2011, the Company purchased RespondQ, LLC. With the purchase of RespondQ and subsequent improvements made to the related product offerings, the Company anticipates improved financial performance and increases in sales. In the near term, we expect that the cash on hand and accounts receivable totaling $184,185 will be sufficient to cover approximately 3-4 months of operations. Management is working to secure additional sales and debt and equity financing.
Net cash used by operating activities was $193,806 for the three months ended March 31, 2012 as compared to $8,766 for the three months ended March 31, 2011.

No cash was provided or used by investing activities for the three months ended March 31, 2012 or 2011.

Net cash provided by financing activities was $110,000 for the three months ended March 31, 2012 as compared to $0 for the three months ended March 31, 2011.

During the three months ended March 31, 2012, iTrackr Systems, Inc.:

·  
Received $50,000 upon the exercise of options to purchase 500,000 shares of restricted common stock.

During the year ended December 31, 2011, iTrackr Systems, Inc.:

·  
Received $315,000 upon the exercise of warrants to purchase 1,400,000 shares of restricted common stock;
·  
Received $80,000 upon the exercise of stock options to purchase 800,000 shares of restricted common stock;
·  
Converted $60,904 of notes payable and accrued interest into 243,616 shares of restricted common stock;
·  
Issued 100,000 shares in exchange for services valued at $43,350; and
·  
Issued 5,000,000 shares in conjunctions with the purchase of RespondQ, LLC.
 
Off-Balance Sheet Arrangements
 
We have no material off-balance sheet transactions.
 
 
18

 
 
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Not applicable.

ITEM 4.    CONTROLS AND PROCEDURES.
 
See Item 4(T) below.

ITEM 4(T).    CONTROLS AND PROCEDURES.
 
Evaluation of Disclosure Controls and Procedures

As of March 31, 2012, 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 March 31, 2012.  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, 2011 and 2010, 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, 2011:
 
 
19

 

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 three months ended March 31, 2012.  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.
 
 
20

 

PART II -- OTHER INFORMATION
 
ITEM 1.    LEGAL PROCEEDINGS.
 
Not applicable.
 
ITEM 1A.    RISK FACTORS.
 
Not applicable.
 
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
During the three months ended March 31, 2012, the company received $50,000 and issued 500,000 shares upon the exercise of an option.
 
ITEM 3.    DEFAULTS UPON SENIOR SECURITIES.
 
Not applicable.
 
ITEM 4.    MINE SAFETY DISCLOSURES.
 
Not applicable.
 
ITEM 5.    OTHER INFORMATION.
 
Not applicable.
 
 
21

 
 
ITEM 6.
EXHIBITS.
 
Exhibit No.
 
Identification of Exhibit
     
31.1*  
Certification of Jacobo Melcer, Chief Executive Officer of iTrackr Systems, Inc., pursuant to 18 U.S.C. §1350, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
     
31.2*  
Certification of Justin Frere, Chief Financial Officer of iTrackr Systems, Inc., pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
     
32.1*  
Certification of Jacobo Melcer, Chief Executive Officer of iTrackr Systems, Inc., pursuant to 18 U.S.C. §1350, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
     
32.2*  
Certification of Justin Frere, Chief Financial Officer of iTrackr Systems, Inc., pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
 
101.INS **
 
XBRL Instance Document
     
101.SCH **
 
XBRL Taxonomy Extension Schema Document
     
101.CAL **
 
XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF **
 
XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB **
 
XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE **
 
XBRL Taxonomy Extension Presentation Linkbase Document
_____
*      Filed Herewith
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
22

 
 
SIGNATURES
 
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  ITRACKR SYSTEMS, INC.  
       
Date: May 2, 2011
By:
/s/ Jacobo Melcer  
    Jacobo Melcer  
    Interim Chairman and  
    Interim Chief Executive Officer (Principal Executive Officer)  
       
  By: /s/ Justin Frere  
    Justin Frere, )  
    Chief Financial Officer  
    (Principal Financial Officer, and Principal Accounting Officer  
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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/ Jacobo Melcer    Interim Chairman and Interim Chief Executive      May 2, 2012
Jacobo Melcer    Officer (Principal Executive Officer)    
         
/s/ Justin Frere   Chief Financial Officer (Principal Financial   May 2, 2012
Justin Frere   ,Officer and Principal Accounting Officer)    
 
 
23
 
 

PINX:IRYS Quarterly Report 10-Q Filling

PINX:IRYS Stock - Get Quarterly Report SEC Filing of PINX:IRYS stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

PINX:IRYS Quarterly Report 10-Q Filing - 3/31/2012
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