U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ending June 30, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 0-28607
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INNOVATIVE HOLDINGS & TECHNOLOGIES, INC.
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(Name of Small Business Issuer in its Charter)
COLORADO 74-2929034
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(State of Incorporation) (IRS Employer Identification No.)
100 South Orange Ave., Ste. 100,Orlando, FL 78247
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number,( 407 ) 481 - 8900
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Former Name, former address and former fiscal year if changed since last report
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
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Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes No
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Applicable on to corporate issuers
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date:
Transitional Small Business Disclosure Format
(Check One)
Yes No
INNOVATIVE HOLDINGS & TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
WITH ACCOUNTANTS' REPORT
FOR THE SIX MONTHS ENDED
JUNE 30, 2000
TABLE OF CONTENTS
Page
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Accountants' Review Report.............................................. 1
Condensed Consolidated Financial Statements
Balance Sheets......................................................... 2
Statements of Operations............................................... 3
Statements of Cash Flows............................................... 4
Notes to Condensed Consolidated
Financial Statements................................................... 5 - 7
DIROCCO & DOMBROW, P.A.
3601 W. COMMERCIAL BLVD, SUITE #39
FT. LAUDERDALE, FL 33309
(954) 731-8181
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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Board of Directors
Innovative Holdings & Technologies, Inc. and Subsidiary
Orlando, Florida
We have reviewed the accompanying condensed consolidated balance sheet of
Innovative Holdings & Technologies, Inc. and Subsidiary as of June 30, 2000 and
the related condensed consolidated statements of operations and cash flows for
the six months ended June 30, 2000 and 1999, included in the accompanying
Securities and Exchange Commission Form 10-Q for the period ended June 30, 2000.
These condensed consolidated financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modification that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 4 to the
consolidated financial statements, the Company's significant operating losses
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 4. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheets as of December 31, 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended (not presented herein). In our report dated March 16, 2000,
we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying balance sheet as of June
30, 2000, is fairly stated in all material respects in relation to the balance
sheet from which it has been derived.
August 1, 2000
INNOVATIVE HOLDINGS AND TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2000 1999
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Current assets
Cash $ 3,642 $ 2,011
Prepaid expenses -- 3,681
Note receivable 10,250 10,250
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Total current assets 13,892 15,942
Property and equipment 20,053 23,121
Other assets 5,931 4,263
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Total assets $ 39,876 $ 43,326
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued
expenses $ 19,109 $ 25,826
Withholding taxes payable 163,803 163,250
Notes payable -- 25,000
Due to affiliate 128,103 43,751
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Total current liabilities 311,015 257,827
Stockholders' equity (deficit)
Preferred stock, $.001 par value,
50,000,000 shares authorized,
no shares issued and
outstanding, respectively -- --
Common stock, $.0001 par value,
450,000,000 shares authorized,
44,124,884 and 23,124,884 issued
and outstanding, respectively 4,413 2,313
Additional paid-in capital 4,128,519 3,080,619
Stock subscriptions receivable (1,259,000) (334,000)
Deficit (3,145,071) (2,963,433)
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Total stockholders' equity (deficit) (271,139) (214,501)
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Total liabilities and stockholders' equity (deficit) $ 39,876 $ 43,326
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The accompanying notes are an integral part of these financial statements.
-2-
INNOVATIVE HOLDINGS & TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30,
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2000 1999
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Expenses
General and administrative $ 174,997 $ 175,062
Research and development -- 13,989
Interest expense 6,641 --
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Total expenses 181,638 189,051
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Net loss $(181,638) $(189,051)
========= =========
Basic loss per share $ (0.008) $ (0.009)
========= =========
Diluted loss per share $ (0.008) $ (0.009)
========= =========
The accompanying notes are an integral part of these financial statements.
-3-
INNOVATIVE HOLDINGS & TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
2000 1999
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Cash flows from operating activities:
Net loss $(181,638) $(189,051)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Prepaid expenses 3,681 --
Depreciation 3,068 370
(Increase) decrease in:
Other assets (1,668) (241,721)
Increase (decrease) in:
Accounts payable and accrued expenses (6,717) 18,148
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Net cash used by operating activities (182,271) --
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Cash flows from investing activities:
Proceeds from investment ( -- ) ( -- )
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Net cash used by investing activities ( -- ) ( -- )
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Cash flows from financing activities:
Payments of notes payable (250,000) ( -- )
Proceeds from affiliate 2,100 ( -- )
Proceeds from issuance of stock (925,000) ( -- )
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Net cash provided by financing activities -- --
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Increase (Decrease) in cash -- --
Cash at beginning of period -- --
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Cash at end of period $ -- $ --
========= =========
The accompanying notes are an integral part of these financial statements.
-4-
INNOVATIVE HOLDINGS & TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Presentation of Interim Information
In the opinion of the management of Innovative Holdings & Technologies, Inc. and
Subsidiary, Inc. (the Company), the accompanying unaudited condensed
consolidated financial statements include all normal adjustments considered
necessary to present fairly the financial position as of June 30, 2000, and the
results of its operations and cash flows for the six months ended June 30, 2000
and 1999. Interim results are not necessarily indicative of results for a full
year.
The condensed consolidated financial statements and notes are presented as
permitted by Form 10-Q, and do not contain certain information included in the
Company's audited consolidated financial statements and notes for the year ended
December 31, 1999.
2. Financial Statements
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany balances,
transactions and stockholdings have been eliminated.
3. Supplemental Disclosures of Cash Flow Information
Six months ended June 30,
-------------------------
2000 1999
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Operating Activities:
Interest paid $ 758 $ -
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4. Going Concern
As shown in the accompanying financial statements, the Company incurred net
losses of $181,638 for the six months ended June 30, 2000. The Company's current
liabilities exceeded its current assets by $179,270 at June 30, 2000. The
ability of the Company to continue as a going concern is dependent on the
development and marketing of products to be offered by its subsidiary. In
September 1999, the Company contracted a software developer to design and
develop the software. The Company has completed the software and expects to
begin generating significant revenues by May, 2000. The expected costs to
complete the software, purchase of hardware and marketing will be approximately
$500,000. These costs will be funded by the issuance of its common stock in the
amount of $500,000 under a subscription agreement dated November 9, 1999. Of the
subscribed amount, $166,000 was collected to date. The Company feels that the
amount from the offering will be sufficient to fund the completion of the
project. The Company will offer additional shares of its common stock to raise
capital on an as needed basis.
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INNOVATIVE HOLDINGS & TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Legal Proceedings
On April 25, 2000, BCR Media, Inc. filed a complaint against the
Company alleging that it owns 500,000 common shares of the Company and
the Company refused to transfer the shares in accordance with BCR
Media, Inc.'s request. BCR Media, Inc. is seeking damages from its
inability to sell the shares and has requested damage based on the face
value of the shares plus interest, costs and attorneys fees.
6. Stock Options
On January 12, 1998, the Company entered unto a stock option agreement
in which the Company grants the option to officers to purchase up to
362,619 shares of non-voting common stock for an exercise price of
$1.72 per share at any time through January 12, 2013.
An option to purchase a second group of 453,275 shares of non-voting
common stock at the same exercise price is granted and fully
exercisable on January 11, 2012, however, if the controlling interest
value of the Company, as defined in the agreement, exceeds a certain
dollar amount on December 31, 2003, the option may become exercisable
as early as may 1, 2004 and may be exercised in whole or in part until
January 12, 2013. Special provisions apply in the event of death,
disability or termination of the employee.
Prior to December 31, 2003, should the Company sell substantially all
of its assets and business, or if 51% of the issued and outstanding
stock is held by stockholders other than the stockholders at January
12, 1998, or if employment is terminated by the Company for good cause
or by the optionee for good reason, certain percentages of the option
stock may become immediately and fully exercisable contingent upon the
attainment of certain target values for the Company and the date of
occurrence.
Number of options outstanding on January 1, 1998 -
Number of options granted in 1998 362,619
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Number of options outstanding on December 31, 1998 362,619
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Number of options exercisable at December 31, 1998 362,619
=======
Weighted average exercise price per share outstanding
and per shared exercisable $ 1.72
=======
-6-
INNOVATIVE HOLDINGS & TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Stock Options, (Continued)
Total compensation cost recognized in 1998 for stock
based compensation awards $ -
========
Grant date fair value of options granted in 1998 $ 16,000
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Weighted average options grant date fair value
of options granted in 1998 $ .044
========
Weighted average remaining contractual life of
options outstanding and exercisable 14 years
========
No options were exercised, were forfeited or expired in 1998 and 1999.
The calculation of the fair values of the options, under the minimum
value method, assumes that no corporate dividends will be issued prior
to the exercise of the options, and that the options will be exercised
immediately prior to the exercise expiration date. The risk free
interest rate used in the calculation was based on the zero coupon
government issue rate of approximately 6 percent.
The Company has accounted for the stock options under APB Opinion 25,
an accounting standard under which no related compensation expense was
recognized in 1998, the year of the grant. Under an alternative
accounting standard, FAS 123, compensation expense of $16,107 would
have been recognized related to the grant, resulting in net income of
$406,134.
-7-
INNOVATIVE HOLDINGS & TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Income Taxes
The total deferred tax assets are as follows:
Net Operating Loss Carryforwards Applicable Tax Rate
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Valuation Amount Per
Federal State Total Federal State Allowance Balance Sheet
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Deferred tax assets at
December 31, 1997 -- -- -- -- -- -- --
Changes for the year
ended December 31, 1998 -- -- -- -- -- -- --
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Deferred tax assets at
December 31, 1998 -- -- -- -- -- -- --
Changes for the
year ended
December 31, 1999 -- -- -- -- -- -- --
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Deferred tax assets at
December 31, 1999 $ -- $ -- $ -- $ -- $ -- $ -- --
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At December 31, 1999, the Company has net operating loss carryforwards of
$2,928,322. These losses will begin expiring in 2002.
A valuation allowance has been provided against the deferred tax assets at
December 31, 1999 and 1998 since it is likely that the Company will not
realize the benefits of the deferred tax assets.
-8-
INNOVATIVE HOLDINGS & TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Condensed Consolidated Financial Data" and the Company's Condensed
Consolidated Financial Statements and Notes thereto included elsewhere in this
document.
Overview
Since its inception in 1987, the Company's purpose is to conduct offerings of
its securities to raise capital to acquire businesses in various industries. For
the period from January 9, 1987 (inception) to September 30, 1990, the Company
incurred a total net loss of $181,638. During this period, the Company devoted
substantially all of its efforts to establish and organize a television
cablecast facility. However, by the end of 1990 the operations of the Company
ceased.
From December 1990 through October 1997, the Company did not operate any
businesses and was inactive.
In November 1997, the Company changed its name to Innovative Holdings &
Technologies, Inc. The Company considers its role to be an incubator of high
technology companies and began its search for suitable business acquisitions. In
the second quarter of 1998, the Company signed an agreement to acquire BioCam
Company, Inc. (BioCam), a developer of telemetry technology in the amount of
$1,000,000. This was paid for by issuance of convertible preferred stock and
restricted common stock. The Company began supporting the operations of BioCam
financially and funded approximately $350,000, in 1998. By the end of 1998, the
principals of BioCam rescinded on their agreement with the Company and the
relationship was terminated.
On January 8, 1999, the Company incorporated Xtreme Telemetry Systems, Inc.
(Xtreme) and is its soles stockholder. Xtreme is continuing the development of a
product on the cutting edge of communications technology. Xtreme is finalizing
the development of a real time telemetric monitoring device, which will be
marketed initially in the sports and entertainment industries. The device will
monitor performance and transmit the data by broadcast or over the internet. In
September, 1999, the Company secured the services of specialists in computer
software development. The alpha-beta testing of the software commenced in the
fourth quarter, 1999. The products under development were completed in January,
2000.
Marketing efforts commenced in January, 2000. Revenues are anticipated through
the sale of advertising at Xtreme's web site and through the promotion of
sponsorships by organizations and other related to the sports and entertainment
industries.
Results of operations
The following table sets forth, for the periods indicated, certain items from
the Company's Consolidated Statements of Operations, expressed as a percentage
of total expenses.
Results of Operations, continued
The six months ended June 30,
------------------------------
2000 1999
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Revenues 0.0% 0.0%
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Expenses:
General and Administrative 96.3% 90.3%
Research and Development - 8.0%
Interest Expense 3.7% 1.7%
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Total Expenses 100% 100%
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Net Loss 100% 100%
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Revenues
- --------
The Company had no revenues for the six months ended June 30, 2000 and 1999.
Revenues are expected to commence during 2000.
General and Administrative
- --------------------------
General and administrative expenses have increased from $158,643 in 1999 to
$174,997 in 2000. The increase in these expenses resulted from the purchase of
Xtreme and Company's dedicated support to develop their business operations.
Research and Development
- ------------------------
Research and development expenses decreased from $13,989 in 1999 to $0 in 2000.
Research and development expenses are not recurring expenses.
Interest Expense
- ----------------
Interest expense is due from personal loans made to the company. The amounts
from 1999 to 2000 have not varied considerably.
Liquidity and Capital Resources
- -------------------------------
The Company requires capital principally for the financing of operations and the
development of their wholly owned subsidiary, Xtreme Telemetry Systems, Inc. To
date, the company has financed its operations primarily through the sale its of
equity securities. During the six month period ended June 30, 1999, the Company
generated $210,000 from the issuance of its stock.
Liquidity and Capital Resources, continued
The Company had negative working capital as of June 30, 2000 of $422,123
compared to $241,885 as of December 31, 1999.
As stated in the Company's Consolidated Financial Statements, the Company's
ability to continue as a going concern is dependent upon issuance of stock and
attaining profitable operations. The deficiency in operating cash flows is
expected to continue until such time that the Company will begin to generate
cash flows from the telemetry data in the form of advertisement and sponsorship
sales. Operations are expected to begin in 2000 and the research and development
costs will have ceased. The Company is pursuing equity financing through a
private placement dated July 17, 2000. There can be no assurance the additional
financing will be attained or that the operations will be profitable. Such
inability would have a material adverse effect on the Company's business,
operating results and financial condition.
The Company currently has no specific commitments with regard to capital
expenditures with the exceptions of purchasing computer equipment and sensors.
The Company's future capital requirements will, depend on its ability to acquire
complementary business ventures, products or technologies.
The Company believes that its current cash balances will not provide the
liquidity necessary to satisfy the Company's working capital needs.
Inflation
Inflation has not had a significant impact on the Company since its inception
nor is it expected to have a significant impact in the foreseeable future.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use." SOP 98-1 is effective for financial statements
for years beginning after December 15, 1998. SOP 98-1 provides guidance over
accounting for computer software developed or obtained for internal use,
including the requirement to capitalize and amortize specific costs. The
adoption of this standard did not have a material effect on its capitalization
policy.