United States
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 ended March 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ----- to -----
Commission file number 000-05485
PTS, INC.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 88-0380544
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3355 Spring Mountain Road, Suite 66, Las Vegas, NV 89102
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (702) 380-3811
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 [ ]
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 [ ]
Applicable only 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: May 10, 2004, 281,100,505 shares of
common stock, $.001 par value.
Transitional Small Business Disclosure Format (Check One) Yes [ ] No [X]
PTS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (unaudited)
Condensed consolidated Balance Sheet as of March 31, 2004 3
Condensed consolidated Statements of Operations for the
Three Months ended March 31, 2004 and 2003 4
Consolidated Statement of Stockholders' Equity for the
period June 12, 1996(inception) to March 31, 2004 5
Condensed consolidated Statements of Cash Flows for the
Three Months ended March 31, 2004 and 2003 13
Notes to Condensed consolidated Financial Statements 15
Item 2. Management's Discussion and Analysis 21
Item 3. Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information
List of Exhibits 24
Signatures 25
Item 6. Exhibits 26
PTS, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2004
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 158,151
Prepaid inventory 40,000
Receivable for stock purchase 21,600
----------------
Total current assets
219,751
Intangible assets, net 1,146,250
Deposits 875
----------------
TOTAL ASSETS $ 1,366,876
================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 332,972
Accrued payroll taxes 79,638
Due to related parties 497,239
Short-term notes payable - due to related party 22,000
----------------
Total current liabilities 931,849
----------------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 800,000,000 shares
authorized; 251,100,505 shares issued and outstanding 251,101
Additional paid-in-capital 12,595,744
Deferred stock based compensation (30,000)
Deficit accumulated during the development stage (12,381,818)
----------------
Total stockholders' equity 435,027
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,366,876
================
The accompanying notes are an integral part
of the condensed consolidated financial statements
-3-
PTS, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Period from
June 12, 1996
For the Three Months Ended (Inception) to
March 31, March 31,
-----------------------------------
2004 2003 2004
----------------- ----------------- -----------------
Revenue $ - $
$
- -
----------------- ----------------- -----------------
Operating costs and expenses
General and operating expenses 461,703 39,576 9,109,533
Research and development 31,791 - 992,301
Debt conversion expense - - 115,284
Impairment of assets - - 2,048,608
Merger and acquisition costs - - 200,000
----------------- ----------------- -------------
Total operating costs and expenses 493,494 39,576 12,465,726
----------------- ----------------- ------------
Other Income (Expense)
Gain on extinguishments of debt - 44,972
Interest income 43 - 63,391
Interest expense (4) - (24,455)
----------------- ----------------- ------------
Total other income, net 39 - 83,908
----------------- ----------------- ------------
Net loss $ ( 493,455) $ ( 39,576) $ (12,381,818)
================= ================ ============
Net loss per basic and diluted share $ (0.00) $ (0.00)
========== =============
Weighted average shares outstanding,
basic and diluted 162,429,184 22,058,626
============= ==============
The accompanying notes are an integral part of
the condensed consolidated financial statements.
-4-
PTS, INC.
(A Development Stage Company)
Consolidated STATEMENT OF STOCKHOLDERS' EQUITY
OR THE PERIOD FROM JUNE 12, 1996 (INCEPTION) TO MARCH 31, 2004
Deficit Less:
Common Stock Detachable Accumulated Common
------------------------------- Additional Stock During the Stock
Price per Paid-in Purchase Development Subscription
Shares Amount Share Capital Warrants Stage Receivable Total
----------- --------- -------- --------- ----------- ------------ ------------- ----------
Balance, June 12, 1996 - $ - - $ - - $ $ - $ -
(inception) - - -
Shares issued for medical device 320,019 320 - 480 - - -
license 800
Shares issued for legal services 2,133 2 3.15 6,717 - - -
6,719
Expenses paid by shareholder - - - 4,167 - - -
4,167
Shares issued in private 54,667 55 3.78 204,945 - - (10,000) 195,000
placement
Net loss - - - - - (38,309) - (38,309)
------------- ------------ ----------- --------- ------------- ------------- ----------
Balance, December 31, 1996 376,819 377 - 216,309 - (38,309) (10,000) 168,377
Expenses paid by shareholder - - - 1,500 - - -
1,500
Net loss - - - - - (62,722) -
(62,722)
------------- ------------- ----------- --------- ------------- ------------- ----------
Balance, December 31, 1997 376,819 377 - 217,809 - (101,031) (10,000) 107,155
Shares issued in reorganization 122,000 122 - 30,604 - - - 30,726
Shares sold in private placement 39,400 39 5.00 196,961 - - - 197,000
Payment of subscription
receivable - - - - - - 10,000 10,000
Shares issued in exercise of 50,664 51 3.75 189,939 - - - 189,990
warrants
Shares issued to consultant 100,747 101 3.75 377,697 - - - 377,798
Shares issued for services 27,000 27 15.09 407,338 - - - 407,365
The accompanying notes are an integral part of the
consolidated financial statements.
-5-
PTS, INC.
(A Development Stage Company)
Consolidated STATEMENT OF STOCKHOLDERS' EQUITY
OR THE PERIOD FROM JUNE 12, 1996 (INCEPTION) TO MARCH 31, 2004
Deficit Less:
Common Stock Detachable Accumulated Common
------------------------------- Additional Stock During the Stock
Price per Paid-in Purchase Development Subscription
Shares Amount Share Capital Warrants Stage Receivable Total
----------- --------- -------- --------- ----------- ------------ ------------- ----------
Shares issued to shareholder to
correct issuance error 1,334 $ 1 - $ (1) $ - $ - $ - $ -
Net loss - - - - - (1,102,374) - (1,102,374)
----------- ---------- ------------ ------------- ------------- ------------ -------
Balance, December 31, 1998 717,964 718 - 1,420,347 - (1,203,405) - 217,660
Shares sold in private placement
20,590 21 14.97 308,229 - - - 308,250
Shares sold in private placement
50,000 50 10.00 294,932 205,000 - - 499,982
Shares issued for consulting
services 2,613 2 15.36 40,150 - - - 40,152
Shares issued research and
development activities 5,000 5 14.80 73,995 - - - 74,000
Net loss - - - - - (976,928) - (976,928)
----------- ---------- ------------ ------------- ------------- ------------ --------
Balance, December 31, 1999 796,167 796 - 2,137,653 205,000 (2,180,333) - 163,116
Shares sold in registered offering 18,333 18 14.00 256,650 - - - 256,668
Shares sold in a registered offering 9,000 9 11.11 99,991 - - - 100,000
Shares issued in investor relation 5,000 5 17.69 88,445 - - - 88,450
services
Shares issued in investor relation 5,000 5 23.13 115,620 - - - 115,625
services
Shares issued in investor relation 640 - 24.38 15,600 - - - 15,600
services
Shares issued to officer for 12,500 13 21.25 265,613 - - - 265,626
compensation
The accompanying notes are an integral part of the
consolidated financial statements.
-6-
PTS, INC.
(A Development Stage Company)
Consolidated STATEMENT OF STOCKHOLDERS' EQUITY
OR THE PERIOD FROM JUNE 12, 1996 (INCEPTION) TO MARCH 31, 2004
Deficit Less:
Common Stock Detachable Accumulated Common
------------------------------- Additional Stock During the Stock
Price per Paid-in Purchase Development Subscription
Shares Amount Share Capital Warrants Stage Receivable Total
----------- --------- -------- --------- ----------- ------------ ------------- ----------
Shares issued to officer for 1,900 $ 2 $ 12.65 $ 24,033 $ - $ - $ - $ 24,035
compensation
Shares subject to litigation 26,600 27 - (27) - - - -
Shares issued in settlement of a 4,000 4 7.10 28,396 - - - 28,400
dispute
Shares issued in investor relation 13,800 14 7.17 98,986 - - - 99,000
services
Shares issued in investor relation 30,000 30 7.23 216,870 - - - 216,900
services
Shares sold in private placement 5,000 5 10.00 49,995 - - - 50,000
Shares issued for research and 10,000 10 5.00 49,990 - - - 50,000
development consulting
Shares issued in investor relation 15,000 15 9.00 134,985 - - - 135,000
services
Shares issued for legal services 10,000 10 9.00 89,990 - - - 90,000
Shares issued for debt conversion 50,000 50 11.77 588,552 - - - 588,602
Shares sold in a registered offering 10,000 10 5.00 49,990 - - - 50,000
Shares issued in investor relation 40,000 40 4.20 167,960 - - - 168,000
services
Shares issued in investor relation 34,000 34 8.75 297,465 - - - 297,499
services
Shares issued in investor relation 2,500 3 7.81 19,522 - - - 19,525
services
Shares sold in a registered offering 6,429 6 3.50 22,494 - - - 22,500
The accompanying notes are an integral part of the
consolidated financial statements.
-7-
PTS, INC.
(A Development Stage Company)
Consolidated STATEMENT OF STOCKHOLDERS' EQUITY
OR THE PERIOD FROM JUNE 12, 1996 (INCEPTION) TO MARCH 31, 2004
Deficit Less:
Common Stock Detachable Accumulated Common
------------------------------- Additional Stock During the Stock
Price per Paid-in Purchase Development Subscription
Shares Amount Share Capital Warrants Stage Receivable Total
----------- --------- -------- --------- ----------- ------------ ------------- ----------
Shares sold in a registered offering 6,061 $ 6 $ 3.30 $ 19,994 $ - $ - $ - $ 20,000
Shares sold in a registered 21,938 22 2.74 60,098 - - - 60,120
offering, net of $10,080 commission
Shares sold in a registered 4,762 5 1.78 8,495 - - - 8,500
offering, net of $1,500 commission
Shares sold in a registered 11,111 11 1.53 16,988 - - - 16,999
offering, net of $3,000 commission
Shares sold in a registered 1,081 1 1.57 1,699 - - - 1,700
offering, net of $300 commission
Shares sold in a registered 5,333 5 1.59 8,495 - - - 8,500
offering, net of $1,500 commission
Shares issued in investor relation 7,500 8 2.50 18,742 - - - 18,750
services
Shares sold in a registered 12,000 12 1.06 12,738 - - - 12,750
offering, net of $2,250 commission
Shares sold in a registered 15,000 15 1.19 17,835 - - - 17,850
offering, net of $3,150 commission
Shares sold in a registered 260,000 260 0.35 90,740 - - (91,000) -
offering for notes receivable
Shares sold in a registered offering 10,000 10 0.68 6,740 - - - 6,750
Shares sold in a registered offering 36,000 36 0.70 25,139 - - - 25,175
Shares sold in a registered offering 5,000 5 0.75 3,745 - - - 3,750
Shares sold in a registered offering 10,000 10 0.65 6,490 - - - 6,500
Shares issued for legal services 100,000 100 0.56 55,900 - - - 56,000
Net loss - - - - (3,132,112) -
(3,132,112)
----------- -------- ------- ------------ ----------- ------------ ------------- ----------
Balance, December 31, 2000 1,611,655 1,612 5,172,611 205,000 (5,312,445) (91,000) (24,222)
The accompanying notes are an integral part of the
consolidated financial statements.
-8-
PTS, INC.
(A Development Stage Company)
Consolidated STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 12, 1996 (INCEPTION) TO MARCH 31, 2004
Deficit Less:
Common Stock Detachable Accumulated Common
------------------------------- Additional Stock During the Stock
Price per Paid-in Purchase Development Subscription
Shares Amount Share Capital Warrants Stage Receivable Total
----------- --------- -------- --------- ----------- ------------ ------------- ----------
Balance, December 31, 2000 1,611,655 $ 1,612 $5,172,611 $ 205,000 $(5,312,445) $ (91,000) $ (24,222)
Shares sold in a registered
offering during the three months 10,000 10 1.00 9,990 10,000
ended March 31, 2001
Shares sold in a registered
offering during the three months 278,000 278 0.50 138,722 139,000
ended March 31, 2001
Shares sold in a registered
offering during the three months 122,500 123 0.40 48,877 49,000
ended March 31, 2001
Shares sold in a registered
offering during the three months 128,158 128 0.35 44,727 44,855
ended March 31, 2001
Shares sold in a registered
offering during the three months 66,875 67 0.32 21,333 21,400
ended March 31, 2001
Shares sold in a registered
offering during the three months 16,667 17 0.30 4,983 5,000
ended March 31, 2001
Shares sold in a registered
offering during the three months 141,500 142 0.25 35,233 35,375
ended March 31, 2001
Shares sold in a registered
offering during the three months 60,000 60 0.17 9,942 10,002
ended March 31, 2001
Shares sold in a registered
offering during the three months 62,500 63 0.16 9,937 10,000
ended March 31, 2001
Shares issued for services during
the three months ended March 31, 2001 41,666 42 0.53 22,091 22,133
Shares issued for services during
the three months ended March 31, 2001 269,285 269 0.48 109,083 109,352
Shares issued for services during
the three months ended March 31, 2001 50,000 50 0.44 21,825 21,875
Shares issued for services during
the three months ended March 31, 2001 160,715 161 0.28 45,032 45,193
Shares issued for services during
the three months ended March 31, 2001 159,375 159 0.19 29,724 29,883
The accompanying notes are an integral part of the
consolidated financial statements.
-9-
PTS, INC.
(A Development Stage Company)
Consolidated STATEMENT OF STOCKHOLDERS' EQUITY
OR THE PERIOD FROM JUNE 12, 1996 (INCEPTION) TO MARCH 31, 2004
Deficit Less:
Common Stock Detachable Accumulated Common
------------------------------- Additional Stock During the Stock
Price per Paid-in Purchase Development Subscription
Shares Amount Share Capital Warrants Stage Receivable Total
----------- --------- -------- --------- ----------- ------------ ------------- ----------
Shares subscribed during the three
months ended March 31, 2001 750,000 $ 750 $ 0.47 $ 349,250 $ (350,000) $ -
Shares sold in a registered
offering during the three months 66,667 67 0.15 9,933 10,000
ended June 30, 2001
Shares sold in a registered
offering during the three months 100,000 100 0.10 9,900 10,000
ended June 30, 2001
Shares sold in a registered
offering during the three months 475,000 475 0.08 37,525 38,000
ended June 30, 2001
Shares sold in a registered
offering during the three months 683,333 683 0.06 40,317 41,000
ended June 30, 2001
Shares sold in a registered
offering during the three months 100,000 100 0.05 4,900 5,000
ended June 30, 2001
Shares sold in a registered
offering during the three months 200,000 200 0.03 5,800 6,000
ended June 30, 2001
Shares issued for services during
the three months ended June 30, 2001 61,000 61 0.66 40,199 40,260
Shares issued for services during
the three months ended June 30, 2001 270,000 270 0.38 100,980 101,250
Shares issued for services during
the three months ended June 30, 2001 100,000 100 0.31 30,900 31,000
Shares issued for services during
the three months ended June 30, 2001 575,500 576 0.21 120,279 120,855
Shares issued for services during
the three months ended June 30, 2001 775,000 775 0.18 138,725 139,500
Shares issued for services during
the three months ended June 30, 2001 125,000 125 0.12 14,875 15,000
The accompanying notes are an integral part
of the consolidated financial statements.
-10-
PTS, INC.
(A Development Stage Company)
Consolidated STATEMENT OF STOCKHOLDERS' EQUITY
OR THE PERIOD FROM JUNE 12, 1996 (INCEPTION) TO MARCH 31, 2004
Deficit Less:
Common Stock Detachable Accumulated Common
------------------------------- Additional Stock During the Stock
Price per Paid-in Purchase Development Subscription
Shares Amount Share Capital Warrants Stage Receivable Total
----------- --------- -------- --------- ----------- ------------ ------------- ----------
Shares issued for services during
the three months ended June 30, 2001 225,000 225 0.10 22,275 22,500
Reverse Stock Split 1:20 on June
30, 2001 (7,301,126) (7,304) 7,304 -
----------- --------- -------- --------- ----------- ------------ ------------- ----------
Balance, June 30, 2001 (Post
stock-split) 384,270 384 6,657,272 205,000 (5,312,445) (441,000) 1,109,211
Shares sold in a registered
offering during the three months 84,096 84 0.83 69,916 70,000
ended Sept 30, 2001
PTS - Hong Kong asset purchase
acquisition 20,000,000 20,000 0.10 1,980,000 2,000,000
Shares issued for services during
the three months ended September 246,725 247 2.45 604,229 604,476
30, 2001
Stock subscription 450,000 450 2.11 949,550 (950,000) -
Shares issued for services during
the three months ended September 50,000 50 1.01 50,450 50,500
30, 2001
Shares issued for services during
the three months ended September 205,333 205 0.95 194,861 195,066
30, 2001
Shares issued for services during
the three months ended September 25,000 25 0.85 21,225 21,250
30, 2001
Shares issued for services during
the three months ended September 375,000 375 0.80 299,625 300,000
30, 2001
Shares issued for services during
the three months ended September 10,000 10 0.72 7,190 7,200
30, 2001
Shares issued for services during
the three months ended September 95,000 95 0.67 63,555 63,650
30, 2001
Shares issued for services during
the three months ended September 60,000 60 0.55 32,940 33,000
30, 2001
The accompanying notes are an integral part
of the consolidated financial statements.
-11-
PTS, INC.
(A Development Stage Company)
Consolidated STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 12, 1996 (INCEPTION) TO MARCH 31, 2004
Deficit
Common Stock Detachable Accumulated Deferred Common
------------------------------- Additional Stock During the Equity Stock
Price per Paid-in Purchase Development Based Subscription
Shares Amount Share Capital Warrants Stage Compensation Receivable Total
--------- ------- -------- --------- ----------- ------------ ------------ ------------- --------
Shares issued for services
during the three months
ended December 31, 2001 20,000 20 0.45 8,980 9,000
Shares issued for services
during the three months
ended December 31, 2001 50,000 50 0.43 21,450 21,500
Shares issued for services
during the three months
ended December 31, 2001 220,000 220 0.40 87,780 88,000
Cancelled share issuances -
various (16,798) (16) 0.70 (12,309) (12,325)
Net loss - - (5,662,980) (5,662,980)
Payments made to
subscription receivable - - 398,620 398,620
Subscription receivable
written-off - -
91,000 91,000
Subscription receivable -
settled with services 350,000 350,000
----------- ------- --------- ----------- ------------ ------------ ------------- --------
Balance, December 31, 2001 22,258,626 22,259 11,036,714 205,000 (10,975,425) - (551,380) (262,832)
Cancellation of shares
October 2002 (200,000) (200) (5,800) (6,000)
Net Loss (474,699) (474,699)
----------- ------- --------- ----------- ------------ ------------ ------------- --------
Balance, December 31, 2002 22,058,626 22,059 11,030,914 205,000 (11,450,124) - (551,380) (743,531)
Shares issued for cash
during the three months
ended December 31, 2003 33,000,000 33,000 0.01 226,033 259,033
Employee stock compensation
45,712 45,712
Shares transferred by stock
for services 10,000 10,000
Shares issued for acquisition 20,000,000 20,000 0.01 180,000 200,000
Shares issued for services 1,790,000 1,790 0.01 13,870 15,660
Net loss
(438,239) (438,239)
----------- ------- --------- ----------- ------------ ------------ ------------- --------
Balance December 31, 2003 76,848,626 76,849 11,506,529 205,000 (11,888,363) - (551,380) (651,365)
Combine accounts 205,000 (205,000) -
Shares issued for cash
during the three months
ended March 31, 2004 65,000,000 65,000 0.01 437,645 502,645
Shares cancelled (248,121) (248) 0.01 (551,132) 551,380 -
Shares issued for
licenses 100,000,000 100,000 0.01 800,000 900,000
Shares issued for services 6,000,000 6,000 0.01 54,000 (30,000) 30,000
Shares issued for
related party debt 3,500,000 3,500 0.02 55,000 58,500
Employee stock compensation 88,702 88,702
Net loss (493,455) (493,455)
----------- -------- ----- ----------- ----------- ------------ ------------ ------------- --------
Balance, March 31, 2004 251,100,505 251,101 $12,595,744 - $(12,381,818) $(30,000) - 435,027
=========== ======== ===== ============ =========== ============ ========== ============= ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
-12-
PTS
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Period from
June 12, 1996
For the Three Months Ended (Inception) to
March 31, March 31,
---------------------------
2004 2003 2004
-------------------------------------------------
Cash flows from operating activities:
Net loss $(493,455) $(39,576) $(12,381,818)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 163,750 - 216,399
Issuance of shares for services 30,000 - 4,816,595
Issuance of shares for acquisition - - 200,000
Compensation from stock awards 88,702 - 134,414
Impairment of assets - - 2,048,608
Bad debt expense - - 104,425
Expenses paid by officer - 9,576 80,411
Subscription receivable settled with
services - - 350,000
Loss on sale of asset - - 2,608
Debt conversion expense - - 115,284
Gain on extinguishments of debt - - (44,972)
Decrease (increase) in assets:
Advances to officer - - (26,893)
Other assets
Prepaid expenses (39,595) - (40,000)
Deposits
(875)
Increase (decrease) in liabilities:
Accounts payable - trade (26,306) - 383,223
Due to related parties (192,169) 30,000 35,328
Accrued payroll taxes - - 111,874
Deposit payable - - 14,972
-------------------------------------------------
Cash used in operating activities (469,073) - (3,880,417)
-------------------------------------------------
Cash flows from investing activities:
Purchase of equipment - - (85,866)
Sale of property and equipment - - 5,000
-------------------------------------------------
Cash used in investing activities - - (80,866)
-------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of convertible debt - - 450,832
Payments on capital lease obligations - - (8,732)
Acquisition of MedMark, Inc. - - 30,726
Proceeds from the exercise of warrants - - 189,990
Payment of common stock subscription
receivable - - 408,620
Proceeds from issuance of common stock 481,045 - 3,020,331
Proceeds from issuance of note - - 25,000
Payments on note - - (3,000)
Contribution to additional paid-in capital - - 5,667
-------------------------------------------------
Cash provided by financing activities 481,045 - 4,119,434
-------------------------------------------------
Net increase (decrease) in cash 11,972 - 158,151
Cash at beginning of period 146,179 - -
-------------------------------------------------
Cash at end of period $ 158,151 $ - $ 158,151
=================================================
The accompanying notes are an integral part of
the condensed consolidated financial statements
-13-
PTS, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
UNAUDITED)
Period from
For the Three Months June 12, 1996
Ended (Inception) to
March 31, March 31,
-----------------------------------
2004 2003 2004
---------- --------- ------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:
Interest paid $ - $ - $ 1,375
========= ========= =============
Income taxes paid $ - $ - $ 1,973
========= ========= =============
The accompanying notes are an integral part of
the condensed consolidated financial statements.
-14-
PTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2004 AND 2003
(UNAUDITED)
NOTE 1 NATURE OF OPERATIONS
Development Stage Operations
PTS, Inc. (a company in the development stage since its formation
on June 12, 1996) (the "Company") has a
limited operating history with no revenues and no products or operable
technology ready for the market. On November 23, 2003, the Company
acquired PTS Products International, Inc. ("PTSPI"). PTSPI was
incorporated on October 10, 2003 in the state of Nevada and, under a
license agreement, currently holds the non-exclusive United States
patent rights to manufacture, sell and distribute, under private
label, an apparatus known as the Glove Box, pursuant to a license
agreement. It also has acquired the exclusive rights in China,
Malaysia, Singapore and Thailand and the right of first refusal for
other countries to manufacture, sell and distribute, under private
label, the Glove Box, pursuant to license agreements. The development
of this product has not yet reached the point of manufacture. As such,
the Company is subject to the risks and uncertainties associated with
a new business. The success of the Company's future operations is
dependent, in part, upon the Company's ability to raise sufficient
capital to complete development and testing of the Glove Box.
Management's plans are discussed further in the Going Concern, Note 3.
Separation Agreement
On June 25, 2002 the Company and its wholly owned subsidiary, Elast
Technologies Corporation (a Delaware corporation) ("Elast Delaware")
entered into a Separation and Distribution Agreement through which PTS
intends to spin off Elast Delaware by distributing to its stockholders
one share of Elast Delaware common stock for every twenty shares of
PTS common stock owned by stockholders of record on June 25, 2002.
After the spin off Elast Delaware will be a separate company, no
longer owned by PTS. On August 30, 2002 PTS and Elast amended the
original agreement to clarify the distribution date to occur on or
about December 31, 2002. Pursuant to the amended agreement, the
distribution date has been delayed by mutual consent of the parties,
subject to finalization of debt allocations and mutual Board of
Directors approval.
As a result of this agreement, upon consummation PTS would no longer
be involved in the development of its previous product. Pursuant to
the agreement, the Company's subsidiary, Elast Delaware, will assume
certain liabilities, the amount of which has yet to be finalized,
which are included in the March 31, 2004 consolidated balance sheet.
-15-
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The accompanying unaudited financial statements have been prepared by
the Company, in accordance with accounting principles generally
accepted in the United States of America pursuant to Regulation S-B of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in audited financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Accordingly, these interim financial
statements should be read in conjunction with the Company's financial
statements and related notes as contained in Form 10-KSB for the year
ended December 31, 2003. In the opinion of management, the interim
financial statements reflect all adjustments, including normal
recurring adjustments, necessary for fair presentation of the interim
periods presented. The results of operations for the three months
ended March 31, 2004 are not necessarily indicative of results of
operations to be expected for the full year.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of PTS and its subsidiaries, Elast Delaware, PTS Hong Kong
Ltd. ("PTS HK") and PTSPI. All significant intercompany transactions
have been eliminated. Elast Delaware and PTS HK were inactive in 2004
and 2003.
Use of Estimates
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the condensed
consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Loss Per Share
Basic and diluted loss per common share for all periods presented is
computed based on the weighted average number of common shares
outstanding during the year as defined by SFAS No. 128, "Earnings Per
Share". The assumed exercise of common stock equivalents was not
utilized for the three months ended March 31, 2004 and 2003 since the
effect would be anti-dilutive. There were 2,500 common stock
equivalents outstanding at March 31, 2004.
-16-
NOTE 3 GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company
has no established source of revenue, has experienced net operating
losses of $12,381,818 since inception, had a net loss of $493,455 and
a negative cash flow from operations of $469,073 for the quarter ended
March 31, 2004, and has a working capital deficiency of $712,098 as of
March 31, 2004. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Without realization
of additional capital, it would be unlikely for the Company to
continue as a going concern. These 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.
PTS, under a license agreement, currently holds the non-exclusive
United States patent rights to manufacture, sell and distribute, under
private label, an apparatus known as the Glove Box, pursuant to a
license agreement. It also has acquired the exclusive right in China,
Malaysia, Singapore and Thailand and the right of first refusal for
other countries to manufacture, sell and distribute, under private
label, the Glove Box, pursuant to license agreements. The development
of this product has not yet reached the point of manufacture.
Management is in the process of raising sufficient capital to complete
development and testing of the Glove Box. The first prototype was
finished during the first quarter and the test was successful.
The company is currently in discussion with different companies in
China for beta testing of the Glove Box.
NOTE 4 - LICENSE AGREEMENTS
The Company has acquired the exclusive rights in China, Malaysia,
Singapore and Thailand and the right of first refusal for other
countries to manufacture, sell and distribute, under private label,
the Glove Box. Pursuant to the licenses, the Company will pay the
licensor 10% of gross revenue of units sold. The initial license
period is through December 31, 2005. After the initial period, the
Company will pay a minimum payment based on minimum sales. The minimum
amounts will be established by the parties in the first quarter of
2005. The license will renew automatically for three year terms unless
either party advises the other 90 days prior to the expiration of the
agreement of their intent not to renew.
As consideration for the acquisition of the licenses, the Company is
to pay the former shareholders of PTSPI fees aggregating $800,000
($500,000 for China and $100,000 for each of the other countries). The
fees may be paid in cash or stock (at a 60% discount to market). The
Company has issued 100,000,000 shares of common stock, valued at
$900,000, in settlement of $390,000 of this payable, with a remaining
balance of $410,000 due at March 31, 2004.
The licenses have been valued at an aggregate amount of $1,310,000.
Amortization expense of $163,750 has been recorded during the first
quarter of 2004.
-17-
NOTE 5 - RELATED PARTY TRANSACTIONS
Due to Related Party
At March 31, 2004, the Company had accrued $25,500 of compensation
expense due to an officer and stockholder.
During the first quarter of 2004, the Company issued 3,500,000 shares
of common stock, and paid $10,000 cash, to settle a debt of $68,500
due to a former officer.
Due from Related Party
An officer had stock subscriptions due to the Company of $551,380 as
of December 31, 2003. The Company cancelled this receivable and the
related common stock (248,121 shares) during the first quarter of
2004.
License Fees
As consideration for the acquisition of the licenses described in Note
4, the Company is to pay the former shareholders of PTSPI fees
aggregating $800,000 ($500,000 for China and $100,000 for each of the
other countries). The fees may be paid in cash or stock (at a 60%
discount to market). The Company has issued 100,000,000 shares of
common stock, valued at $900,000, in settlement of $390,000 of this
payable, with a remaining balance of $410,000 due at March 31, 2004.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
License Agreement
PTSPI has acquired the non-exclusive United States patent rights to
manufacture, sell and distribute, under private label, an apparatus
known as the Glove Box. It has also acquired the exclusive right in
China and the right of first refusal for other countries to
manufacture, sell and distribute, under private label, the Glove Box.
Pursuant to the license, the Company will pay the licensor 10% of
gross revenue of units sold. The initial license period is through
December 31, 2005. After the initial period, the Company will pay a
minimum payment based on minimum sales. The minimum amounts will be
established by the parties in the first quarter of 2005. The license
will renew automatically for three year terms unless either party
advises the other 90 days prior to the expiration of the agreement of
their intent not to renew.
New Business Segment
The Company recently entered into an agreement to purchase 100
Flexiciser units under an arrangement whereby it will pay the actual
manufactured cost of the units, will jointly market the product and
divide profits equally with the manufacturer. If the Company can sell
the first order of units, it intends to continue this business.
Designed for the paraplegic and quadriplegic as well as individuals
who are unable to maintain movement through natural means, the
Flexiciser provides passive, resistive exercise. It is a motorized
machine that works off 120 volt household current. The Flexiciser is
simple to use as no transferring out of the wheelchair is necessary.
Currently we have accepted orders for the Flexiciser to be delivered
before September 2004.
-18-
Operating Leases
The Company is not currently obligated under any operating leases.
Rent expense for the three month period ended March 31, 2004 was
$4,934. There was no rent expense in the first quarter of 2003
NOTE 7 - STOCK-BASED COMPENSATION
On October 18, 2003, the Company established the 2003 Employee Bonus
Stock Plan (the "Bonus Plan") and the 2003 Directors and Consultants
Stock Plan (the "Stock Plan").
Pursuant to the Bonus Plan, the Company may grant stock options and
common stock awards to employees. The purchase price (the "Exercise
Price") of shares of the common stock subject to an incentive stock
option (the "Option Shares") or of stock awards shall not be less than
85 percent of the fair market value of the common stock on the date of
exercise. The stock option period (the "Term") shall commence on the
date of grant of the option and shall not exceed ten years. Payment
may be made (a) in cash, (b) by cashier's or certified check, (c) by
surrender of previously owned shares of common stock (if the Company
authorizes payment in stock in its discretion), (d) by withholding
from the option shares which would otherwise be issuable upon the
exercise of the stock option that number of option shares equal to the
exercise price of the stock option, if such withholding is authorized
by the Company in its discretion, or (e) in the discretion of the
Company, by the delivery to the Company of the optionee's promissory
note secured by the option shares. The maximum number of shares which
may be issued pursuant to this plan is 50,000,000.
Pursuant to the Directors and Consultants Stock Plan, compensation for
service to directors or consultants may be payable in whole or in part
in shares of common stock pursuant to the plan at the deemed issuance
price of the fair market value of the common stock on the date of the
issuance of such shares. The maximum number of shares which may be
issued pursuant to this plan is 10,000,000.
During the first quarter of 2004, the Company adopted the 2004
Employee Bonus Stock Plan (the "2004 Bonus Plan") and the 2004
Directors and Consultants Stock Plan (the "2004 Stock Plan"). The
terms of the plans are similar to those of the 2003 plans described
above. The maximum number of shares which may be issued pursuant to
the 2004 Bonus Plan and the 2004 Stock Plan are 68,000,000 shares and
2,000,000 shares, respectively. During the second quarter of 2004, the
Company adopted the 2004/B Employee Bonus Stock Plan (the "2004/B
Bonus Plan") and the 2004/B Directors and Consultants Stock Plan (the
"2004/B Stock Plan"). The terms of the plans are similar to those of
the 2003 and 2004 plans described above. The maximum number of shares
which may be issued pursuant to the 2004/B Bonus Plan and the 2004/B
Stock Plan are 98,000,000 shares and 2,000,000 shares, respectively.
-19-
NOTE 8 - STOCK TRANSACTIONS
During the three months ended March 31, 2004 the Company:
o Amended the Articles of Incorporation to authorize 800,000,000 shares
of common stock and 100,000,000 shares of preferred stock.
o Issued 65,000,000 shares of common stock for cash proceeds of $502,645
(of which $21,600 was received in April, 2004 and is shown as a
receivable on the balance sheet at March 31, 2004). These shares were
issued pursuant to the Bonus Plans described in Note 7. The shares
were sold below fair value; an expense for the intrinsic value of
$88,702 has been recorded in the statement of operations.
o Issued 100,000,000 shares of common stock, valued at $900,000, as
partial payment of fees payable to related parties in connection with
the licenses for China, Malaysia, Singapore and Thailand.
o Issued 6,000,000 shares of common stock, valued at $60,000, for
services (of which $30,000 is deferred at March 31, 2004).
o Cancelled 248,121 shares of common stock and the related receivable of
$551,380.
o Issued 3,500,000 shares of common stock, along with a cash payment of
$10,000, to settle a related party debt of $68,500.
NOTE 9 - SUBSEQUENT EVENTS
Subsequent to March 31, 2004, the Company:
Issued 10,000,000 shares of common stock for services. o Sold
20,000,000 shares of common stock pursuant to the Stock Bonus Plans
for cash proceeds of $63,505.
-20-
Item 2. Management's Discussion and Analysis of Results of Operations, Liquidity
and Financial Condition.
Company Overview
The Company was engaged in the development of two separate diagnostic tools: an
allergy testing device and an chiropractic outcome-measuring instrument.
Research and development of these products has been suspended and the Company is
currently developing an apparatus known as the Glove Box. The Glove Box(TM)
solves a long-standing contamination problem in hospitals and medical offices
caused by the normal retrieval and donning of gloves from a standard glove box.
With its patented, free-standing dispenser (looking much like a small filing
cabinet), users select from two gloves sizes, slip their hands through sealed
openings into air-filled gloves, then hit a foot switch to release the gloves
onto their hands. A significant benefit of the Glove Box(TM) is its unique
design feature that permits the dispensing of un-powdered gloves that, without
the use of the Glove Box, are increasingly the cause of both contamination and
communicable health problems.
The Company currently holds the non-exclusive United States patent rights to
manufacture, sell and distribute, under private label, an apparatus known as the
Glove Box, pursuant to a license agreement. It also has acquired the exclusive
rights in China, Malaysia, Singapore and Thailand and the right of first refusal
for other countries to manufacture, sell and distribute, under private label,
the Glove Box, pursuant to license agreements. The development of this product
has not yet reached the point of manufacture. The first prototype was finished
during the first quarter and the test was successful.
The company is currently in discussion with different companies in China for
beta testing of the Glove Box.
As a development stage company, the Company has incurred net losses since
inception through March 31, 2004 of approximately $12,381,818, and, to date, the
Company has not generated revenues from the commercialization of any products.
The Company anticipates significant expenditures on the development of The Glove
Box(TM) during this year.
It will be necessary to raise funds to develop The Glove Box(TM). The Company
may not able to raise the necessary funds to complete development of its
product.
New Business Segment
The Company recently entered into an agreement to purchase 100 Flexiciser units
under an arrangement whereby it will pay the actual manufactured cost of the
units, will jointly market the product and divide profits equally with the
manufacturer. If the Company can sell the first order of units, it intends to
continue this business. Designed for the paraplegic and quadriplegic as well as
individuals who are unable to maintain movement through natural means, the
Flexiciser provides passive, resistive exercise. It is a motorized machine that
works off 120 volt household current. The Flexiciser is simple to use as no
transferring out of the wheelchair is necessary. Currently we have accepted
orders for the Flexiciser to be delivered before September 2004.
-21-
Separation and Distribution Agreement
On June 25, 2002 the Company and its wholly owned subsidiary, Elast, entered
into a Separation and Distribution Agreement, subject to finalization of debt
allocations and mutual Board of Directors Approval, through which the Company
intends to spin off Elast. As a result of this agreement, upon consummation, the
Company would no longer be involved in the development of medical devices. All
assets related to the development of medical devices would be transferred to or
retained by Elast.
Results of Operations for the Period ended March 31, 2004
Comparison of the three months ended March 31, 2004 with the three months ended
March 31, 2003.
Overall expenses increased by $453,918 to $493,494 in 2004 from $39,576 in 2003.
Research and development activities were $31,791 in 2004, with no comparable
expense in 2003. This increase results from the acquisition of PTSPI in 2003 and
development activities on the Glove Box. General and administrative expenses
increased by $422,127 to $461,703 in 2004 from $39,576 in 2003. The major
components of the increase are as follows: Amortization of licenses, $163,750;
Compensation expense, $115,702; Consulting expense, $95,000; other expenses,
$47,675. These increases result from the activities related to the development
of the Glove Box; these activities were not present in the comparable prior
period of 2003.
Liquidity and Capital Resources
At March 31, 2004, the Company had cash and equivalents of $158,151. The Company
had no cash at March 31, 2003. Our only external source of liquidity has been
from the sale of capital stock. Sales of capital stock in 2004 generated cash
proceeds of $502,645, compared to none in 2003.
Over the past three years, the company incurred significant operating losses and
utilized significant amounts of cash to fund operations. The company is in a
critical stage in its transition from the development of its medical related
products to the development of the Glove Box. The company will continue to seek
sources of financing to facilitate this development.
Going Concern
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has no established source of
revenue, has experienced net operating losses of $12,381,818 since inception,
and a current net loss from operations of $493,455, a working capital deficiency
of $712,098 and has a negative cash flow from operations of $469,073. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Without realization of additional capital, it would be unlikely
for the Company to continue as a going concern.
-22-
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures:
As of March 31, 2004, the Company's management, including its Chief Executive
Officer and Chief Operating Officer, has reviewed and evaluated the
effectiveness of the Company's disclosure controls and procedures pursuant to
Rule 13a-15(b) of the Securities Exchange Act of 1934. Based on that review and
evaluation, the Chief Executive Officer and Chief Operating Officer have
concludes that the Company's disclosure controls and procedures are adequate and
effective and that no changes are required at this time.
Changes in Internal Controls:
In connection with the evaluation by management, including its Chief Executive
Officer and Chief Operating Officer, of the Company's internal control over
reporting, pursuant to Exchange Act Rule 13a-15(d), no changes during the
quarter ended March 31, 2004 were identified that have materially affected, or
are reasonably like to materially affect, the Company's internal control over
financial reporting.
PART 2: OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
During the Quarter ended March 31, 2004, the Company sold the following
unregistered securities:
100,000,000 shares of common stock, valued at $900,000, were issued to a related
party as partial payment for fees related to the acquisitions of licenses.
6,000,000 shares of common stock, valued at $60,000, were issued for consulting
services.
3,500,000 shares of common stock, valued at $58,500, were issued as a part of a
settlement of a payable to a related party.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
-23-
Item 6. Exhibits
(a) EXHIBITS
31. Certification of Chief Executive Officer and Principal Accounting Officer
pursuant to Rule 13a-14(a)or Rule 15d-14(a)as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32. Certification of Chief Executive Officer and Principal Accounting Officer
pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K: None
-24-
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PTS, INC.
(Registrant)
Date: May 24, 2004
By: /s/ Peter Chin
-------------------
Peter Chin, CEO
PTS, Inc.
-25-
Exhibit 31
PTS, INC.
CERTIFICATION
I, Peter Chin, certify that:
1. I have reviewed this Form 10-QSB of PTS, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15-(e)) for
the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to me by others within those entities, particularly during the
period in which this report is being prepared;
b) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report my conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
the small business issuer's internal control over financial reporting;
and
5. I have disclosed, based on my most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors and the
audit committee of the small business issuer's board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Dated: May 24, 2004 /s/ Peter Chin
--------------------------------
Peter Chin
Chief Executive Officer and
Principal Accounting Officer
-26-
Exhibit 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, pursuant to, and as required by, 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that the Quarterly Report of PTS, Inc. (the "Company") on Form 10-QSB for
the period ended March 31, 2004 fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that
information contained in such Quarterly Report on Form 10-QSB fairly presents,
in all material respects, the financial condition and results of operations of
the Company.
Dated: May 24, 2004 /s/ Peter Chin
------------ -----------------------------
Peter Chin
Chief Executive Officer and
-27-