10KSB 1 dec00-k.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) [X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2000 [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to _________ Commission File Number: 000-25947 STANFIELD EDUCATIONAL ALTERNATIVES, INC. --------------------------------------------- (Name of Small Business Issuer in its Charter) Formerly Innovative Technology Systems, Inc. FLORIDA 65-0386286 ------------------ ------------ (State or Other Jurisdiction of IRS Employer Incorporation or Organization) Identification No.) 7785 Baymeadows Way, Suite 304, Jacksonville, FL 32256 ------------------------------------------------- -------------- (Address of Principal Executive Offices) (Zip Code) 877-732-9162 ----------------- (Issuer's Telephone Number) Securities registered under Section 12(b) of the Exchange Act: Title of each Class: NONE Name of Each Exchange on Which Registered: NONE Securities registered under Section 12(g) of the Exchange Act: Common Stock, no par value -------------------------- (Title of Class) 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. [X] YES [ ] NO Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The issuer is a developmental stage company, and as such has yet to generate substantial revenues. As of December 31, 2000, the issuer had 9,329,390 shares of Common Stock outstanding. Documents incorporated by reference: NONE Transition Small Business Disclosure Format (check one): YES [ ] NO [X] 1 PART I ------ Item 1. Business Stanfield Educational Alternatives, Inc. (formerly known as Innovative Technology Systems, Inc.("Innovative")) (the "Company") is presently a development stage company. In fiscal year 1999 the company was successful in concluding the purchase of a business through an exchange of capital stock which has resulted in the Company entering into the education business. Prior to the purchase of the educational business by the Company, on November 11, 1999, Larry Stanfield, the majority shareholder of Stanfield Educational Alternatives, Inc. ("Stanfield") (which, as a result of a name swap with Innovative, is now known as Innovative Technology Systems, Inc.), entered into an agreement with John Byslma, the majority shareholder of Innovative Technologies, Inc. (which, as a result of a name swap, is now known as Stanfield Educational Alternatives, Inc.), to acquire his (Mr. Byslma's) 4,473,000 control shares of Innovative Technologies Inc. As a result of this transaction, Mr. Stanfield controlled a majority of the shares, as well as a majority of the shares of Stanfield. On December 10, 1999, Innovative Technology Systems, Inc. entered into an agreement with the majority shareholders of Stanfield Educational Alternatives, Inc. to purchase one hundred (100%) percent of the issued and outstanding shares in a tax- free exchange of shares. The share agreement allowed Stanfield Educational Alternatives' shareholders to receive 1 share of Innovative Technology Systems, Inc. common stock in exchange for 2 shares of Stanfield's common stock. A copy of this agreement has previously filed been filed with the Commission on December 16, 1999 on Form 8-K. On December 30, 1999, the Company entered into an agreement with The National Children's Reading Foundation to purchase intellectual properties and certain fixed assets at fair market value. Lawrence W. Stanfield, CEO and President of the Company, is the sole shareholder of The National Children's Reading Foundation. On January 12, 2000, Stanfield Educational Alternatives, Inc. and Innovative Technology Systems, Inc. swapped names, as is reflected in the 8-K filed on December 16, 1999, which resulted in the registrant now being known as "Stanfield Educational Alternatives, Inc." Presently, Innovative is a wholly owned subsidiary of Stanfield. On April 24, 2000 the Company opened its first corporate Ed-vancement center, and had planed to open two additional centers in the fall of 2000. However, as of March 31, 2001 these plans have been abandoned. On January 22, 2001, by the holders of a majority of the outstanding Common Stock of the Company and the Board of Directors, the Company affected the following actions: a) A reverse stock split of its Common Stock took place on or about February 22, 2001. The Company's Information Statement on Schedule 14C was filed with the Securities and Exchange Commission on February 5, 2001; 2 b) The Articles of Incorporation were amended to authorize 15,000,000 shares Preferred Stock. The preferences of the Preferred Stock were set out by the Board; c) The issuance of Preferred Stock was authorized in three different series as follows: (i) The Board of Directors designed 2,000,000 shares Preferred Stock to be authorized and issued in a private placement offering as "Series 2001 Convertible Preferred Stock." In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the corporation, the holders of shares of the Series 2001 Convertible Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the corporation available for distribution to its stockholders, whether from capital, surplus or earnings, before any payment shall be made in respect of the corporation's Common Stock. The shares of Series 2001 Convertible Preferred Stock shall have no voting rights with regard to the election of directors or as to other matters except those affecting the class. Each share of Series 2001 Convertible Preferred Stock may, at the option of the holder, be converted into fully paid and nonassessable shares of Common Stock of the corporation at any time after twelve (12) months after the issuance of such shares. (ii) The Board of Directors designed 5,593,000 shares of Preferred Stock to be authorized and issued in exchange for a like number of Common Shares, to various shareholders in consideration for the waiver of certain contractual conditions between the company and such shareholders, as well as other contractual agreements between various of the shareholders as "Series 2001A Convertible Preferred Stock." Each share of Common Stock entitles the holder thereof to one vote, either in person or by proxy, at meetings of shareholders, and such vote shall be equal to the voting rights of the Common Stock and shall be counted with the Common Stock toward the election of directors or such other action as the class of Common Stock shall be entitled. The holders are not permitted to vote their shares cumulatively. In the event that the Company shall at any time combine the outstanding Common Stock into a smaller number of shares, such action shall have no effect upon the conversion ratio of the Series 2001A Convertible Preferred Stock, which shall always be on a one share for one share basis. Each share of Series 2001A Convertible Preferred Stock may, at the option of the holder, be converted into fully paid and nonassessable shares of Common Stock of the corporation, on a one for one basis, at any time after February 1, 2002. (iii) The Board issued 5,643,175 shares of Series 2001B Convertible Preferred Stock, which carries the following preferences: The shares of Series 2001B Convertible Preferred Stock shall have no voting rights with regard to the election of directors or as to other matters except those affecting the class. In the event that the corporation shall at any time combine the outstanding Common Stock into a smaller number of shares, such action shall have no effect upon the conversion ratio of the Series 2001B Convertible Preferred Stock, which shall always be on a one share for one share basis. Each share of Series 2001B Convertible Preferred Stock may, at the option of the holder, be converted into fully paid and nonassessable shares of common stock of the corporation, on a one for one basis, at any time after twelve months from the date of execution of the agreement between the Company and Coral Ridge, Inc. The Company is a unique, progressive educational corporation and franchisor of the Company Ed-vancement Centers, a network that provides a comprehensive range of educational and tutorial services to individuals of all ages. The Company also develops and publishes a variety of specialized educational programs including a computer global Internet educational campus 3 in various languages. The Company develops a variety of educational programs for children of all ages for both video and television production. The Company's principal and proprietary products include the Easy Reader I System (for students in grades 1-3), the Easy Reader II System (for students in grades 4-6) and the Sound Factory System (a phonics program for grades 1-9). In addition, the Company will use a variety of commercially available educational products and services to create full service educational centers that can be utilized by clients from grade school through adulthood. The Company's investment in intellectual properties extends beyond programs, services and textbooks to the proprietary characters that populate them. Young students will enjoy the adventures of Jumping Monkey, Blue Fish, Funny Airplane and a host of other copyrighted and trademarked characters. The K-12 education market, the primary (but by no means exclusive) focus of the Company's efforts, is the largest segment of the education industry with approximately $360 billion spent annually. Despite that size, many analysts recognize it as the most problematic for investors because there are so few investment opportunities in this highly bureaucratic and inefficient (less than $0.50 of every public school dollar is spent in the classroom) sector. Management believes increased accountability and parental involvement will create significant demand for the kind of supplemental tutoring for kids that the Company was created to deliver. The Company, even though it is in development stage, is based upon the two and half decades of research and development of its founder, Lawrence W. Stanfield, and has patterned its business model after the successful franchisers such as those listed in the following paragraph entitled "Competition." Unlike those companies, which only deliver commercially available courseware, the Company utilizes a unique, "proprietary" learning system that is child friendly and populated with copyrighted animated characters and an innovative Internet based diagnostic tool. It is the Company's intent to compete at the franchise level with superior products, innovative technology and an initial tight marketing focus on learning disabilities. The Company also enjoys a proprietary product that is readily adaptable to Internet delivery and is thus potentially scalable to mass audience. At the corporate level, the Company believes it can compete successful in the sale of franchises due to the enormous demand. Marketing The Company plans to utilize a national and local marketing/advertising public relations firm. The Company has also developed its website that can be accessed at www.helpingkids.com. Competition The Company's competition is a fragmented landscape from "mom and pop" consultants to a handful of nationally known educational service companies. 4 The major players are: Huntington Learning Centers, Kaplan, Kumon USA and Sylvan Learning Systems. Government Regulation The sales of franchises are regulated by various state authorities as well as the Federal Trade Commission (the "FTC"). The FTC requires that franchisors make extensive disclosure to prospective franchisees but does not require registration. A number of states require registration and prior approval of the franchise-offering document. In addition, several states have "franchise relationship laws" or "business opportunity laws" that limit the ability of a franchisor to terminate franchise agreements or to withhold consent to the renewal or transfer of these agreements. While the Company's believes its franchising operations will not be materially adversely affected by such existing regulation, the Company cannot predict the effect of any future legislation or regulation. Trademarks and Copyrights The Company has applied for federal trademark registration for the following items: * Stanfield Educational Alternatives, Inc. * Stanfield Ed-vancement Centers * Company logo with name * Stanfield Interactive Database * SID * Easy Reader System I * Easy Reader System II * Sound Factory System * Jumping Monkey * Blue Fish * Funny Airplane * Bookworm In addition, the Company has applied for copyright protection for all 71 of its characters that are utilized throughout the proprietary, educational materials. Employees As of December 31, 2000, the Company had one (1) employee. This employee is considered full-time and is not represented by a union. The Company believes its relationship with its employee to be good. Environmental Laws The Company is in compliance with all environmental laws. Future compliance with environmental laws is not expected to have a material adverse effect on the business. 5 Item 2. Properties The Company leases all its facilities for administrative office space and Ed-vancement Centers. The Company currently has one (1) leased properties in the State of Florida: Jacksonville (site of the first Ed-vancement Center). Item 3. Legal Proceedings As of December 31, 2000, the Company is not aware of any legal proceeding pending against it. Item 4. Submission of Matters to a Vote of Security Holders During the year, no issues were submitted to a vote of security holders, other than on January 7, 2000, where the shareholders voted to change the name of the Company from Innovative Technology Systems, Inc. to Stanfield Educational Systems, Inc. PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company is listed on the NASD Over-the-Counter Bulletin Board interdealer trading system. The Company's trading symbol is SEAI. No dividends were declared on the Company's Common Stock during the year ended December 31, 2000, and the Company does not anticipate paying dividends in the future. The Company has authorized the issuance of 50,000,000 shares of Common Stock and 15,000,000 of Preferred Stock. The Company entered into an agreement with the majority shareholders of Stanfield Educational Alternatives, Inc. (prior to the name change) to purchase all issued and outstanding shares through a tax-free share exchange. The Agreement provided for Stanfield Educational Alternatives, Inc. shareholders to receive 1 share of Innovative Technology's common stock in exchange for 2 shares of Stanfield Educational common stock. This resulted in an additional issuance of 755,000 shares of Innovative Technology Systems, Inc. Common Stock. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD LOOKING STATEMENTS All statements contained herein that are not historical facts, including but not limited to, statements regarding the anticipated impact of future capital requirements and future development plans are based on current expectations. These statements are forward looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause actual results to differ materially are the following: amount of revenues earned by the Company's tutorial and teacher training operations; the availability of sufficient capital to finance the Company's 6 business plan on terms of satisfactory to the Company; general business and economic locations; and other risk factors described in the Company's reports filed from time to time with the Commission. The Company wishes to caution readers not to place undue reliance on any such forward looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. The Company had planned within the year 2000 to have at least three (3) learning centers open and operating. In addition, the Company had forecasted its revenues to increase substantially. However, at year end 2000, the Company had one (1) learning center open and operating in Jacksonville, Florida. The net sales for year ended December 31, 2000 was $36,740. The results of operations during the year 2000 fell substantially short of management's expectations. Company's focus in the Year 2000 was to develop and utilize the Company's proprietary products by opening corporate Ed-vancement Centers and the sale of franchised Ed-vancement Centers. The classic "big investment opportunity" is a company that has a solution to a problem. The more significant the problem, the larger the investment potential and this is an enormous problem as of today. The United States currently spends $740 billion per year on education, more than we spend on national defense, yet: * 43% of our forth graders cannot pass a basic reading test; * Nearly half of all high school graduates have not mastered seventh grade arithmetic; * Approximately 50% of all students entering the California State University system are not ready for college level English and math; and * 42 million adults in this nation are functionally illiterate. In the U.S. knowledge-based economy, there is no bigger problem than the need for a better-educated populace, yet surprisingly, there are few vehicles for investors to participate in this potential. Against this backdrop is a new work culture of a lifetime of learning, representing a huge secular trend of workers perusing what are in effect forty-year degrees rather than four-year degrees of their parents. Education remains a fragmented landscape with lots of vendors and no dominant players, which in turn creates opportunities for branding, consolidation and economies of scale. The Company was formed to commercially provide an alternative learning environment utilizing pioneering work in the field of educating children and adults, especially those with learning disabilities, by Lawrence W. Stanfield, MS. Using proprietary courseware and an innovative Internet based diagnostic system called "SID," the Company has developed a uniform tutoring model that can be used anywhere in the world. More importantly, it is a model that has raised the reading comprehension of seventy-five percent of students by two grade levels in thirty-six hours of instruction and it is a model that can be adapted to emerging distance learning technologies such as the Internet. The Company is in the business of providing educational services using a combination of proprietary and commercially available materials to offer the widest possible range of tutorial services. 7 The Company has also begun to develop a program which it will license the Stanfield Reading Program for use to students of subcribing private schools. This will include a yearly licensing fee and the purchase of all training materials from the corporation. Item 7. Financial Statements and Supplementary Data PART F/S The Company's financial statements for the year ending 2000 have been examined to the extent indicated in their report by Tedder, James, Worden and Associates, P.A., independent certified public accountants, and have been prepared in accordance with generally accepted accounting principles and pursuant to Regulation S-B as promulgated by the Securities and Exchange Commission and are included herein. The financial statements follow this Form 10-KSB, and are included as Exhibits, hereto. Item 8. Changes in Disagreements with Accountants on Accounting and Financial Disclosure The Company has no disagreements with the accountants pertaining to any accounting or financial disclosures. PART III -------- Item 9. Directors and Executive Officers of the Registrant Chief Executive Officer - Lawrence W. Stanfield, MS (54) Lawrence W. Stanfield, MS, is the Company's founder and creator of the instructional materials and methodologies that are the heart of the Company. Mr. Stanfield has been a leader in the educational industry for over three decades. Prior to his current position, Mr. Stanfield has been the President of The National Children's Reading Foundation (a not-for-profit tutorial center) for the past six years. Item 10. Executive Compensation The following table sets forth the compensation received by officers.
SUMMARY COMPENSATION TABLE -------------------------- Annual Compensation Long Term Compensation ------------------- ------------------------ Awards Payments ----------- ----------- Restricted Securities Name of Individual Other Annual Stock Underlying/ LTIP All Other and Principal Position Year Salary Bonus Compensation(1) Award(s) Options/SARs Payouts Compensation ---------------------- ---- -------- ----- --------------- ---------- ------------ ------- ------------ ------------------------------------------------------------------------------------------------------------------------- Lawrence W. 2000 $50,394 -0- -0- -0- -0- -0- -0- Stanfield, C.E.O. 1999 $66,000 -0- -0- -0- -0- -0- -0- (since 1/15/93) 1998 $-0- -0- -0- -0- -0- -0- -0- Persons (1) (2) 1997 $-0- -0- -0- -0- -0- -0- -0- -------------------------------------------------------------------------------------------------------------------------
8 The Company plans to form a Compensation Committee, which will be responsible for compiling suitable compensation for current and future officers that will be employed by the Company. Item 11. Security Ownership of Certain Beneficial Owners and Management Table 1. Security Ownership of Certain Beneficial Owners -------------------------------------------------------- (1) (2) (3) (4) Name of Amount and Nature Percent Title of Beneficial of Beneficial of Class Owner Ownership Class -------- ---------- -------------------- ----------- Common Stock Lawrence W. Stanfield 3,870,000 50% Table 2. Security Ownership of Management ------------------------------------------------ (1) (2) (3) (4) Name of Amount and Nature Percent Title of Beneficial of Beneficial of Class Owner Ownership Class -------- ---------- -------------------- ----------- Common Stock Lawrence W. Stanfield 3,870,000 50% Item 12. Certain Relations and Related Parties The President and principal stockholder and certain employees have made advances to the Company. The advances are non-interest bearing and were made principally for working capital purposes. These advances are included in due to related parties in the accompanying balance sheet stated set forth under Item 8 herein. On December 30, 2000, the Company entered into an agreement with The National Children's Reading Foundation to purchase intellectual properties and certain fixed assets at 9 fair market value. Lawrence W. Stanfield, CEO and President of the Company, is the sole shareholder of The National Children's Reading Foundation. PART IV ------- Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K ITEMS 1 AND 2. INDEX TO AND DESCRIPTION OF EXHIBITS (a) EXHIBIT No. EXHIBIT NAME ---------------- ------------ 3(i) Certificate of Incorporation [1] 3(ii) Bylaws [1] ----------------------- [1] Previously filed as an exhibit to our registration statement of Form 10-SB, (the "Registration Statement") which was originally filed on May 3, 1999, and incorporated herein by reference. (b) Reports on Form 8-K The Company, on December 16, 1999 filed on form 8-K information, pursuant to Item 1, "Changes in Control of Registrant" and Item 2, "Acquisition or Disposition of Assets" supplying the required information pursuant to the Act. These Changes have been reflected in this Form 10-KSB filing. The Company on January 24, 2000 filed on form 8-K information, pursuant to Item 5., "Other Events" supplying the required information regarding the Company's name change and adoption of amended and restated articles of incorporation. In addition, the Company filed information, pursuant to Item 7., "Financial Statements and Exhibits" relating to the Share Exchange between the Registrant and Stanfield Educational Alternatives, Inc. wherein the Registrant acquired all of the outstanding shares of Stanfield Educational Alternatives, Inc. These changes have been reflected in this Form 10-KSB filing. 10 SIGNATURES ---------- Stanfield Educational Alternatives, Inc. By: /s/ Lawrence W. Stanfield --------------------------------------------- Lawrence W. Stanfield, Chief Executive Officer Date: April 13, 2000 11 STANFIELD EDUCATIONAL ALTERNATIVES, INC. (A Development Stage Company) Table of Contents Independent Auditors' Report....................................F-1 Financial Statements: Balance Sheets..................................F-2 Statements of Operations........................F-3 Statements of Stockholders' Equity..............F-4 Statements of Cash Flows........................F-5 Notes to Financial Statements...................................F-8 12 Independent Auditors' Report ---------------------------- To the Stockholders and Board of Directors of Stanfield Educational Alternatives, Inc.: We have audited the accompanying balance sheets of Stanfield Educational Alternatives, Inc. (a development stage company) (the "Company") as of December 31, 2000 and 1999 and the related statements of operations, stockholders' equity, and cash flows for the year ended December 31, 2000, the period from May 23, 1999 (inception) to December 31, 1999, and for the period March 23, 1999 (inception) to December 31, 2000. These financial statements are the responsibility of Company management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stanfield Educational Alternatives, Inc. as of December 31, 2000 and 1999 and the results of its operations and cash flows for the year ended December 31, 2000, the period from May 23, 1999 (inception) to December 31, 1999, and the period from March 23, 1999 (inception) to December 31, 2000, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that Stanfield Educational Alternatives, Inc. (a development stage company) will continue as a going concern. As discussed in Notes 1 and 9 to the financial statements, the Company's net loss during the development period and the need to obtain substantial additional funding to complete its development, raises substantial doubt about the entity's ability to continue as a going concern. Management's plans and intentions with regard to these matters are discussed in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. April 12, 2001 Orlando, Florida F-1
STANFIELD EDUCATIONAL ALTERNATIVES, INC. (A Development Stage Company) Consolidated Balance Sheets December 31, 2000 and 1999 Assets 2000 1999 ------ ----------- ----------- Current assets: Cash $ - 31,363 Accounts receivable (net of allowance for doubtful accounts of $12,728 in 2000) 5,105 - ----------- ----------- Prepaid expenses - 1,673 Total current assets 5,105 33,036 Property and equipment, net 218,412 82,422 Other assets 365,895 399,134 ----------- ----------- Total assets $ 589,412 514,592 =========== =========== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 128,834 22,000 Bank overdraft 11,166 - Accrued expenses 17,159 26,228 Due to related parties 41,330 443,600 Notes payable 345,611 13,698 ----------- ----------- Total current liabilities 544,100 505,526 Stockholders' equity: Common stock 2,701,579 243,034 Accumulated deficit (2,656,267) (233,968) ----------- ----------- Total stockholders' equity 45,312 9,066 ----------- ----------- Total liabilities and stockholders' equity $ 589,412 514,592 =========== ===========
See Accompanying Notes F-2 STANFIELD EDUCATIONAL ALTERNATIVES, INC. (A Development Stage Company) Consolidated Statements of Operations Year ended December 31, 2000 and the period from May 23, 1999 (inception) to December 31, 1999
Period from May Cumulative for 23, 1999 the period from Year ended (inception) to March 23, 1999 December 31, December 31, (inception) to 2000 1999 December 31, 2000 ---------------- --------------- ----------------- Net sales $ 36,740 - $ 36,740 Cost of sales 264 - 264 ---------------- --------------- ---------------- Net revenue 36,476 - 36,476 Operating expenses 2,444,055 232,364 2,676,419 Other expenses: Interest expense 14,720 1,604 16,324 ---------------- --------------- ---------------- Total expense 2,458,775 233,968 2,692,743 ---------------- --------------- ---------------- Net loss $ 2,422,299 233,968 2,656,267 ================ =============== ================ Basic loss per common share $ 0.28 0.038 ================ =============== Weighted average common shares outstanding 8,621,730 6,143,438 ================ ===============
See Accompanying Notes F-3 STANFIELD EDUCATIONAL ALTERNATIVES, INC. (A Development Stage Company) Consolidated Statements of Shareholders' Equity Year ended December 31, 2000 and the period from May 23, 1999 (inception) to December 31, 1999
Additional Common stock Paid in Accumulated Shares Amount Capital deficit Total ----------- ----------- ------------ ---------------- ----------- Balance, March 23, 1999 (inception) - $ - - - - Issuance of stock 1,510,000 1,510 241,524 - 243,034 Shares issued to reflect re-capitalization of reverse acquisition 5,345,000 241,524 (241,524) - - Net loss - - - (233,968) (233,968) ----------- ----------- ----------- ------------- ---------- Balances, at 6,855,000 243,034 - (233,968) 9,066 December 31, 1999 Issuance of common stock 405,140 403,140 - - 403,140 Issuance of common stock for services 2,069,250 2,055,405 - - 2,055,405 Net loss - - - (2,422,299) (2,422,299) ----------- ----------- ----------- ------------- ---------- Balances, at December 31, 2000 9,329,390 $ 2,701,579 - (2,656,267) 45,312 =========== =========== =========== ============= ==========
See Accompanying Notes F-4 STANFIELD EDUCATIONAL ALTERNATIVES, INC. (A Development Stage Company) Consolidated Statements of Cash Flow Year ended December 31, 2000 and the period from May 23, 1999 (inception) to December 31, 1999
Period from May Cumulative for 23, 1999 the period from Year ended (inception) to March 23, 1999 December 31, December 31, (inception) to 2000 1999 December 31, 2000 ---------------- --------------- ----------------- Cash flows from operating activities: Net loss $ (2,422,299) (233,968) (2,656,267) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 135,035 1,096 136,131 Common stock issued for services 2,055,405 - 2,055,405 Cash provided by changes in: Accounts receivable (5,105) - (5,105) Prepaid expenses 1,673 (1,673) - Other assets (46,632) - (46,632) Accounts payable 106,834 22,000 128,834 Bank overdraft 11,166 - 11,166 Accrued expenses (9,069) 26,228 17,159 ---------------- --------------- ----------------- Net cash used by operating activities (172,992) (186,317) (359,309) Cash flows from investing activities: Acquisitions of property and equipment (191,154) (83,299) (274,453) Cash flows from financing activities: Due to related parties (402,270) 44,247 (358,023) Proceeds from the issuance of capital stock 403,140 243,034 646,174 Proceeds from the issuance of notes payable 331,913 13,698 345,611 ---------------- --------------- ----------------- Net increase in financing activities 332,783 300,979 633,762 ---------------- --------------- ----------------- Net increase in cash and cash equivalents (31,363) 31,363 - ---------------- --------------- -----------------
See Accompanying Notes F-5 STANFIELD EDUCATIONAL ALTERNATIVES, INC. (A Development Stage Company) Consolidated Statements of Cash Flow (continued) Year ended December 31, 2000 and the period from May 23, 1999 (inception) to December 31, 1999
Cash and cash equivalents - beginning of period 31,363 - - ---------------- --------------- ----------------- Cash and cash equivalents - end of period $ - 31,363 - ================ =============== =================
See Accompanying Notes F-6 STANFIELD EDUCATIONAL ALTERNATIVES, INC. (A Development Stage Company) Consolidated Statements of Cash Flow (continued) Year ended December 31, 2000 and the period from May 23, 1999 (inception) to December 31, 1999
Period from May Cummulative for 23, 1999 the period from Year ended (inception) to March 23, 1999 December 31, December 31, (inception) to 2000 1999 December 31, 2000 ---------------- --------------- ----------------- Supplemental disclosure of cash flow information: Cash paid for interest $ - 590 590 ================ =============== ================= Non-cash activity: Purchase of other assets from related parties $ - 399,353 399,353 ================ =============== =================
See Accompanying Notes F-7 STANFIELD EDUCATIONAL ALTERNATIVES, INC. (A Development Stage Company) (1) Summary of Significant Business and Accounting Policies (a) Organization In December 1999, Innovative Technology Systems, Inc. (the "Innovative") authorized and entered into an agreement effecting a tax-free exchange in a reorganization pursuant to IRS Code 368(a)(1)(A). Pursuant to the agreement, Innovative exchanged one share of its previously authorized but unissued shares of no par common stock in exchange for two shares of Stanfield Educational Alternatives, Inc.'s (the "Company") common stock. In accordance with the agreement, Innovative acquired all of the issued and outstanding shares of the Company in exchange for shares of Innovative. For accounting purposes, the acquisition has been treated as an acquisition of Innovative Technology Systems, Inc. by the Company and as a re-capitalization ("Reverse Acquisition") of the Company. The financial statements are those of the Company. Pro forma information is not presented, since the combination is a re- capitalization rather than a business combination. During 2000 Innovative Technology Systems, Inc. changed its name to Stanfield Educational Alternatives, Inc. and simultaneously the former Stanfield Educational Alternatives, Inc. changed its name to Innovative Technology Systems, Inc. The Company is an educational corporation and franchiser of the Stanfield Ed-vancement centers, a network that provides a comprehensive range of educational and tutorial services to individuals of all ages. The Company also develops and publishes a variety of specialized educational programs including a computer global internet educational campus in various languages. The Company's research and development division develops a variety of educational programs for children of all ages for both video and television production. The Company is in its development stage and needs substantial additional capital to complete its development and to reach an operating stage. The accompanyin financial statements have been prepared assuming that the Company will continue as a going concern, and therefore, will recover the reported amount of its assets and satisfy its liabilities on a timely basis in the normal course of its operations. See Note 9 to the financial statements for a discussion of management's plans and intentions. F-8 (1) Summary of Significant Business and Accounting Policies, Continued (b) Property and Equipment Property and equipment are stated at cost. Depreciation for financial statement purposes is computed using the straight- line method over the estimated useful lives of the individual assets, which range from 3 to 5 years. The Company has reviewed its long-lived assets and intangibles for impairment and has determined that no adjustment to the carrying value of long-lived assets is required. (c) Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. (d) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (e) Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets resulting principally from operating losses have not been recognized. (f) Loss Per Share Loss per share amounts are based on the weighted average shares outstanding of 8,621,730 and 6,143,438 for the years ended December 31, 2000 and 1999, respectively. F-9 (2) Leases During 2000 the Company entered into various leases for office and storage space under non-cancelable operating leases with original lease terms of five years. The lease payments total $6,840 per month and increase on a yearly basis. Total lease payments for the year ended December 31, 2000 totaled $61,557. Future minimum lease payments under non-cancelable operating leases as of December 31, 2000 are as follows: Year ended December 31, Operating leases ------------------------ ---------------- 2001 $ 83,923 2002 86,457 2003 89,052 2004 91,696 2005 23,090 --------------- Total minimum lease payments $ 374,218 (3) Property and Equipment At December 31, 2000 and 1999, property and equipment consist of the following: 2000 1999 --------- --------- Computer software $ 44,107 34,905 Computer equipment 64,912 16,082 Furniture and fixtures 99,526 12,658 Equipment 65,908 19,654 --------- --------- 274,453 83,299 Less accumulated depreciation (56,041) (877) --------- --------- Total property and equipment, net $ 218,412 82,422 ========= ========= F-10 (4) Other Assets At December 31, 2000 and 1999, other assets consist of the following: 2000 1999 ---------- --------- Writer's Consent $ 245 245 Literary properties 15,000 15,000 Intellectual Properties 384,108 384,108 Deposits 46,632 - ---------- --------- 445,985 399,353 (80,090) (219) ---------- --------- $ 365,895 399,134 ========== ========= These assets were purchased from the National Children's Reading Foundation on December 30, 1999. The National Children's Reading Foundation is a not-for-profit company whose shares are held by Lawrence Stanfield, who is a substantial shareholder of Stanfield Educational Alternatives, Inc. These assets will be amortized utilizing the straight-line method over a five-year life. Management reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the opinion of management, no such impairment has occurred. (5) Notes Payable Notes payable at December 31, 2000 and 1999 consist of note agreements with various individuals bearing interest at rates varying from 10% to 12%. A number of these notes are in default and the total outstanding balance of $345,611 at December 31, 2000 and $13,698 at December 31, 1999 have been classified as current liabilities. (6) Capitalization The Company has authorized the issuance of 50,000,000 shares of common stock, having no par value. In accordance with the agreement and plan of share exchange the Company acquired all issued and outstanding shares of common stock of the former Stanfield in exchange for shares of the Company. For accounting purposes the transaction was treated as a recapitalization ("Reverse Acquisition"). (7) Income Tax The Company has no provision for taxes as they have a net operating loss of approximately $2,000,000 that expires in varying times through the year 2015. No deferred asset has been recorded, as the possibility of benefiting from the net operating loss is dependent on the Company achieving profitable operations. F-11 (8) Related Party Transactions The president and principal stockholder and certain employees have made advances to the Company. The advances are non-interest bearing and were made principally for working capital purposes. These advances are included in due to related parties in the accompanying balance sheet. (9) Management Plans and Intentions (Unaudited) Management anticipates, through a combination of additional debt but primarily equity financing, that the Company will successfully complete the remaining research and development of its technology and determine and implement its overall marketing strategy. However, as of December 31, 2000, the success of achieving the objectives discussed above, as well as the ultimate profitability of the Company's operations once the development stage has ended, cannot be determined. F-12