FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACTS OF 1934


For the Quarter ended November 30, 2003		Commission file number: 000-14356

HEALTHTRAC, INC.

(Exact name of Registrant as specified in its charter)


CANADA		91-1353658

(State of incorporation)		(I.R.S. Employer Identification No.)

539 MIDDLEFIELD ROAD, REDWOOD CITY, CALIFORNIA		94063

(Address of principal executive offices)		(Zip Code)

Indicate by check mark whether the Registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes [ ] No [X]

The number of shares of common stock outstanding as of January 7, 2004 was 222,632,398.

TABLE OF CONTENTS


		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit Index
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

HEALTHTRAC, INC.

TABLE OF CONTENTS


		Page

PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets at November 30, 2003 (unaudited) and February 28, 2003		4
	Condensed Consolidated Statements of Operations (unaudited) for the three months and nine months ended November 30, 2003 and 2002		5
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited)		6
	Condensed Consolidated Statements of Cash Flows (unaudited) for the three and nine months ended November 30, 2003 and 2002		7
	Notes to Condensed Consolidated Financial Statements (unaudited)		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Not applicable
Item 4. Controls and Procedures			18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings			18
Item 2 to 5 – Not applicable
Item 6. Exhibits and reports on Form 8K			19
SIGNATURES			20
CERTIFICATIONS			21

INTRODUCTORY NOTE

The Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Company intends that certain matters discussed in this report are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by the context of the statement which may include words such as the Company “believes,” “anticipates,” “expects,” “forecasts,” “estimates,” or other words of similar meaning and context. Similarly, statements that describe future plans, objectives, outlooks, targets, models or goals are also deemed forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those forecasted or anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements and elsewhere in this report, including Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Stakeholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements or construe such statements to be a representation by the Company that the objectives or plans of the Company will be achieved. The forward-looking statements included in this report are made only as of the date of this report, and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Explanatory Note

On October 24, 2003 the Company entered into an Asset Purchase Agreement with Ultra Communications, Inc., a Delaware Corporation, to sell all assets and current operating liabilities of the Company’s call center segment business. The Company recorded the results of Discontinued Operations through October 23, 2003. As the business sold represented a separate component of the Company, discontinued operations accounting applies. As a result, information in this report separates the results of discontinued operations from continuing operations for all periods presented. As such, readers should be aware that information contained in this report will differ significantly from information contained in reports previously filed by the Company with the Securities and Exchange Commission.

Auditors Review Note

Healthrac is continuing to work with KPMG on its review of the third quarter 10Q and entries associated with the sale of Northstar. On October 24, 2004, we anticipate filing an amended 10Q by the end of the week.

HEALTHTRAC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in United States dollars)


			November 30, 2003			February 28, 2003

			(Unaudited)			(Restated – note 3)
ASSETS
Current assets:
	Cash and cash equivalents		$	66,369		$	154,760
	Accounts receivable			184,285			242,341
	Inventories			124,572			121,435
	Prepaid expenses and deposits			125,138			130,280
	Assets of discontinued operations (note 3)			—			353,030

		Total current assets		500,364			977,018
Equipment and software, net				126,079			28,814
Intellectual property, net of $2,822,785 accumulated amortization (Feb 28, 2003 - $1,915,459)				3,226,033			4,133,359

			$	3,852,476		$	5,164,019

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	996,538		$	844,670
	Accrued liabilities			734,545			714,974
	Deferred revenue			274,879			328,826
	Current portion of obligations under capital lease			8,608			19,470
	Liabilities of discontinued operations (note 3)			332,550			571,373

		Total current liabilities		2,347,120			2,479,313
	Obligations under capital lease			9,344			9,344
	Shareholders’ equity:
		Common shares, no par value (note 4):
		Authorized: 300,000,000 (Feb 28, 2003 – 300,000,000) common shares
		Issued and outstanding: 222,536,417 (Feb 28, 2003 – 223,104,598)		122,063,671			121,809,921
	Shares to be issued			—			100,000
	Accumulated deficit			(120,567,659	)		(119,234,559	)

		Total shareholders’ equity		1,496,012			2,675,362

			$	3,852,476		$	5,164,019

Future operations (note 1)
Commitment and contingencies (note 7)
Subsequent event (note 10)

See accompanying notes

HEALTHTRAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in United States dollars)


		Three Months Ended						Nine Months Ended

		November 30, 2003			November 30, 2002			November 30, 2003			November 30, 2002

					(Restated – note 3)						(Restated – note 3)
		(unaudited)						(unaudited)
Revenue			501,934			480,161			1,539,996			1,760,955
Costs and expenses:
	Direct costs		186,419			29,921			541,301			456,170
	Selling, general and administrative		676,382			337,713			1,593,565			2,219,577
	Amortization		315,042			310,119			926,329			993,370
	Write-down of equipment		—			—			—			397,150

			1,177,843			677,753			3,061,195			4,066,267
Operating loss			(675,909	)		(197,592	)		(1,521,199	)		(2,305,312	)
Other income (expense):
	Forgiveness of debt		28,298			—			64,927			—
	Loss on disposal of fixed assets		—			—			—			—
	Miscellaneous		491			(450	)		491			—

			28,789			(450	)		65,418			—
Loss from continuing operations			(647,120	)		(198,042	)		(1,455,781	)		(2,305,312	)
Income (loss) from discontinued operations (note 3)			122,883			(45,322	)		122,681			(59,958	)

Loss for the period		$	(524,237	)	$	(243,364	)	$	(1,333,100	)	$	(2,365,270	)

Basic and diluted Income (loss) per common share (note 2)
	Continuing operations	$	—		$	—		$	(0.01	)	$	(0.01	)
	Discontinued operations	$	—		$	—			—			—

Loss for the period		$	—		$	—		$	(0.01	)	$	(0.01	)

Weighted average number of shares outstanding – basic and diluted			221,417,186			218,110,190			222,130,417			212,734,705

See accompanying notes

HEALTHTRAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Expressed in United States dollars)
(Unaudited)


			Common Shares

						Assigned			Shares to			Accumulated
			Number			Value			be issued			deficit			Total

Balance, February 28, 2001				127,834,749		$	107,521,482		$	4,705,000		$	(107,156,515	)	$	5,069,967
Shares issued during the year
		Exercise of CCAA warrants		732,433			—			—			—			—
		Issued for acquisition of Sullivan Park		6,500,000			2,210,000			(2,700,000	)		—			(490,000	)
		Shares issued and to be issued for acquisition of Healthtrac		13,212,976			4,492,412			107,588			—			4,600,000
		Issued on acquisition of Med Wire assets		241,935			150,000			—			—			150,000
		Issued on acquisition of specific assets of Healthscape		631,579			240,000			—			—			240,000
		Shares issued for cash received pursuant to private placements		42,985,717			4,744,125			(2,005,000	)		—			2,739,125
		Shares to be issued for settlement of debt		—			—			6,000			—			6,000
		Shares issued for settlement of debt		3,716,090			971,767			—			—			971,767
		Shares issued for services		1,425,777			123,658			—			—			123,658
		Shares issued for employees’ and directors’ compensation		1,018,181			566,000			—			—			566,000
		Shares issued for severance pay		1,000,000			100,000			—			—			100,000
		Shares returned to treasury and cancelled		(265,424	)		—			—			—			—
		Shares to be issued for cash received pursuant to private placements		—			—			640,625			—			640,625
		Share issue costs		—			(24,000	)		—			—			(24,000	)
		Subscription receivable		—			(410,000	)		—			—			(410,000	)
		Loss for the year		—			—			—			(9,916,809	)		(9,916,809	)

Balance, February 28, 2002				199,034,013		$	120,685,444		$	754,213			(117,073,324	)		4,366,333
Shares issued during the year
	For cash pursuant to private placements			20,040,238			859,124			(561,625	)		—			297,499
	Shares to be issued for cash received pursuant to private placements			—			—			15,000			—			15,000
	Shares issued for employee compensation ($50,000 cash received from private			1,000,000			130,000			—			—			130,000
	Subscription receivable			—			(77,500	)		—			—			(77,500	)
	Shares issued for services			1,450,000			45,500			—			—			45,500
	Shares issued and to be issued for acquisition of Healthtrac			431,293			107,588			(107,588	)		—			—
	Shares to be issued for settlement of debt			1,149,054			59,765			—			—			59,765
	Loss for the year			—			—			—			(2,161,235	)		(2,161,235	)

Balance, February 28, 2003				223,104,598			121,809,921			100,000			(119,234,559	)		2,675,362
Shares issued during the period
	Shares returned to treasury and cancelled			(2,218,181	)		—			—						—
	Subscription receivable						153,750									153,750
	Shares issued for private placements in previous years			1,650,000			100,000			(100,000	)					—
	Loss for the period			—			—			—			(1,333,100	)		(1,333,100	)

Balance, November 30, 2003				222,536,417		$	122,063,671			—		$	(120,567,659	)	$	1,496,010

See accompanying notes

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States dollars)


			Three Months Ended						Nine Months Ended

			November 30, 2003			November 30, 2002			November 30, 2003			November 30, 2002

			(unaudited)						(unaudited)
						(Restated – note 3)						(Restated – note 3)
Cash flows from operating activities:
	Loss for the period			(406,467	)		(1,175,845	)	$	(808,863	)	$	(2,121,903	)
Items not involving cash
		Loss from discontinued operations		—			15,480			—			19,491
		Write down of equipment and loss on disposal of fixed assets		9,197			397,150			9,197			397,150
		Non-cash compensation expense		—			—			—			80,000
		Forgiveness of debt		(24,258	)		—			(36,629	)		—
		Inventory obsolescence provision		—			(30,768	)		—			(30,768	)
		Amortization		312,905			354,501			627,707			705,777
	Changes in non-cash operating working capital:
		Accounts receivable		76,201			8,310			173,500			136,400
		Inventories		4,047			21,995			(2,972	)		38,005
		Prepaid expenses and deposits		11,536			21,804			11,536			49,319
		Accounts payable		87,986			294,327			207,448			83,188
		Accrued liabilities		(17,251	)		(2,310	)		(17,461	)		316,327
		Deferred revenue		17			(103,645	)		(119,602	)		(108,993	)
		Deposit		—			—			—			53,299

	Cash received (used in) continuing operations			53,913			(199,001	)		56,418			(382,708	)
	Cash used in discontinued operations			(10,000	)		(12,721	)		(35,000	)		(4,652	)
				43,913			(211,722	)		8,861			(387,360	)
Investments:
	Acquisition of equipment			(113,691	)		(4,327	)		(113,691	)		(11,575	)
Financing:
	Cash received for shares issued			—			—			—			207,500
	Notes payable			—			44,999			—			33,720
	Repayment of capital lease obligation, net			(6,078	)		(18,886	)		(7,892	)		(35,024	)
	Issuance of common shares for cash			—			—			—			0
	Cash received for subscriptions receivable			35,000			—			35,000			15,000

				28,922			26,113			27,108			221,196
Decrease in cash and cash equivalents				(40,856	)		(189,936	)		(77,722	)		(177,739	)
Increase (decrease) in cash of discontinued operations				—			4,639			—			31,179
Cash and cash equivalents at beginning of period				150,007			287,129			186,873			248,392

Cash and cash equivalents at end of period			$	109,151		$	101,832		$	109,151		$	101,832

Non-cash transactions and supplemental disclosures (note 6)

See accompanying notes

HEALTHTRAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)

1. Description of the Company and Summary of Significant Accounting Policies

The Company

Healthtrac Inc. is primarily engaged in providing health management designed to improve the quality of care while reducing overall healthcare costs. The Company provides health management services to health plans, self-insured employers and government agencies via programs designed to postpone disease and disability through preventive practices and chronic disease self-management.

Future Operations

These financial statements have been prepared on the going concern basis, which assumes the realization of assets and the settlement of liabilities in the normal course of business. The application of the going concern concept is dependent on the Company’s ability to generate future profitable operations and receive continued financial support from its shareholders and from external financing. The Company recognized losses of $524,237 and $1,333,100 for the three and nine month periods ended November 30, 2003 and has an accumulated deficit of $120,567,659 at November 30, 2003. For the nine month period ended November 30, 2003, the Company received $8,861 in cash from operations, used $113,671 to fund acquisitions of new equipment and received $27,108 from financing activities resulting in a decrease in cash of $77,722. As at November 30, 2003, the Company has a working capital deficiency of $1,846,756, including cash of $66,369.

Management projects that the Company will require additional cash and working capital to fund planned operations and capital asset additions for the next twelve months of approximately $600,000. There can be no assurance that funds from external financings will be available when required on an economical basis to the Company. The ability of the Company to continue as a going concern and realize the carrying value of its assets is dependent on the Company’s ability to increase its Healthcare business revenues by increasing its customer base and reducing its operating costs so that the Company achieves profitable operations and successfully negotiating concessions with the Company’s trade creditors on amounts owing. Subsequent to November 30, 2003, the Company had a judgment award against itself in the amount of $239,424.31 plus attorney fees and costs (note 7 b(i)). The Company is currently in negotiations with the plaintiff and evaluating its options. To date, subsequent to November 30, 2003, the Company has raised $nil in external financings through common share private placements. If the Company is unable to obtain sufficient funds for operations, it will be required to reduce operations or divest assets.

These financial statements do not reflect any adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of operations.

Significant Accounting Policies

		Basis of presentation

		These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Except as disclosed in note 17 of the Company’s annual audited consolidated financial statements as at February 28, 2003, these principles do not differ materially from accounting principles generally accepted in Canada.

		These consolidated financial statements do not include all disclosures required by accounting principles generally accepted in the United States or required by Canadian generally accepted accounting principles for annual financial statements, and accordingly, these consolidated financial statements should be read in conjunction with the Company’s most recent annual consolidated financial statements. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for the fair presentation of these unaudited financial statements, have been made. These consolidated financial statements follow the same accounting policies and methods of application used in the Company’s audited annual consolidated financial statements as of and for the year ended February 28, 2003, except as it relates to website development detailed below.

		Consolidation

		These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All subsidiaries were acquired from unrelated parties and have been accounted for using the purchase method. Their results of operations have been included from the respective effective dates of acquisition. All significant intercompany balances and transactions have been eliminated.


Canadian subsidiaries		United States subsidiaries

Canadian-American Communications Inc.		Northnet Telecommunications Inc.
Canadian Northstar Transmission Systems Ltd.		eCommerce Solutions inc.
Preferred Telemangement Inc. (“PTI)		Sullivan Park, Inc. (“Sullivan Park”)
Cam-Net Cellular Inc.		Healthtrac Corporation

		Use of estimates

		Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in preparing these financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates. In these consolidated financial statements, significant areas requiring the use of management estimates relate to the determination of collectibility of accounts receivable, the recoverability of equipment and intellectual property and rates for depreciation and amortization.

		Website Development

		The Company capitalizes the cost of website development costs, including customizing new software, significant upgrades and enhancements. Amortization of these costs is provided over three years on a straight line basis. Routine maintenance and operational costs that do not increase functionality are expensed as incurred.

		Recent Accounting Pronouncements

		In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (‘SFAS No. 148”), which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for fiscal years ending after December 15, 2002 with earlier application permitted. We have adopted the disclosure provisions of SFAS No. 148 in our consolidated financial statements.

		In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosures Requirements for Guarantees, including indirect Guarantees of Indebtedness of Others”, an interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34 (“FIN No. 45”). FIN No. 45 clarifies the requirements of SFAS No. 5, “Accounting for Contingencies”, relating to the guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. The disclosure provisions of FIN No. 45 are effective for financial statements of interim or annual period that end after December 15, 2002. The provisions of FIN No. 45 for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor’s year-end. The Company has considered the disclosure requirements of FIN No. 45 in the preparation of these financial statements.

		In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 requires that certain financial instruments issued in the form of shares that are mandatorily redeemable as well as certain other financial instruments be classified as liabilities in the financial statements. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective beginning the Company’s second quarter of 2004. The provisions of this statement are not expected to have a material impact on the Company’s consolidated financial position or results of operations.

		In November 2002, FASB issued Emerging Issues Task Force 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. In some arrangements, the different revenue-generating activities are sufficiently separable, and there may be sufficient evidence of their fair values to separately account for some or all of the deliverables. In other arrangements, some or all of the deliverables are not independently functional, or there is not sufficient evidence of their fair values to account for them separately. EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003.

		FASB interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN No. 46”), as amended, applies in the first fiscal year or interim period beginning after December 15, 2003 to enterprises that hold a variable interest in variable interest entities created before February 1, 2003.

		The adoption of FIN No. 45, SFAS 150 and EITF 00-21 did not have a material impact on the Company’s reported financial results. The adoption of FIN No. 46 is not expected to impact the Company’s consolidated financial statements on adoption.

		Stock-based compensation plans

		The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principle Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations to account for its employee stock options plans. Under this method, compensation expense is recorded on the measurement date, which is generally the date of grant, only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, “Accounting for Stock-Based Compensation”, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic valued-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123 for employee stock option grants. Option grants to non-employees will be recognized at their fair value as the services are provided and the options earned.

Had the Company determined employee compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company’s net loss would have been increased to the pro forma amounts indicated below (no compensation expense for the three and nine months ended November 30, 2003 as no additional option grants occurred and there were no unvested outstanding options at the beginning of the period):


		Three months ended			Three months ended			Nine months ended			Nine months ended
		November 30, 2003			November 30, 2002			November 30, 2003			November 30, 2002

Loss for the period, as reported		$	(524,237	)	$	(243,364	)	$	(1,333,100	)	$	(2,365,270	)
Add:
	Employee stock-based compensation expense, as reported		—			—			—			80,000
Deduct:
	Employee stock-based compensation expense (recovery) determined under the fair value method		—			—			—			(149,008	)
	Pro forma loss for the period	$	(524,237	)	$	(243,364	)	$	(1,333,100	)	$	(2,434,278	)
	Pro forma basic and diluted loss per share	$	—		$	—		$	(0.01	)	$	(0.01	)

The weighted average fair value of employee options granted during the period ended November 30, 2002 was $0.08 estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:


	Nine months ended
	November 30, 2002

Risk free interest rate		4.07	%
Annual dividends		—
Expected lives	1.25 years
Volatility		119	%

2. Loss per share

Loss per share has been calculated using the weighted average number of shares outstanding during the period. Diluted loss per share does not differ from basic loss per share as the impact of all outstanding options and warrants would be to reduce the loss per share.

3. Discontinued operations

NorthStar was acquired by the Company in 2001. Since its acquisition, NorthStar has been an underperforming assets, unable to provide Healthtrac with ongoing income distributions. In addition, the sale of the call center business continues the Company’s ongoing effort to focus on the healthcare segment.

Under the terms of the agreement, Ultra will pay the Company $250,000 cash for the call center business’s assets and current operating liabilities at closing resulting in a gain on sale of $168,202. The sale price was derived using a fair market analysis based on a multiple times operating results. The sale agreement further stipulates that for the first eight months after the sale, the Company will have the option to repurchase the assets sold for the original sale price plus interest based on a rate of 15% per annum. The Company currently has no intention on repurchasing the call center business.

The Company can, for eight months following the payment of the purchase price, at its option, conduct an independent fair market valuation of the assets sold. If the fair market value exceeds the original purchase price by greater than $10,000 Ultra can either pay the fair value discrepancy within 60 days to the Company or sell the assets back at the original purchase price plus accrued interest. To January 19, 2004, the Company has not exercised its option to conduct an independent valuation due to its current cash resource limitations.

On February 28, 2002, the Company closed its catalogue sales division. During the third quarter of fiscal 2003, the Company discontinued its PSSP (formerly e-commerce) segment which had been substantially curtailed in fiscal 2002. As a result, the call center, catalogue and PSSP divisions represent discontinued operations to the Company. In accordance with generally accepted accounting principles in the United States, prior year and current year figures have been reclassified in the consolidated financial statements to separately reflect the assets, liabilities, revenues and expenses under discontinued operations accounting.

Summarized financial information for the discontinued operations is as follows:


	November 30, 2003		February 28, 2003

Assets:
Cash	$		$	32,113
Accounts receivable				163,754
Prepaid expenses				15,983
Capital assets, net				141,180

Assets of discontinued operations	$	0	$	353,030

Liabilities:
Accounts payable	$	87,550		371,373
Accrued liabilities		245,000		200,000

Liabilities of discontinued operations	$	332,550	$	571,373

The Company expects to settle the remaining liabilities from discontinued operations in fiscal 2004 and fiscal 2005. The Company is negotiating the settlements with the intention of settling at less than the recorded amount of $332,550. However, there can be no certainty that this will be achieved.


		Three months ended			Three months ended			Nine months ended			Nine months ended
		November 30, 2003			November 30, 2002			November 30, 2003			November 30, 2002

Revenue		$	215,196		$	299,849		$	848,749		$	916,043
Expenses (income)
	Direct costs		—			—			—			21,540
	Selling and administrative costs		280,851			292,494			888,990			884,964
	Amortization		4,502			(2,343	)		20,922			46,384
	Write down of equipment		—			55,020			9,197			139,533
	Gain on forgiveness of debt		(24,838	)		—			(24,838	)		(116,420	)

Income (loss) before gain		$	(45,319	)	$	(45,322	)	$	(45,522	)	$	(59,958	)
Gain on disposal of asset			168,202			—			168,202			—

Income (loss) from discontinued operations		$	122,883		$	(45,322	)	$	122,680		$	(59,958	)

Share capital

Authorized

	-		300,000,000 common stock without par value

	-		150,000,000 class A preference stock without par value

	-		150,000,000 class B preference stock without par value

	b.		Commitments to issue common shares

			The Company has committed to issue 13,000,000 shares to former creditors under a reorganization plan. As at November 30, 2003, 10,581,455 (February 28, 2003 - 10,581,455) shares have been issued to creditors leaving an outstanding commitment to issue 2,418,545 (February 28, 2003 - 2,418,545) shares.

	c.		Reduction of common share stated capital

			On August 22, 1996, the shareholders of the Company passed a special resolution to reduce the stated capital of the Company’s common shares by $86,729,000 (CDN $117,535,000). For accounting purposes, the recorded amounts for common shares and deficit have not been adjusted.

	d.		Warrants

On June 4, 2001, the Company issued 65,000 share purchase warrants which expire June 4, 2004. Each warrant entitles the holder to purchase one common share for $0.56. As at November 30, 2003, 65,000 of these warrants were unexercised.

	e.		Stock options

			The Company has a stock option plan, which allows the Company, at the discretion of the Board of Directors, to issue options to employees, directors and consultants to purchase common shares of the Company. Stock purchase options are granted having exercise prices based on the market price at the date of grant. The stock options expire at various dates ranging from July 28, 2010 to November 5, 2011. The stock options vest in accordance with each individual stock option agreement.

			The following summarizes changes in stock options since February 28, 2003:


	November 30, 2003

			Weighted average
	Shares		exercise price

Outstanding, beginning of year		260,000	$	0.15
Granted		—		—
Forfeited		—		—

Outstanding, end of period		260,000	$	0.15

The Company has the following stock purchase options outstanding and vested at November 30, 2003:


	Number		Price		Expiry

Employees		60,000	$	0.15		July 28, 2010
Director		200,000		0.15		November 5, 2011

Total		260,000	$	0.15

	f.		Issuance of shares for non-monetary consideration

			Shares issued for employee and director compensation, to third parties for services rendered, for settlement of debt and for the acquisition of assets or businesses are recorded based upon the market trading value of the shares at the date of the related agreements to issue the shares.

Segmented information

			The Company has one operating segment – a healthcare division (Healthtrac Corp.) upon the disposal of its call center segment on October 24, 2003 (note 2). The healthcare segment is located in the United States.

			Within the healthcare segment revenues, the four largest customers accounted for 80% (fiscal year 2002 - 80%) of total sales for the nine month period ended November 30, 2003; with two of those customers accounting for 61% (fiscal year 2002 - 68%) of segment revenues.


		Nine months ended		Nine months ended
		November 30, 2003		November 30, 2002

Healthcare segment:
	Book sales	$	309,500	$	368,753
	Programs revenue		1,230,496		1,392,202

		$	1,539,996	$	1,760,955

Non-cash transactions and supplemental disclosures


		Three months ended		Three months ended		Nine months ended		Nine months ended
		November 30, 2003		November 30, 2002		November 30, 2003		November 30, 2002

Supplementary disclosures:
	Interest paid		1,508		—		3,163		17,739
	Taxes paid		—		—		—		—
Issuance of shares for:
	Settlement of debt		—		—		—		57,163
	Additions to capital assets financed by capital leases		—		42,481		—		42,481

7.		Commitment and contingencies:

a.		The Company is committed to annual office and equipment rental payments for the next four fiscal years as follows:


2004	$	247,172
2005		291,755
2006		224,308
2007		118,195

	$	802,714

During the quarter ended November 30, 2003, the Company vacated leased premises located at 539 Middlefield Road. The Company has accrued the estimated future net costs of lease obligation of approximately $78,000 in the accounts and is currently negotiating payment terms with the landlord. The Company signed a new one year office space sublease agreement on November 1, 2003. Total remaining obligation under the lease for the period February 2004 through October 31, 2004 is $70,844.

Legal proceedings:

	(i)		Rolling Meadows Premises

			The Company moved its PSSP operations from Rolling Meadows, Illinois to the Greenwood, Indiana offices during 2002. A complaint was filed for rent and damages in the amount of $859,512. The Company’s position on this proceeding is that the building has been sublet and deny that they owe the Plaintiff any money. After the close of the quarter, the courts entered a favorable ruling for the plaintiff in the amount of $239,424.31 plus attorney fees and costs. The Company has accrued $230,000 at November 30, 2003 pursuant to this ruling in accrued liabilities on the consolidated balance sheet. The company is currently in negotiation with the plaintiff and evaluating its options.

	(ii)		Other Litigation

			The Company is involved in other legal proceedings and claims arising in the ordinary course of business including claims for outstanding payments for goods and services received and taxation claims. The Company does not believe that any liabilities related to the proceedings to which it is a party are likely to be, individually, or in the aggregate, material to the Company’s consolidated financial statements. The Company has accrued for any amounts it considers likely to incur in the consolidated financial statements.

Comparative figures

Certain prior year figures have been reclassified to conform to the current year’s financial statement classification.

HEALTHTRAC, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of certain significant factors, which have affected the consolidated results of operations, and the consolidated financial position of the Company during the periods included in the accompanying condensed consolidated financial statements. This discussion should be read in conjunction with the related condensed consolidated financial statements and associated notes.

On October 24, 2003, the Company entered into an Asset Purchase Agreement (“Purchase Agreement”) with Ultra Communications, Inc., a Delaware corporation (“Ultra”). In accordance with the Purchase Agreement, Ultra acquired all assets and current operating liabilities of the Call Center segment, all held by NorthNet Telecommunications, Inc. (“NorthStar”), a wholly owned subsidiary of the Company. Ultra is solely owned by Josh Thackery, NorthStar’s current President. The Company recorded the results to Discontinued Operations through October 23, 2003. Information in this report separates the results of Discontinued Operations from Continuing Operations for all periods presented. As such, readers should be aware that information contained in this report will differ significantly from information contained in reports previously filled by the Company with the Securities Exchange Commission.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. The Company believes that the following are some of the more critical judgment areas in the application of its accounting policies that currently affect its consolidated financial condition and results of operations.

Revenue Recognition

Healthcare segment

Service fees for the evaluation of health assessment questionnaires and the development and monitoring of health education plans are initially deferred and recognized as services are provided and the revenues earned. Sales of publications and written materials are recognized upon shipment, at which time title is transferred to the customer.

Call Center segment

The Call Center, which was disposed of on October 24, 2003 (note 3), provides transaction processing, centralized billing, customer and technical support, order entry, order fulfillment, bill collection, help desk services and dispatch functions. Revenue is recognized based on monthly per customer transactions for standard services in accordance with contractual arrangements.

Accounts Receivable

The Company is required to estimate the collectibility of its trade receivables and unbilled costs and fees. A considerable amount of judgment is required in assessing the ultimate realization of these receivables including the current credit-worthiness of each customer. Significant changes in required reserves may occur in the future depending on future market conditions.

Inventory

The Company is required to state its inventories at the lower of cost or market. In assessing the ultimate realization of inventories, the Company is required to exercise judgment in its assessment of future demand requirements and compare that with the current or committed inventory levels. It is possible that changes in required inventory reserves may continue to occur in the future due to market conditions.

Intellectual property

The Company’s management has estimated the useful life of the intellectual property that was acquired through the acquisition of Healthtrac in fiscal 2002 as being five years. We have yet to realize net income from this acquisition and may not be able to realize these assets in the normal course of operations during the five years. In estimating the fair value of intellectual property, our Company’s management estimates their value at the segment level. Management has reviewed recent sales transactions in the Healthcare business and believes that the fair value of this asset is higher than the net book value. The fair value will be impacted by general economic conditions, demand for the segment’s services and other factors. To the extent that the fair value is reduced in future periods, we may be required to record an impairment charge against the carrying value of the intellectual property.

Contingencies

The Company is involved in legal proceedings as disclosed in note 7 in the consolidated financial statements. The Company has recorded its best estimate of any costs associated with these legal proceedings. The accrual for these types of costs is subject to considerable uncertainty and actual results may differ from the amounts accrued.

Going Concern

Our ability to continue as a going concern and to realize the carrying value of our assets is dependent on our ability to obtain additional financing to fund future operations and on our ability to translate our growth into profitable operations. The outcome of these matters cannot be predicted with any certainty at this time. Accordingly, our consolidated financial statements contain note disclosures describing the circumstances that led there to be doubt over our ability to continue as a going concern that states that the Company has a working capital deficiency of $1,846,756 at November 30, 2003 and the Company has suffered recurring losses from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements have been prepared without any adjustments that would be necessary if we become unable to continue as a going concern and were therefore required to realize upon our assets and discharge our liabilities in other than the normal course of operations.

RESULTS OF OPERATIONS
(Unaudited)
(Expressed in United States dollars)


			Three Months Ended November 30,						Nine Months Ended November 30,

			2003			2002			2003			2002

Revenues
	Healthcare		$	501,934		$	480,161		$	1,539,996		$	1,760,955
	Corporate			—			—			—			—

		Total revenues	$	501,934		$	480,161		$	1,539,996		$	1,760,955

Loss for the period
	Healthcare		$	(486,319	)	$	(187,074	)	$	(1,062,984	)	$	(872,089	)
	Corporate			(160,800	)		(10,970	)		(382,795	)		(1,433,223	)
	Discontinued Operations			122,883			(45,322	)		122,681			(59,958	)

Total loss			$	(524,237	)	$	(243,364	)	$	(1,331,100	)	$	(2,365,270	)

REVENUES

On a consolidated basis, revenues from continuing operations for the nine months ended November 30, 2003 decreased by 12% to $1,539,996 from the same period in the prior year. The decrease was primarily the result of a one time book order of $271,000 in the prior year in the Healthcare segment which was offset by a smaller book order of $141,250 in the current year period. For the three months ended November 30, 2003, revenues increased by 5% due primarily to strong book sales in the quarter versus the same period in the prior year.

NET LOSS

On a consolidated basis, the operating loss decreased 34% for the nine months ended November 30, 2003. The reduced operating loss is the result of cost containment initiatives in the healthcare and corporate business segments and a write-down of equipment of 397,150 which occurred during the second quarter ended August 31, 2002. The operating loss from corporate operations decreased by 73% to $382,795.

On a consolidated basis, the operating loss increased 242% for the three months ended November 30, 2003. The increased operating loss is the result of increased spending on information technology development initiatives within the healthcare segment and expenses recognized in association with the vacancy of leased building space in Redwood City.

DIRECT COSTS

Direct costs consist primarily of the cost of participant materials and books sold and utilized by the healthcare segment. The increase in direct costs from $456,170 to $541,301 for the nine months ended November 30, 2003 is a result of incremental program material purchases the current period compared to the first three quarters in fiscal 2003.

Direct costs, increased from $29,921 to $186,419 during the three months ended November 30, 2003 in comparison to the prior year quarter. This increase was primarily driven by a large book sale in the current period that did not occur in the same period in fiscal 2003.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses consist primarily of personnel-related expenses, professional fees, and rent and utilities. Selling, general and administrative expenses for the nine months ended November 30, 2003 were $1,593,565 or 100% of revenues as compared to $2,219,577 or 126% of revenues for the nine months ended November 30, 2002. The decrease reflected the overall reduction in expenses in the healthcare and corporate business segments, as a result of a decrease in staff and lower outside services expenses.

Selling, general and administrative expenses for the three months ended November 30, 2003 were $676,382 or 135% of revenues as compared to $337,713 or 70% of revenues for the three months ended November 30, 2002. The increase in current quarter spending was primarily associated with increased spending on information technology development and recorded liabilities associated with former leased office space.

AMORTIZATION

Amortization consists of depreciation on equipment and amortization of the intellectual property. The decrease from $993,370 to $926,329 for the nine months ended November 30, 2003 is due to lower depreciation as certain equipment was written off in fiscal 2003. The increase from $310,119 to $315,042 for the three months ended November 30, 2003 is primarily associated with the amortization of software development initiatives in the prior quarter.

WRITE-DOWN OF EQUIPMENT

During the nine months ended November 30, 2002 the Company wrote-down equipment by $397,150. This write down occurred in the second quarter ending August 31, 2002.

LIQUIDITY AND CAPITAL RESOURCES

As at November 30, 2003, the company had a net working capital deficiency of $1,846,756, capital assets with a book value of $126,079, intellectual property with a book value of $3,226,033, obligations under long-term capital leases of $9,344 and a net equity of $1,496,010.

During the first three quarters of fiscal 2004, we received $8,861 in cash from operations compared to using $387,360 in cash for the first half of fiscal 2003. $27,108 was obtained from financing activities and the Company utilized $113,691 for new computer equipment and software additions for a net decrease in cash of $77,722. Cash at November 30, 2003 was $66,369.

We have historically funded operations through the issuance of common shares. We expect the need to fund our working capital deficit, future operations and investments through the issuance of common shares and from operations. Subsequent to November 30, 2003, there have not been any sales of common shares. There can be no assurance that we will be able to generate proceeds from the sale of common shares during the balance of fiscal 2004 or successfully negotiate concessions with the Company’s trade creditors on amounts owing. Subsequent to November 30, 2003, the Company had a judgment aware against itself in the amount of $239,424.31 plus legal fees (note 7 b(i)). The Company is currently in negotiations with the plaintiff and evaluating its options.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Chief Executive Officer and Chief Financial Officer of the Company have concluded, based on their evaluation as of the date within 90 days prior to the date of the filing of this quarterly report on Form 10-Q, the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 and 15d-14. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective in ensuring that all material information required to be filed in this quarterly report have been made known to them, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls

There have been no significant changes in internal controls, or in other factors that could significantly affect internal controls subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company moved its PSSP operations from Rolling Meadows, Illinois to the Greenwood, Indiana offices during 2002. A complaint was filed for rent and damages in the amount of $859,512. The Company’s position on this proceeding is that the building has been sublet and deny that they owe the Plaintiff any money. After the close of the quarter, the courts entered a favorable ruling for the plaintiff in the amount of $239,424.31 plus attorney fees and costs. The Company has accrued $230,000 at November 30, 2003 pursuant to this ruling in accrued liabilities on the consolidated balance sheet. The company is currently in negotiation with the plaintiff and evaluating its options.

The Company is involved in other legal proceedings and claims arising in the ordinary course of business including claims for outstanding payments for goods and services received and taxation claims. The Company does not believe than any liabilities related to the proceedings to which its is a party are likely to be, individually or in the aggregate, material to the Company’s consolidated financial condition, operations or cash flows. The Company has accrued for any amounts it considers likely in the consolidated financial statements.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits


	EXHIBIT
	NUMBER		DESCRIPTION

(The following exhibits are incorporated by reference into this Form 10-Q from reports previously filed by with the Securities and Exchange Commission)

		2(i)	Asset Purchase Agreement, dated October 23, 2003, by and between the Company and Ultra Communications, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on September 28, 2003).

		3.1	Certificate of continuance, dated January 11, 1991

		3.2	Certificate of Amendment, dated June 14, 1995

		3.3	Certificate of Amendment, dated September 14, 1995

		3.4	Certificate of Amendment, dated December 22, 1995

		3.5	Certificate of Amendment, dated March 23, 1999

		3.6	Certificate of Amendment, dated May 31, 1999

		3.7	Certificate of Amendment, dated July 18, 1997

		3.8	By-laws

10 Material Contracts

		10.1	Lease agreement between Healthtrac, Inc. and Encore LLC dated October 1,

21 Subsidiaries

		21.1	Canadian-American Communications Inc.

		21.2	Canadian Northstar Transmission Systems Ltd.

		21.3	Preferred Telemanagement Inc. (formerly Suncom Telemanagement Inc.)

		21.4	CAM-NET Cellular Inc. (formerly Direct Advantage, Inc. and Invoice Reduction Services, Inc.

		21.5	NorthNet Telecommunications Inc. (d.b.a. NorthStar Telesolutions)

		21.6	eCommerce Solutions Inc. (d.b.a. Professional Services and Software Products group)

		21.7	Healthtrac Corporation

(The following exhibits are attached to this report)

Other

		31.1 - 32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Edward Sharpless, President, Chief Executive Officer and Tony Z. DiCostanzo, Chief Financial Officer.

(b) Reports on Form 8-K

Current report on Form 8-K, furnished October 2, 2003.
Current report on Form 8-K, furnished October 3, 2003.
Current report on Form 8-K, furnished October 28, 2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

Dated: January 20, 2004


	HEALTHTRAC, INC.

	By:	/s/ Edward W. Sharpless Chief Executive Officer

Exhibit Index


	EXHIBIT
	NUMBER		DESCRIPTION

(The following exhibits are incorporated by reference into this Form 10-Q from reports previously filed by with the Securities and Exchange Commission)

		2(i)	Asset Purchase Agreement, dated October 23, 2003, by and between the Company and Ultra Communications, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on September 28, 2003).

		3.1	Certificate of continuance, dated January 11, 1991

		3.2	Certificate of Amendment, dated June 14, 1995

		3.3	Certificate of Amendment, dated September 14, 1995

		3.4	Certificate of Amendment, dated December 22, 1995

		3.5	Certificate of Amendment, dated March 23, 1999

		3.6	Certificate of Amendment, dated May 31, 1999

		3.7	Certificate of Amendment, dated July 18, 1997

		3.8	By-laws

10 Material Contracts

		10.1	Lease agreement between Healthtrac, Inc. and Encore LLC dated October 1,

21 Subsidiaries

		21.1	Canadian-American Communications Inc.

		21.2	Canadian Northstar Transmission Systems Ltd.

		21.3	Preferred Telemanagement Inc. (formerly Suncom Telemanagement Inc.)

		21.4	CAM-NET Cellular Inc. (formerly Direct Advantage, Inc. and Invoice Reduction Services, Inc.

		21.5	NorthNet Telecommunications Inc. (d.b.a. NorthStar Telesolutions)

		21.6	eCommerce Solutions Inc. (d.b.a. Professional Services and Software Products group)

		21.7	Healthtrac Corporation

(The following exhibits are attached to this report)

Other

		31.1 - 32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Edward Sharpless, President, Chief Executive Officer and Tony Z. DiCostanzo, Chief Financial Officer.

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HEALTHTRAC INC 10-Q