10-Q: Southern ITS International Reports Net Profit for Nine Months Ended September 30, 2016, Despite Revenue Decline

Southern ITS International, Inc. reports a net profit of $59,337 for the nine months ended September 30, 2016, a turnaround from a net loss in the previous year, despite a decrease in revenue.

Summary

• Southern ITS International, Inc. reported financial results for the nine months ended September 30, 2016.
• The company achieved revenues of $409,057, a decrease from $727,680 in the same period of 2015.
• Costs of services decreased significantly from $464,689 in 2015 to $88,016 in 2016.
• Operating expenses were $238,046 in 2016, compared to $247,951 in 2015.
• The company reported a net profit of $59,337 for the nine months ended September 30, 2016, compared to a net loss of $19,375 for the same period in 2015.
• Basic and diluted loss per share remained at $0.00.
• As of September 30, 2016, the company had $40,475 in cash and cash equivalents, compared to $15,178 as of December 31, 2015.
• The company's accumulated deficit from inception to September 30, 2016, was $9,109,575.
• The company's management acknowledges substantial doubt about its ability to continue as a going concern.
• The company is seeking additional debt and/or equity financing to fund future operations.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While the company reports a net profit, there are concerns about its ability to continue as a going concern and material weaknesses in internal control.

Positives

• The company achieved a net profit of $59,337 for the nine months ended September 30, 2016, compared to a net loss of $19,375 for the same period in 2015.
• Costs of services decreased substantially to $88,016 from $464,689 year-over-year.
• Cash and cash equivalents increased to $40,475 as of September 30, 2016, from $15,178 at the end of 2015.

Negatives

• Revenues decreased to $409,057 from $727,680 year-over-year.
• The company's management expresses substantial doubt about its ability to continue as a going concern due to an accumulated deficit of $9,109,575.
• The company has a material weakness in internal control over financial reporting due to lack of segregation of duties, a limited corporate governance structure, and a lack of a formal management review process over preparation of financial information.

Risks

• The company's management expresses substantial doubt about its ability to continue as a going concern.
• The company is dependent on raising capital through debt and/or equity markets.
• The company has a material weakness in internal control over financial reporting due to lack of segregation of duties, a limited corporate governance structure, and a lack of a formal management review process over preparation of financial information.
• The company operates in an industry subject to rapid change and faces financial and operational risks, including the potential risk of business failure.

Future Outlook

The company anticipates that it will be able to have profitable operations in the near future and believes its current available cash, along with anticipated revenues, will be sufficient to meet its cash needs for the near future; however, there is no assurance that future financing will be available.

Management Comments

• Management intends to address the going concern issue by funding future operations through the sale of equity capital and by director loans, if needed.
• Management feels that the final contract amount for the surveillance system installation contract with a privately owned Casino Resort will potentially be higher, after system change orders are received during the project.

Industry Context

The company operates in the electronic security systems integration industry, which is evolving rapidly and requires remote access through various networks, firewalls, and internet security.

Comparison to Industry Standards

• The document does not provide enough information to compare the company's results to specific industry standards or comparable companies.
• Without details on profit margins, revenue per employee, or specific project comparisons, a detailed benchmark analysis is not possible.

Related Party Transactions

• The Company has convertible notes payable with one related party company which is 100% owned by our chief executive officer.
• The Company has a note payable with an officer of the Company.
• In September of 2013, the Company issued 400,000 post reverse-split common shares and 5,000,000 preferred shares to Sylvain Desrosiers for services completed by December 31, 2013.
• In September of 2014, the Company issued 12,000,000 post reverse-split shares of common stock 2,000,000 to our CFO and 10,000,000 to our CEO, for past services in lieu of compensation.

Stakeholder Impact

• Shareholders face the risk of dilution if the company raises capital through equity financing.
• Employees' job security is uncertain due to the company's going concern issue.
• Creditors face the risk of non-payment if the company is unable to continue as a going concern.

Next Steps

• The company will continue with development and implementation of the business plan.
• The company will assess business markets and related opportunities so that more significant revenues can be generated.
• The company will allocate sufficient resources to continue with service and product marketing efforts.
• The company will continue to monitor and assess the costs and benefits of additional staffing to remediate the material weakness in internal control.

Key Dates

Keywords

financial statements, net profit, going concern, revenue, Southern ITS International, convertible notes, internal control, deficit, stock split, share exchange