14-Aug-2007
Quarterly Report
OVERVIEW AND OUTLOOK
We are a distributor of life-saving prescription drugs and diagnostics to several channels in the healthcare industry, a Wi-Fi PDA technology provider to the lodging and satellite media industries, and a developer of patent-pending technologies for e-health and EMR applications that we employ to leverage and add value to our prescription drug and diagnostics business. Our proprietary ResidenceWare, MD@Hand and Satelink technologies manage critical data, enhance productivity and e-commerce, and facilitate communication with applications in the healthcare, apartment, hotel/motel and satellite rebroadcast industries. Our business attention is also focused towards providing prescription drugs and medical diagnostics through several medical distribution channels.
We continue to exploit our business prospects. However, our working capital reserves have continued to deplete and we are forced to continue to delay fulfillment of many sales orders.
Results of Operations for the Three Months Ended June 30, 2007 and 2006.
The following table summarizes selected items from the statement of operations for the three months ended June 30, 2007 compared to June 30, 2006.
INCOME: |
Revenue
Our revenue for the three months ended June 30, 2007 was $1,036,849, compared to revenue of $9,009,052 in the three months ended June 30, 2006. This resulted in a decrease in revenue of $7,972,203, or 88%, from the same period a year ago. The decrease in revenue was due to a lack of sufficient operating capital needed to manage our medical diagnostics products
Cost of sales / Gross profit percentage of sales
Our cost of sales for the three months ended June 30, 2007 was $908,652, a decrease of $7,933,055, or 90% from $8,841,707 for the three months ended June 30, 2006. The decrease in the cost of sales in the current period was a direct result of our decrease in sales. We currently lack sufficient operating capital required for the pre-purchase of goods to manage our medical diagnostics business and we have experienced additional competition in the overall market place. We have focused on managing the productivity of our current market share through increasing our profit margins.
Gross profit as a percentage of sales increased from 2% for the months ended June 30, 2006 to 12% for the three months ended June 30, 2007. The increase in gross profit margin was caused by our ability to manage our purchasing in order to achieve increased spread in our retail pricing.
EXPENSES: |
General and Administrative
Our general and administrative expenses relate to the operation and leasing costs of our corporate office and warehouse facilities. General and administrative expenses for the three months ended June 30, 2007 were $78,967 compared to $146,072 for the three months ended June 30, 2006, a decrease of $67,105. We anticipate our general and administrative expenses to remain fairly constant with the operational structure currently in place.
Our payroll expense consists primarily of management and employee salaries. Payroll expense for the three months ended June 30, 2007 was $34,664 compared to Payroll expense of $187,667 for the three months ended June 30, 2006. Management is focused on controlling payroll expenses until such time as revenues are generated sufficient to increase the salary paid to our executives. Payroll expense decreased due to lower sales volumes and our efforts to stream-line operations.
Consulting Expense
Our consulting expense consists of prescription drug specialists, financial consultants and marketing professionals. Consulting expense totaled $119,810 and $51,323 for the three months ended June 30, 2007 and 2006, respectively. The increase of $68,487 was primarily the result of marketing and prescription drug business and technical consulting required due to our decrease in full-time employees.
Professional Fees
Our professional fees include fees paid to our accountants and attorneys. Our professional fees for the three months ended June 30, 2007 were $57,486 compared to professional fees of $127,615 for the three months ended June 30, 2006, a decrease of $70,129 or 55%. Our need for extensive outside professional assistance has decreased as the Company has matured. We anticipate the continued need for services provided by attorneys and accountants for general corporate governance and regulatory compliance.
Depreciation and Amortization
Our depreciation and amortization expense was $11,745 for the three months ended June 30, 2007 compared to $39,581 for the three months ended June 30, 2006. The decrease of $27,836 was directly attributable to the full accretion of amortizable loan fees. We anticipate our depreciation expense to remain consistent with our current period expense until further capital expenditures are required.
Total Operating Expenses
Total operating expenses for the three months ended June 30, 2007 were $302,672 compared to $552,258 for the three months ended June 30, 2006. The decrease in total operating expenses of $249,586 was mainly a result of management's efforts to control overhead costs. During the prior year, we experienced non-recurring costs required to support the commencement of significant operations.
Our net operating loss for the three months ended June 30, 2007 was $174,475 compared to a net operating loss of $384,913 for the three months ended June 30, 2006. Net operating income (loss) is the result of revenue minus total expenses. Our net loss is directly attributable to our decreased sales revenue during the period ended June 30, 2007.
Interest Expense
Interest expense was $55,788 for the three months ended June 30, 2007 compared to $104,024 for the three months ended June 30, 2006.
Net income (loss)
Our net loss from operations was $150,570 for the three months ended June 30, 2007 compared to net loss of $583,937 for the three months ended June 30, 2006. We expect to improve our results of operations through the attainment of sufficient working capital and through our focus in acquiring additional sales and distribution partners and greater profit margins.
Results of Operations for the Six Months Ended June 30, 2007 and 2006.
The following table summarizes selected items from the statement of operations for the six months ended June 30, 2007 compared to June 30, 2006.
INCOME: |
Revenue
Our revenue for the six months ended June 30, 2007 was $2,120,131, compared to revenue of $16,475,973 in the six months ended June 30, 2006. This resulted in a decrease in revenue of $14,355,842, or 87%, from the same period a year ago. The decrease in revenue was due to a lack of sufficient operating capital needed to manage our medical diagnostics business.
Cost of sales / Gross profit percentage of sales
Our cost of sales for the six months ended June 30, 2007 was $1,797,304, a decrease of $13,852,223, or 89% from $15,649,527 for the six months ended June 30, 2006. The decrease in the cost of sales in the current period was a direct result of our decrease in sales. We lack sufficient operating capital required for the pre-purchase of goods and we have experienced additional competition in the overall market place, we have focused on managing the productivity of our current market share through our profit margins.
Gross profit as a percentage of sales increased from 5% for the months ended June 30, 2006 to 15% for the six months ended June 30, 2007. The increase in gross profit margin was caused by our ability to manage our purchasing in order to achieve increased marging in our retail pricing.
EXPENSES: |
General and Administrative
Our general and administrative expenses relate to the operation and leasing costs of our corporate office and warehouse. General and administrative expenses for the six months ended June 30, 2007 were $181,526 compared to $274,441 for the six months ended June 30, 2006, a decrease of $92,915. We anticipate our general and administrative expenses to remain fairly constant with the operational structure currently in place.
Payroll Expenses
Our payroll expense consists primarily of management and employee salaries. Payroll expense for the six months ended June 30, 2007 was $87,898 compared to payroll expense of $351,235 for the six months ended June 30, 2006. Management is focused on controlling payroll expenses until such time as revenues are generated sufficient to increase the salary paid to our executives. Payroll expense decreased due to our efforts to stream-line operations.
Our consulting expense consists of prescription drug specialists, financial consultants and marketing professionals. Consulting expense totaled $378,077 and $125,648 for the six months ended June 30, 2007 and 2006, respectively. The increase of $252,429 was primarily the result of additional marketing and prescription drug consulting required due to our decrease in staffing.
Professional Fees
Our professional fees include fees paid to our accountants and attorneys. Our professional fees for the six months ended June 30, 2007 were $81,976 compared to professional fees of $193,500 for the six months ended June 30, 2006, a decrease of $111,524 or 58%. Our need for extensive outside professional assistance has declined as the Company has matured. We anticipate the continued need for services provided by attorneys and accountants for general corporate governance and regulatory compliance.
Depreciation and Amortization
Our depreciation and amortization expense was $23,490 for the six months ended June 30, 2007 compared to $147,497 for the six months ended June 30, 2006. The decrease of $124,007 was directly attributable to the full accretion of amortizable loan fees. We anticipate our depreciation expense to remain consistent with our current period expense until further capital expenditures are required.
Total Operating Expenses
Total operating expenses for the six months ended June 30, 2007 were $752,967 compared to $1,092,321 for the six months ended June 30, 2006. The decrease in total operating expenses was mainly a result of management's efforts to control overhead costs. During the prior year, we experienced non-recurring costs required to support the commencement of significant operations.
Net Operating Income (Loss)
Our net operating loss for the six months ended June 30, 2006 was $430,140 compared to a net operating loss of $265,875 for the six months ended June 30, 2006. Net operating income (loss) is the result of revenue minus total expenses. Our net loss increase year to year is directly attributable to our decreased sales revenue during the period ended June 30, 2007.
Interest Expense
Net income (loss)
Our net loss from operations was $553,756 for the six months ended June 30, 2007 compared to net loss of $544,172 for the six months ended June 30, 2006. We expect to improve our results of operations through the attainment of sufficient working capital and through our focus in acquiring additional sales and distribution partners and greater profit margins.
Operation Plan
During the next 12 months we plan to continue to focus our efforts on the following primary businesses:
• The distribution of medical diagnostic products primarily aimed at institutions that service patients with diabetic and asthma related diseases and ailments. Our current market focus for these products is the long term care sector of the larger healthcare market, however we plan to expand into additional sectors where we can service certain chronic ambulatory disease states;
• Providing medical communication devices based on networks of personal digital assistants (PDA). These products are believed to provide benefits of on demand medical information to private practice physicians, licensed medical service providers such as diagnostic testing laboratories, and medical insurers;
• The distribution and fulfillment of prescriptions for ethical pharmaceuticals primarily aimed at the indigent and uninsured sectors of the greater medical service markets. Our first market focus for these products will be those state Medicaid and Federally chartered clinics (and initiatives) where funding for pharmaceutical fulfillment enterprises exists;
• Building electronic commerce networks based on personal digital assistants (PDA) to the hotels, motels and single building, multi-unit apartment buildings with a desire to offer local advertising and electronic services to their tenants/guests; and
• Enter the cable and wireless communication industries and media enterprises with networks of personal digital assistant (PDA) technologies that link field-based installation and repair personnel with central offices for the exchange of customer order and subscription information.
Seasonality
We have completed the second full year of operation of our prescription drug and diabetes diagnostics. Our experiences point to a business that displays certain seasonal trends. One explanation is that seasonality corresponds with the beginning of a prescription drug plan year where new prescription drug cards are distributed by insurers to their insureds along with new plan formularies (price schedules). This in turn tends to influence "stocking up" buying/ordering behavior on the part of the insured.
Liquidity and Capital Resources |
Internal and External Sources of Liquidity
On November 7, 2006, we entered into a preliminary agreement with Northern Healthcare Capital, LLC to secure a $2,000,000 revolving credit facility that is geared specifically to our business. This facility, offered to us at market credit rates, was subject to verification of certain representations and warranties and usual and customary closing details. The credit facility would allow us to increase the available credit in increments of $250,000 as our business grows. This agreement was placed on hold due to our lack of sufficient working capital required by financing facilities of this nature. We continue to entertain additional proposed credit facilities that include working capital lines. Through June 30, 2007, we have been unable to fully establish a credit line due primarily to our lack of working capital.
On February 7, 2005, we entered into agreements with Mercator Momentum Fund, LP and Monarch Pointe Fund, Ltd. (collectively, the "Purchasers") and Mercator Advisory Group, LLC ("MAG"). Under the terms of the agreement, we agreed to issue and sell to the Purchasers, and the Purchasers agreed to purchase from the Company, 20,000 shares of Series "C" Convertible Preferred Stock at $100.00 per share (total investment of $2,000,000, all of which was received as of February 22, 2005). As of June 30, 2007, the Purchasers have converted 1,840 Series "C" Preferred stock into 870,761 shares of our common stock. Additionally, we issued the following warrants: 103,125 warrants to purchase share of our common stock at $1.60 per share and 103,125 warrants to purchase shares of our common stock at $2.40 to Mercator Momentum Fund, LP; 209,375 warrants to purchase shares of our common stock at $1.60 per share and 209,375 warrants to purchase shares of our common stock at $2.40 per share to Monarch Pointe Fund, Ltd.; and 312,500 warrants to purchase shares of our common stock at $1.60 per share and 312,500 warrants to purchase shares of our common stock at $2.40 per share to MAG. All of the warrants expire on February 7, 2008. We are in discussions with the Purchasers for the repurchase of both classes of warrants.
Holders of series "C" convertible stock shall not have the right to vote on matters that come before the stockholders. Series "C" convertible preferred stock may be converted, the number of shares into which one share of Series "C" Preferred Stock shall be convertible shall be determined by dividing the Series "C" Purchase price by the existing conversion price which
The number of shares the Purchasers wish to convert and those warrant shares that any of the Purchasers and MAG may acquire at any time are subject so that the aggregate number of shares of common stock of which such Purchasers and MAG and all persons affiliated with the Purchasers and MAG have beneficial ownership (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) remains less than ten percent of our then outstanding common stock.
MAG Entities Agreement
On August 25, 2005, we formalized an agreement with Mercator Momentum Fund, LP, Monarch Pointe Fund, Ltd., and M.A.G., Capital, LLC, (collectively, the "MAG entities") with respect to the registration default under Paragraph 8 of that certain Subscription Agreement dated February 7, 2005 by and between the parties (the "Subscription Agreement"). In consideration for the payment of the aggregate sum of $10,000 cash plus execution of the Secured Promissory Notes and Security Agreement attached as exhibits to the 8-K filed on October 21, 2005, the MAG entities agreed to waive the liquidated damages provision of Paragraph 10 with respect to any additional liquidated damages which may accrue after August 23, 2005, with the understanding that such waiver shall not be deemed a waiver of any other rights to which the MAG entities may have at law or equity. The MAG entities have begun discussions with us to convert the secured promissory note into shares of our common stock. However, as of the date of this filing no definitive agreements have been reached.
Pinnacle Investment Partners, LP Promissory Note
On March 24, 2004, we entered into a Secured Convertible Promissory Note with Pinnacle Investment Partners, LP for the principal amount of $700,000 with an interest rate of 12% per annum. The note was secured by 212,500 shares of our common stock. Pinnacle may, at its option, at any time from time to time, elect to convert some or all of the then-outstanding principal of the Note into shares of our common stock at a conversion price of $6.40 per share, unless such conversion would result in Pinnacle being deemed the "beneficial owner" of 4.99% or more of the then-outstanding common shares within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended. In the event we fail to pay any installment or principal or interest when due, the interest rate will then accrue at a rate of 24% per annum on the unpaid balance until the payment default is cured.
On September 24, 2004, the Pinnacle Note was extended by the parties by virtue of a renewal and settlement agreement through January 24, 2005, and under certain conditions until March 24, 2005. We met those conditions by executing the definitive agreement to acquire CareGeneration, Inc. As a condition of renewal we were required to provide additional security
On February 10, 2005, we entered into a Note Extension Agreement with Pinnacle Investment Partners, LP. Subject to the terms of the new agreement; on March 24, 2005, Pinnacle agreed to pay us $340,000 and (2) pay to Pinnacle's designee, CJR Capital, LLC, $60,000 towards Pinnacle's due diligence and legal expenses related to this new agreement. This new agreement has the following consequences: (1) the principal amount due under the Note automatically increases by $400,000 to $1,100,000; (2) the Maturity Date of the newly revised Note was extended to April 24, 2006; and (3) the conversion price for those shares that underlie the Note was changed to $2.00.
In addition to the above, we agreed: (1) to deliver to Pinnacle's counsel an
additional 1,037,500 shares of our common stock as additional escrow security,
(2) issue to Pinnacle's designee, CJR Capital, LLC, 50,000 shares of our common
stock towards Pinnacle's due diligence and legal expenses related to the
revision of the Note; (3) issue to Pinnacle 112,500 shares of instaCare's common
stock as a loan re-initiation fee; and (4) upon receipt of any properly crafted
Seller's Representation Letter, deliver to Pinnacle an opinion of counsel to the
effect that commencing March 24, 2005, Pinnacle may sell under Rule 144
promulgated under the Securities Act of 1933, as amended, shares surrendered to
Pinnacle in accordance with this agreement, on condition that (1) Pinnacle uses
the proceeds to pay down the indebtedness under the Note as of immediately prior
to effectiveness of this agreement and (2) ceases to sell any of those Shares
once that indebtedness has been paid off in full. We have recorded a financing
expense in the amount of $227,500, the fair market value of the underlying
shares. All of the shares required under the Note were delivered.
On October 24, 2005, we extended the maturity date of the note from April 24, 2006 to June 25, 2006. In accordance with the note extension agreement dated October 5, 2005, Pinnacle sold and or converted for aggregate proceeds of $59,493 worth of shares and sold for aggregate proceeds of $130,198 worth of shares. Therefore prior to the July 1, 2006 note extension, the principal balance stood at $1,010,309.
On July 1, 2006, we entered into another Note Extension Agreement with Pinnacle Investment Partners, LP. Subject to the terms of the new agreement Pinnacle agreed to pay us $35,000 and pay to Pinnacle's designee, CJR Capital, LLC, . . .