14-May-2008
Quarterly Report (Summary)
Overview of Current Operations
We are a publicly-traded distributor of life-saving prescription drugs and diagnostics to several channels in the healthcare industry, a Wi-Fi PDA technology provider to the lodging industry, 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 Practice Probe technologies manage critical data, enhance productivity and e-commerce, and facilitate communication with applications in the healthcare, medical distribution and hotel/motel markets and industries. We have recently focused our business attention towards providing prescription drugs and medical diagnostics through several medical distribution channels.
During the next 12 months we plan to continue to focus our efforts on the following primary businesses:
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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;
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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;
·
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;
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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
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Enter the medical distribution management markets with software that manages decision, control, audit and fulfillment.
We have completed 13 quarters of operation of our prescription drug and diabetes
diagnostics businesses. Our experiences point to a business that displays
certain seasonal trends. In each of the last two operating years our order
intake was concentrated in the first five months of the calendar year and to an
identifiable but lesser degree in the last two months of the calendar year. One
explanation is that these months correspond with the beginning of a prescription
drug plan year where new prescription drug cards are distributed by insurers to
their insured in January along with new plan formularies (price schedules).
This in turn trends to influence "stocking up" buying/ordering behavior on the
part of the insured.
Results of Operations for the three months ended March 31, 2008 and 2007 compared.
The following tables summarize selected items from the statement of operations for the three months ended March 31, 2008 compared to the three months ended March 31, 2007.
INCOME: |
Revenue
Our revenue for the three months ended March 31, 2008 was $2,797,382 compared to revenue of $1,083,282 in the three months ended March 31, 2007. This resulted in an increase in revenue of $1,714,100, or 158%, from the same period a year ago. The increase in revenue over the three months ended March 31, 2007 was a result of our market focus towards the direct sale of diabetic test strips and medical-surgical products into several prescription drug channels.
Cost of Sales / Gross Profit Percentage of Sales
Our cost of sales for the three months ended March 31, 2008 was $2,349,883, an increase of $1,461,231, or 164% from $888,652 for the three months ended March 31, 2007. The increase in cost of sales during the current period was expected due to our increased sales over the prior quarter and an increase in our direct to patient market sales.
EXPENSES: |
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2008 were $60,745, a decrease of $41,812, or 41%, from $102,557 for the three months ended March 31, 2007. We have focused our business development towards targeted market areas for our diabetic testing products, as a result of this focused agenda, we have been able to streamline overhead utilizing only those resources that directly attribute to our sales growth thereby allowing us to eliminate unnecessary general and administrative expenditures. It is the goal of management to continue efforts in limiting redundant overhead.
We have historically relied on outside consultants for assistance in business development and sales. As we are becoming more seasoned in our pharmaceutical product lines, we have been able to limit the amount of outside services required to build and maintain our market share, evidenced by our decrease in consulting services for the three months ended March 31, 2008. During this quarter we expended $65,293 for consulting services compared to $258,267 for the three months ended March 31, 2007, representing a decrease of 75% over the previous period.
Payroll Expense
We currently staff five full-time positions. Each of which, assist in sales, marketing and administrative support. We have made tremendous efforts to maintain cash-flow through a reduction in salaries and wages. During the three months ended March 31, 2008 our payroll expense was comprised of cash totaling $18,250 and equity compensation of $102,000 compared to $53,253 in cash for the comparable period in 2007. Currently, our labor expense is approximately 4% of our total revenue. As our sales continue to grow, we anticipate our payroll expense will also increase at a pro rata rate.
Professional Fees
Our professional fees consist of legal, accounting and expenses associated with being a fully reporting public company. Our fees for these services increased by $20,866 compared to the three months ended March 31, 2008 as a result of increased accounting and audit fees. We anticipate these fees to remain stable throughout the upcoming year with slight decreases in the second and third quarters. Historically, professional fees are greater during the first quarter of our fiscal due to annual regulatory filing requirements.
Depreciation
Depreciation for the three months ended March 31, 2008 was $9,063, a decrease of $2,682 from $11,745 for the three months ended March 31, 2007. The decrease in depreciation is the expected result of assets reaching their expected useful lives.
Total Expenses
Our operating expenses decreased $149,335 overall for the three months ended
March 31, 2008 compared to $450,312 for the three months ended March 31, 2007.
Our streamlined operational environment and limitations on the use of outside
consultants has allowed for the decrease in total operational costs.
Net Operating Income (Loss)
We had net operating income in the amount of $146,522 for the three months ended March 31, 2008, versus a net operating loss of $255,682 for the three months ended March 31, 2007. As we maintain our business focus toward building sales and minimizing unnecessary overhead, we are hopeful to continue with positive earnings results.
Financing Costs
Financing costs for the three months ended March 31, 2008 were $49,474, an increase of $40,258, or 437%, from $9,216 for the three months ended March 31, 2007. Our financing costs have increased substantially as a result of our revolving line of credit with Centurion Credit Resources LLC. This agreement allows us the necessary capital to finance and turn our inventory creating an ability to generate revenue we had not previously had due to our significant deficiencies in working capital. Our agreement with Centurion requires an interest payment equal to 5% of each advance. Interest payments are paid to Centurion in shares of our common stock. The ability to pay in shares allows us to build our own working capital through the gross profit received on each sale with the anticipation of limiting the necessity for future working capital financing.
Interest Expense
Our interest expense has remained fairly consistent at $55,318 with the comparable period one year ago. Until such time as we are able to pay down or convert our existing debt, we anticipate a continued expense of this amount throughout the upcoming year.
Net Income (Loss)
We achieved net income for the three months ended March 31, 2008 in the amount $41,730, an increase of $444,933 from our previous year net loss of $403,203. The decrease in net loss and our resulting profit was attributable to our overall decrease in general and administrative expenses and consulting fees during the quarter, as noted above.
Liquidity and Capital Resources
A critical component of our operating plan impacting our continued existence is the ability to obtain additional capital through additional equity and/or debt financing. We do not anticipate generating sufficient positive internal operating cash flow until such time as we can deliver our product to market, complete additional financial service company acquisitions and generate substantial revenues, which may take the next few years to fully realize. In the event we cannot obtain the necessary capital to pursue our strategic plan, we may have to cease or significantly curtail our operations. This would materially impact our ability to continue operations.
March 31, December 31, Increase / (Decrease) |
Internal and External Sources of Liquidity
MAG Entities Agreement
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. Additionally, we issued 1,250,000 warrants to purchase share of our common stock at $1.60 per share, all of the warrants expired on February 7, 2008. To date, MAG has converted 2,140 shares of their Series "C" preferred into 1,372,901 shares of our restricted common stock.
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. On February 10, 2005 we entered into a note extension agreement whereby Pinnacle agreed to advance an additional $400,000 and extend the maturity until April 24, 2006. On July 1, 2006, we entered into a second extension of the note which matured on December 24, 2006. We are accruing interest at a default rate of 12% per annum. The note is convertible at a rate of $0.30 per share and has been secured by 2,212,500 shares of our common stock which can be sold by the lender as a means to repay the balance due. As of March 31, 2008, Pinnacle has sold 924,948 escrow shares valued at $406,215 which has been applied to accrued interest and the principal balance of the note.
Since August 3, 2006, the Company has not had contact with any of the Pinnacle fund management or attorney in fact. We have not delivered the shares called for under the July 1, 2006 extension after being advised by the fund management to "stand still."
On May 23, 2006, we entered into a promissory note with Dennis Cantor and Novex International for the principal amount of $255,000. Pursuant to the note we promised to pay Dennis Cantor and Novex International the sum of $255,000 together with interest at a rate of one half of one percent (0.5%) every ten days beginning on May 23, 2006 and running through the maturity date of June 30, 2006. In the case of a default in payment of principal, all overdue amounts under the note shall bear a penalty obligation at a rate of twelve percent (12%) per annum accruing from the maturity date. On July 1, 2006, we extended the note to July 31, 2006. We have made principal payments of $125,000. As of March 31, 2008, the remaining principal balance was $130,000.
Convertible Loan Payment Agreement
On July 17, 2006, we entered into a convertible loan payment agreement with
Wayne G. Knapp wherein Mr. Knapp agreed to loan the Company the sum of $200,000.
The loan is for 120 days. On October 17, 2006, we renewed the note. On
January 17, 2007, the parties verbally agreed to a renewal that expires on May
16, 2007. The note accrues monthly interest at a rate of 1.50% and the interest
is payable quarterly in cash. The total amount owing pursuant to the agreement,
was convertible at the option of Mr. Knapp at any time from July 17, 2006 until
November 30, 2006, at the strike price equal to $0.32 per share or 90% of the
final bid price of our common stock on the day prior to conversion with a floor
price of $0.10 per share. We renewed Mr. Knapp's conversion option on January
17, 2007. We also issued Mr. Knapp a warrant to purchase 50,000 shares of our
common stock at $0.32 per share through December 31, 2008. Mr. Knapp exercised
his option on March 30, 2007.
Centurion Credit Resources
On November 17, 2007, we entered into an agreement with Centurion Credit Resources, LLC to secure a $1,000,000 revolving credit facility that is geared specifically to our business. This facility, offered to us at market credit rates. Terms of the credit facility allow us to increase the available credit in increments of $250,000 as our business grows. We drew down on this credit line for the first time on November 30, 2007 and have subsequently accomplished forty three (43) additional draw downs through March 31, 2008. We believe that this facility will adequately finance our at home diabetes diagnostics business through revenues rates of $7.5 million per quarter, and with the added credit increments offered, through $12.5 million per quarter. We are also entertaining additional proposed credit facilities with various hedge funds, commercial banks and a religious fund.
On March 1, 2008, we entered into a Convertible Promissory Note Purchase Agreement with Cragmont Capital, LLC ("Cragmont") wherein Cragmont agreed to loan the Company an aggregate sum of $250,000. As of March 31, 2008, we have received $75,000. The loan is for one year, maturing on February 28, 2009. The total amount owing pursuant to the agreement, is convertible at the option of the lender, at a strike price equal to $0.015 per share. Further we have agreed to issues 100 warrants with a strike price of $0.03 expiring on December 31, 2010 for every dollar loaned by Cragmont. During the three months ended March 31, 2008, we have terminated our relationship with Cragmont.
Cash Flow. Since inception, we have primarily financed our cash flow requirements through the issuance of common stock, the issuance of notes and sales generated income. With the growth of our current business in 2008 we may, during our normal course of business, experience net negative cash flows from operations, pending receipt of revenue which often are delayed as a result of the nature of the healthcare industry. Further, we may be required to obtain financing to fund operations through additional common stock offerings and bank or other debt borrowings, to the extent available, or to obtain additional financing to the extent necessary to augment our available working capital.
Satisfaction of our cash obligations for the next 12 months.
As of March 31, 2008, our cash balance was $127,505. Our plan for satisfying our cash requirements for the next twelve months is through additional equity, third party financing, and/or debt financing. We anticipate sales-generated income during that same period of time, but do not anticipate generating sufficient amounts of positive cash flow to meet our working capital requirements. Consequently, we intend to make appropriate plans to insure sources of additional capital in the future to fund growth and expansion through additional equity or debt financing or credit facilities.
As we expand operational activities, we may continue to experience net negative cash flows from operations, pending receipt of sales or development fees, and will be required to obtain additional financing to fund operations through common stock offerings and debt borrowings to the extent necessary to provide working capital. We received a substantial number of sales orders and refill orders beginning in mid-September 2006 which we could not fill. It was not until the company entered into the agreement with Centurion Credit Resources, LLC that the company could fill orders for patients and customers on a continuous basis. Until the Centurion credit line was put in place we managed to keep a small portion of our distribution activities going when our limited resources allowed us.
Expected purchase or sale of plant and significant equipment.
We do not anticipate the purchase or sale of any plant or significant equipment; as such items are not required by us at this time.
Going Concern
The financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of the Company as a going concern. The Company's cash position is currently inadequate to pay all of the costs associated with testing, production and marketing of products. Management intends to use borrowings and security sales to mitigate the effects of its cash position, however no assurance can be given that debt or equity financing, if and when required will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue existence.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.
Stock-based Compensation: In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 123 (revised 2004) "Share-Based Payment" ("SFAS 123R), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123R is similar to the approach described in Statement 123. However, Statement 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.
Recent Accounting Developments
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159 allows the company to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 is not expected to have a material impact on our financial position, results of operation or cash flows.
In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements". This statement amends ARB 51 to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the de-consolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is equity in the consolidated financial statements. SFAS No. 160 is effective for fiscal years and interim periods beginning after December 15, 2008. The adoption of SFAS 160 is not expected to have a material impact on our financial position, results of operation or cash flows.
In December 2007, the FASB issued SFAS No. 141 (Revised), "Business Combinations". SFAS 141 (Revised) establishes principals and requirements for how an acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. This statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective for the fiscal year beginning after December 15, 2008. The adoption of SFAS 141(Revised) is not expected to have a material impact on our financial position, results of operation or cash flows.