Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
ý
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
fiscal year ended December
31, 2007
or
¨
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission
file number 000-33187
(Exact
name of registrant as specified in its charter)
Nevada
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91-2105842
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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2660
Townsgate Road, Suite 300
Westlake
Village, California
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91361
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code (805)
466-1973
Securities
registered pursuant to Section 12(b) of the Exchange Act: None
Securities
registered pursuant to Section 12(g) of the Exchange Act: Common
Stock, $0.001 par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
¨
Yes
þ No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.
¨
Yes
þ No
Indicate
by checkmark whether the registrant (1) 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 (2) has been subject to such filing requirements
for
the past 90 days. þ Yes ¨
No
Indicate
by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ |
Accelerated filer ¨ |
|
|
Non-accelerated filer ¨ |
Smaller reporting company þ |
(Do not check if a smaller
reporting company) |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
No
þ
State
the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
last sold, or the average bid and asked price of such common equity, as of
the
last business day of the registrant’s most recently completed fiscal year.
$911,883
based on a share value of $0.03.
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date. 34,700,688
shares of common stock, $0.001 par value, outstanding on March 31,
2008.
DOCUMENTS
INCORPORATED BY REFERENCE
List
hereunder the following documents if incorporated by reference and the Part
of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b)
or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
INSTACARE
CORP
FORM
10-K
TABLE
OF CONTENTS
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Page
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PART
I
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5
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Item
1. Business
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5
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Item
1A. Fisk Factors
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21
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Item
B. Unresolved Staff Comments
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27
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Item
2. Properties
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27
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Item
3. Legal Proceedings
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27
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Item
4. Submission of Matters to a Vote of Security Holders
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29
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PART
II
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29
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Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
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29
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Item
6. Selected Financial Data
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39
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Item
7. Management’s Discussion and Analysis of financial Condition and Results
of Operations
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39
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Item
7A. Quantitative and Qualitative Disclosures about Market
Risk
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48
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Item
8. Financial Statements and Supplementary Data
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48
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Item
9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
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49
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Item
9A. Controls and Procedures
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49
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Item
9B. Other Information
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49
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Part
III
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50
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Item
10. Directors, Executive Officers and Corporate Governance
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50
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Item
11. Executive Compensation
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51
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Item
12. Security Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
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53
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Item
13. Certain Relationships and Related Transactions, and Director
Independence
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54
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Item
14. Principal Accountant Fees and Services
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55
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Part
IV
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56
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15.
Exhibits, Financial Statement Schedules
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56
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FORWARD-LOOKING
STATEMENTS
This
document contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements other than statements
of historical fact are “forward-looking statements” for purposes of federal and
state securities laws, including, but not limited to, any projections of
earnings, revenue or other financial items; any statements of the plans,
strategies and objections of management for future operations; any statements
concerning proposed new services or developments; any statements regarding
future economic conditions or performance; any statements or belief; and any
statements of assumptions underlying any of the foregoing.
Forward-looking
statements may include the words “may,” “could,” “estimate,” “intend,”
“continue,” “believe,” “expect” or “anticipate” or other similar words. These
forward-looking statements present our estimates and assumptions only as of
the
date of this report. Accordingly, readers are cautioned not to place undue
reliance on forward-looking statements, which speak only as of the dates on
which they are made. We do not undertake to update forward-looking statements
to
reflect the impact of circumstances or events that arise after the dates they
are made. You should, however, consult further disclosures we make in future
filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K.
Although
we believe that the expectations reflected in any of our forward-looking
statements are reasonable, actual results could differ materially from those
projected or assumed in any of our forward-looking statements. Our future
financial condition and results of operations, as well as any forward-looking
statements, are subject to change and inherent risks and uncertainties. The
factors impacting these risks and uncertainties include, but are not limited
to:
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increased
competitive pressures from existing competitors and new
entrants;
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increases
in interest rates or our cost of borrowing or a default under any
material
debt agreements;
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·
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deterioration
in general or regional economic
conditions;
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·
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adverse
state or federal legislation or regulation that increases the costs
of
compliance, or adverse findings by a regulator with respect to existing
operations;
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·
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loss
of customers or sales weakness;
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·
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inability
to achieve future sales levels or other operating
results;
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·
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the
unavailability of funds for capital expenditures and/or general working
capital; and
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operational
inefficiencies in distribution or other
systems.
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·
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our
ability to recruit and hire key employees;
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the
inability of management to effectively implement our strategies and
business plans; and
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the
other risks and uncertainties detailed in this
report.
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In
this
form 10-K references to “instaCare”, “the Company”, “we,” “us,” and “our” refer
to INSTACARE CORP. and its wholly owned Nevada corporation operating
subsidiaries, Medicius,
Inc., Pharma Tech Solutions, Inc., Pharmtech Direct Corp., and PDA Services,
Inc.
AVAILABLE
INFORMATION
We
file
annual, quarterly and special reports and other information with the SEC. You
can read these SEC filings and reports over the Internet at the SEC’s website at
www.sec.gov or on our website at www.instacare.net. You can also obtain copies
of the documents at prescribed rates by writing to the Public Reference Section
of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days
between the hours of 10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330
for further information on the operations of the public reference facilities.
We
will provide a copy of our annual report to security holders, including audited
financial statements, at no charge upon receipt of written request to us at
instaCare Corp, 2660 Townsgate Road, Suite 300, Westlake Village, California
91361.
PART
I
Item
1. Business.
Overview
InstaCare
Corp. (ISCR) is a nationwide prescription drug, prescription diagnostics and
home testing products distributor. Our subsidiaries, Medicius, Inc., Pharma
Tech
Solutions, Inc., Pharmtech Direct Corp. and PDA Services, Inc. operate in
several healthcare products distribution channels. We distribute brand name
prescription drug and prescription diagnostics products as well as several
lines
of ostomy, wound care and post-surgery medical products. The company directs
its
marketing efforts to ambulatory and semi-ambulatory older Americans afflicted
with diabetes and complications caused by diabetes and old age. The company,
formerly a medical IT company with proprietary IT product lines, acquired its
medical products distribution business in late 2004 through a merger with
Phoenix, AZ based CareGeneration, Inc. We have grown the original CareGeneration
business through subsequent acquisitions of private businesses and strategic
partnerships with larger private pharmacies. We intend to acquire additional
private companies in this industry to achieve our goal of becoming a full
service value added DME provider of products and services.
We
also
offer information technology solutions in several medical care market channels
by providing physicians with information at the point of care. Our products,
unlike many other medical information, use palm-sized computers (PDA's), which
operate
on any Microsoft Mobiles "Pocket PC" based handheld device, either in a wireless
or "wired" mode, which allow
physicians to carry, access and update their patients' histories, medication
data, and best care guidelines - all
at the point of care.
During
the last fiscal year we have executed definitive agreements with New York based
R&R Drugs and Phoenix Arizona based Genrich United Pharmacy. We believe that
we will be able to provide value added services to our customers by cost
reductions brought about by increased efficiencies and cross marketing
opportunities.
We
currently employ 3 full-time staff at our executive office located at 2660
Townsgate Road, Suite 300, Westlake Village, California 91361. We also employ
one full time and six part time personnel. These people are located in Florida,
California and New Jersey and act as sales and customer service representatives.
Our telephone number is (805) 446-1973 and our website address is www.instacare.net.
Business
Development
We
were
originally incorporated in the State of Nevada on March 2, 2001 as ATR Search
Corporation (“ATR”). In June of 2002, ATR merged with Medicius, Inc. whereby
Medicius remained as a wholly owned subsidiary of ATR. Following the merger
the
operations of Medicius were conducted through ATR and the former operations
of
ATR were conducted through CareTechnologies, LLC, a wholly owned subsidiary
of
ATR. Under the terms of the merger agreement, the stockholders of Medicius
received 412,110 shares of ATR’s common stock and 103,028 warrants in exchange
for 100% of the outstanding shares of Medicius’ common stock. On August 2, 2002,
we amended our Articles of Incorporation to change our name from ATR to
CareDecision Corporation. CareTechnologies, LLC was dissolved on May 20, 2003,
but CareDecision continued conducting all operations of CareTechnologies. On
November 19, 2004, we incorporated two Nevada subsidiary companies, Pharma
Tech
Solutions, Inc. and PDA Services, Inc. In March 2006 we incorporated an
additional Nevada corporation subsidiary, Pharmtech Direct corp.
On
April
1, 2005, we amended our Articles of Incorporation to change our name from
CareDecision Corporation to instaCare Corp.
Our
common stock trades on the over-the-counter securities market through the
Financial
Industry Regulatory Authority
Automated Quotation Bulletin Board System, under the trading symbol “ISCR”.
Throughout
this filing all references to shares have been restated to reflect an 80:1
reverse stock split enacted on February 3, 2006.
OUR
BUSINESS
We
have
recently focused our business attention towards providing prescription drugs,
prescription diagnostics, at-home testing and medical/surgical products through
several medical distribution channels. Our secondary business objective has
been
to provide medical information technology (IT) for use with Internet-based
communication, and network software systems and applications, that reside on
and
function through a Windows CE-Based PDA- available from most major computer
brands such as Sony, Dell, IBM and Palm -to the medical fields and the lodging
and time-share real estate industries.
We
are
distributing prescription drugs, prescription diagnostics, at-home testing,
post-surgical products and developing medical IT products that offer solutions
in medical care and management by providing physicians with information at
the
point of care. Unlike other medical information systems using standard computer
terminals, we use palm-sized computers (PDA's), which operate
on any Microsoft Windows CE "Pocket PC" based handheld device, either in a
wireless or "wired" mode, and allows
physicians to carry, access and update their patients' histories, medication
data, and best care guidelines - all
at the point of care.
The
local
host for our PDA devices is a Windows (9X, NT, XP, 2003 or later) based PC,
which, in turn, permits one to eight of the aforementioned PDA's to be linked
to
either a medical network or hotel/motel wide area network, or help-desk network,
and allows each PDA to become a uniquely identified mobile node on that network,
independent of PC linkage, thereby, assisting the professional, whether he
be a
doctor, hotel owner, hotel guest or satellite broadcast technician.
We
have
established a core management team experienced in all phases of health care,
data management and the Web.
Through
December 31, 2007, our operations have been conducted through instaCare Corp.
and our subsidiaries PDA Services, Inc., Pharma Tech Solutions, Inc., Pharmtech
Direct Corp. and Medicius, Inc. On June 30, 2007 we ceased operating through
our
subsidiary Medicius, Inc.
Our
business objectives include:
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1.
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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. We have created PDA-centric products and a suite
of
Internet enhanced software applications that include those features
that
specifically respond to the requirements of the practicing physician.
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2.
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Provide,
as an emerging Internet pharmacy, retail drug prescriptions fulfillment
with the goal of delivering affordable, discounted prescriptions
to the
millions of uninsured and underinsured consumers in the United States.
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3.
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Combining
our newly acquired wholesale and retail drug distribution with our
PDA
technologies, creating wholesale and retail ePharmacies similar in
function to existing Internet pharmacies but directed to serving
the large
base of underinsured and uninsured Americans; and
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4.
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The
practice of specializing in the distribution of medical diagnostic
and
medical disposable products associated with the on-going care of
diabetes
inflicted patients now that our new prescription drug distribution
business is coming on-line.
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We
also
have adapted our medical communications technologies to service the real estate
management and hotel/motel/convenience industries. Our real estate and
hotel/motel objectives include 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.
Prescription
Drug Distribution
On
January 4, 2006, we transacted our first commerce by distributing at home
diabetic test strips to the patient base then serviced by CareGeneration, Inc.,
the company’s acquisition target. This commerce was initiated under a
“work-through” agreement by and between us, our subsidiaries Pharma Tech
Solutions, Inc. and Medicius, Inc., CareGeneration, Inc., Ronald Kelly and
his
Kelly Company World Group, Inc. private corporation. Subsequently, we accepted
additional orders for future business and fulfilled these orders thereby
building the foundation for our current business. Later, because of the issues
that arose between the Company and Mr. Kelly and his controlled entities,
inclusive of Mr. Kelly’s failure to transfer a certain drug distribution license
and Mr. Kelly’s on-going competition with the Company and our subsidiary, Pharma
Tech Solutions, Inc., we concluded that it would be best if the company
transacted all commerce through instaCare and our wholly owned subsidiary,
Medicius, Inc. The company then initiated litigation against Mr. Kelly, his
daughter and others. Ultimately we reached a settlement with Mr. Kelly whereby
he stipulated to pay the company $200,000 and further agreed not to compete.
This then allowed us to apply for additional drug distribution licenses in
the
states of New Jersey, New York, North Dakota and Arizona, in an effort to allow
us to increase our operational efficiency. Also,some prescription drug
distribution operations are currently being conducted through PDA Services,
Inc., which is in the process of establishing a facility in Hope, North Dakota.
In addition, we have established, through Pharma Tech Solutions, Inc., “direct
to patient” prescription and prescription diagnostics fulfillment programs which
are maintained in New Jersey, New York and Arizona.
Our
new
prescription drug distribution business came on-line during the third and fourth
quarters 2006 and throughout 2007. This has in turn allowed Instacare to
specialize in the distribution of medical diagnostic and medical disposable
products associated with the on-going care of diabetes inflicted patients.
This
decision was made because the treatment and care of diabetes patients is an
on-going lifetime process. Included in our current business plan is the
distribution of wound care, ostomy and post-surgical products to diabetes
inflicted patients and other parallel markets.
In
the
first quarter of 2006, we announced the execution of contracts with two large
multinational pharmaceutical companies for the distribution of their lines
of
diabetic monitoring and testing products. We originally forecast revenues of
approximately $12 million for fiscal 2006 based upon these contracts alone.
We
exceeded these forecasts. We continue to purchase products for resale from
these
manufacturers. Our management also believes that there is potential for
collateral business through these companies and is in the process of expanding
its product lines accordingly. Subsequently, we entered into agreements with
additional pharmaceutical companies and group medical buying organizations to
add more of these diagnostic products as we further specialize into this medical
niche. Further, we have recently expanded our offerings to include asthma
control, coagulation testing, ostomy, post-surgical and wound care products.
Specializing
in rapid delivery of prescription drugs and diagnostic products, we are in
the
final stages of augmenting our prescription drug and prescription diagnostics
distribution business by creating a nationwide network. Through a proprietary
use of the Internet, we have completed a pharma distribution management system
that allows our mail order pharmacy to begin the servicing of the 40+ million
Americans who are either uninsured or underinsured.
We
have
also created a fully integrated Prescription Fulfillment Program through which
physicians can directly submit prescriptions to our mail order pharmacy through
the use of our proprietary hand-held device, tablet PC, or PDA that is enabled
with a Wi-Fi link to the Internet — instead of issuing a standard
prescription for the patient to fill at a local drugstore.
Using
our
technology, prescriptions for medication or diabetic supplies are submitted
instantaneously and securely. We fill the prescription immediately and the
customer receives his/her medications at his/her home within 24 hours, usually
by the next morning 24/7. We then bill Medicare, Medicaid, or the patient's
insurance company directly.
This
concept is directed towards practitioners who treat long term care patients,
the
uninsured and underinsured. This concept already has enlisted organizations
that
manage or finance the indigent practices of more than 2,500 doctors. We are
establishing our first fulfillment center to service these uninsured and
underinsured patients in Phoenix, Arizona. We have also secured, through a
strategic partnership the use of a retail prescription license to transact
prescription fulfillment in Arizona.
By
using
wireless technology to link our centrally located drug distribution center
with
an established wholesale prescription distributor, we are positioned to bring
economic and administrative efficiencies to the projected $8 billion marketplace
for delivering prescriptions to the uninsured and underinsured.
The
retail prescription business - often subsidized or funded by government benefits
-- is a development stage enterprise moving to take advantage of the tremendous
opportunity in retail pharmacy business via direct mail order distribution
of
prescriptions and related products and supplies. As part of our acquisition
of
CareGeneration, Inc., we also acquired from CareGeneration a proprietary, retail
mail order methodology for the distribution of pharmaceutical and healthcare
supplies which includes:
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1.
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Discounted
pharmaceutical and healthcare supplies marketed by mail order to
minority
and citizen organizations (religious groups, unions, etc.)
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2.
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A
proprietary "biometric" secured bankcard primarily targeted to the
under-insured. The bankcard is honored by any FDIC bank within the
United
States.
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3.
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Discounted
pharmaceutical and healthcare supplies marketed by mail order to
state
Medicaid and the Federal Medicare plans.
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We
subsequently learned that CareGeneration did not own or have exclusive rights
to
the biometric technology and as a result we undertook a conversion of some
of
our own medical information technology to replace this needed and secure device
through our own efforts.
Retail
Prescription
Our
retail prescription business maintains three operating units:
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1.
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Licensed
wholesale prescription drug distribution business, where we deliver
bulk
prescription drugs on a wholesale basis to
clients;
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2.
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Licensed
distribution of diabetes diagnostics and supplies, where we deliver
diabetic testing strips and associated diagnostic products under
several
business models; and
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3.
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Internet
pharmacy/prescription fulfillment, which we are methodically, but
cautiously, entering.
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Our
plan
is to combine the wholesale and retail drug distribution businesses and couple
these businesses with the capabilities to connect physicians, using our PDA
technologies, creating wide-ranging ePharmacies similar in function to existing
Internet pharmacies but directed to serving the large base of institutionalized,
underinsured and uninsured Americans.
Retail
prescription distribution methods
On
December 27, 2004, pursuant to the agreement and plan of merger with
CareGeneration, Ronald Kelly, a former director, agreed to transfer to Pharma
Tech a Wholesale Drug Distribution License (license no. 004-001681, expiring
12/31/2007 issued to Kelly Company world Group, Inc, Ronald R. Kelly, 96 S.
Madison St., Carthage, IL. 82321, by the State of Illinois and jointly governed
by regulators from the State of Illinois, the U. S. Drug Enforcement Agency
and
the U.S. Food and Drug Administration). Additionally, Mr. Kelly agreed to seek
transfer of a reciprocal drug distribution license issued by the State of
Indiana, a client list and know-how in the form of written (published) drug
distribution policies and procedures applicable to independent prescription
drug
and diagnostic distributors. After learning that these licenses had not been
transferred and were not in the process of transfer, we filed suit against
Mr.
Kelly, his wife, daughter and several of his controlled entities. The complaint
expressed the impact of Mr. Kelly’s deceit. In December 2007, we settled this
lawsuit in return for a $200,000 judgment against Mr. Kelly’s major entity. We
are in the process of enforcing this judgment.
To
augment our drug distribution efforts, our subsidiary, PDA Services, Inc.,
applied for and was granted a prescription drug distribution license in the
state of North Dakota (License No. 463, Wholesale Drug (Device) Manufacturing
(Reverse) Distributor/Warehouse License, expiring on June 30, 2008). In
addition, our subsidiary Pharma Tech Solutions, Inc. has applied for and been
granted a retail prescription drug fulfillment license in the state of Arizona
(Permit No. 4374). The company allowed this license to lapse when we entered
into a strategic partnership with Genrich United Pharmacy (Genrich) in Phoenix,
AZ, saving the company the need to build what would have amounted to duplicate
pharma distribution facilities. The company is pleased with the initial business
it has transacted through the partnership with Genrich.
PDA
Services, Inc.
On
June
7, 2006, we and our subsidiary PDA Services, Inc. entered into an Intangible
Property, License Acquisition Agreement with Colonia Natural Pharmacy, Inc.,
a
New Jersey corporation (Colonia), also known as CN Pharmacy, and individuals
Mr.
Svetislav Milic and Mr. Nathan Kaplan. There are no material relationships
between us or our affiliates and any of the parties, other than in respect
of
the material definitive agreement.
Under
the
terms of the Intangible Property License Acquisition Agreement, Mr. Milic,
will
transfer, register and convey, and we shall receive, free and clear of all
liens, encumbrances and liabilities, the wholesale drug distribution license
(License Number 5003178) granted to Mr. Milic by the State of New Jersey, and
all rights and benefits thereto, plus the goodwill and know-how of Mr. Milic,
and other related rights granted the Licensee by virtue of this conveyance.
Unless otherwise agreed to, Mr. Milic shall remain the control party of the
transferred license for a period of three years after transfer, registration
and
conveyance.
In
tandem
with the Intangible Property License Acquisition Agreement, the parties entered
into an Exclusive Agreement Regarding Wholesale Drug Distribution License and
Wholesale Drug Distribution Operations wherein the conveyance included the
rights to the use of Colonia Natural Pharmacy Inc.’s office and warehouse
facility approved for the storage and delivery of pharmaceuticals, and Colonia
will have no role, and thus, no responsibility or liability, in the conduct
of
the “d/b/a” business, including ordering, distribution, or business management
of the wholesale business conducted by us or our subsidiaries.
The
company has subsequently “cloned” this series of agreements with Colonia into
similar agreements with R&R Drugs in Brooklyn, NY and Genrich United
Pharmacy in Phoenix, AZ. We have begn transacting commerce in New York and
in
Arizona as result of our agreements.
Medical
Field Applications
Our
medical technologies are grounded in the central need/desire to furnish the
practicing physician with crucial point-of-care patient information rapidly
and
reliably via a PDA. The technologies utilize the power of the Internet to move
large amounts of data to and from a variety of platforms securely via a powerful
Windows CE based PDA designed for portability and upgradeability. Compliant
with
the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and
the regulations that have since been promulgated, this PDA technology offers
real-time point of care applications.
Our
software is designed to integrate point of service applications. The medical
appliance, the longest available product, monitors treatment protocols and
up to
the moment patient histories coupled with real-time on-line medical insurance
claims submission. Our ultimate key to success resides in providing the private
practice physician with the capability to, sequentially, learn about the history
of the patient during, or prior to, entering the examining room, treat the
patient and update the insurer of the episode of care. Accomplishing these
objectives resolves a major dilemma for the health care provider; instantaneous
communication of vital patient related information at or before the patient
encounter.
Medical
field distribution methods
Since
inception, we have and will continue to focus our marketing efforts towards
general medical and pharmaceutical medical applications through our E-Health
handheld information appliance (PDA) software application package, and a
permanently affixed handheld information appliance and Wi-Fi (wireless) network.
Specifically we have marketed our line of MD@Hand PDA-based medical
communication network products to the medical insurance and pharmacy benefits
management segments of the healthcare markets.
We
have
implemented a targeted marketing campaign to educate healthcare providers about
our medical technology solutions; targeting the physician providers who
specialize in care for the indigent through the provision of technology,
products and services that specifically respond to the needs and requirements
of
that market. We market our suite of medical software products by emphasizing
their simplicity, portability, convenience and ease of use. We have chosen
this
focus due in part that State Medicaid and state and local welfare service
providers are agencies who do not typically participate in electronic services
networks. This is primarily because care for the poor and indigent is
logistically and financially burdensome due to a lack of resources at
administrative levels. Put another way, there is usually no shortage of
volunteer physicians but there is a shortage of program administrators, clinics,
medical supplies and patient access. Additionally, we believe that a company
that enters this loop to complete the link by providing utility and value to
participants will be embraced. It is incumbent on us to therefore extend our
marketing strategy to facilitate this reality.
Implicit
to our medical marketing strategy is the contracting of state Medicaid and
welfare programs, pharmacy benefit management entities, and medical case
management entities within a targeted region that provides for system
integration to our products and services. Once the network has been established
our IT driven mail order pharmacy services will be distributed to those
physicians included within the Medicaid or welfare agency Provider Network.
We
will rely on those contracted agencies to support and assist in the distribution
of the product to the physicians
Medical
field competition
The
medical industry is highly competitive in the attraction and retention of
physician customers, insurers, government agency payors/sponsors and other
medical providers. The number of competing companies and the size of such
companies vary in different geographic areas. Generally, we are in competition
with other PDA technology companies that offer medically related software
suites, with the most effective competition coming from companies that possess
greater capital resources, have longer operating histories, larger customer
bases, greater name recognition and significantly greater financial, marketing
and other resources than do we.
There
are
a number of small and large companies that provide some type of IT services
at
the point of care tying physicians to the healthcare systems. There is
substantial turnover and business failure in this industry as well as
substantial consolidation:
|
1.
|
Large
publicly traded companies:
|
|
a. |
WebMD,
formerly known as Healtheon (HLTH);
|
|
b. |
The
former MedicaLogic/Medscape (merged into HLTH);
|
|
c. |
Cerner/Citation
(CERN);
|
|
d. |
IDX
Corporation (IDXC); and
|
|
e. |
The
former Shared Medical Corp. (acquired by
Siemens).
|
These
companies, and others, are involved in healthcare based services including
consumer services, E-commerce and connectivity.
|
a.
|
PatientKeeper
Corp’s. (formerly Virtmed) product allows physicians to capture billing
information for hospital-based accounts and purports to manage receivable
transactions (a mix of 1st generation features on a 3rd
generation
tech platform);
|
|
b.
|
ePhysician,
which four years ago was acquired in an asset sale by Ramp Corp.
(RCO).
Ramp filed for bankruptcy protection in 2006 leaving a promising
technology in flux;
|
|
c.
|
iScribe,
which four years ago was reorganized and then merged into AdvacePCS,
has
announced products that reside on 3-Com's Palm PC. 3-Com no longer
manufactures the Palm leaving another promising technology with business
model issues;
|
|
d.
|
AllScripts
(MDRX) employs a "pull-through" business model whereby their technology
is
employed at the physician's point of care in an effort to provide
medical
utility and medical content to that physician, but with the greater
goal
of selling that physician bulk pharmaceuticals. MDRX appears to be
positioned to advance to a market leadership position with a product
distribution channel of approximately 5,500 physicians' office sites
(3%
of the total market); and
|
|
e.
|
PocketScripts
("PS") is another market entrant that specializes in the electronic
prescriptions. Zixcorp (ZIXI) acquired PS in 2003 and is currently
creating a market for the product and technology.
|
These
companies, and others, offer products and services similar to ours: delivering
PDA based data management to physicians.
There
can
be no assurance that we will be able to compete successfully against current
and
future competitors, and competitive pressures faced by us may have a material
adverse effect on our business, prospects, financial condition and results
of
operations. Further, as a strategic response to changes in the competitive
environment, management may from time to time make certain pricing, service
or
marketing decisions or acquisitions that could have a material adverse effect
on
our business, prospects, financial condition and results of operations.
Advancing
the Practice of Medicine at the Point of Care
We
are
also a developer of products that offer unique solutions in medical care and
management by providing physicians with essential information instantaneously
as
they meet with their patients. Unlike other medical information systems
using standard computer terminals, we use palm-sized computers (PDA's) that
allow physicians to carry, access and update their patients' histories,
medication data, and best care guidelines – all
at the point of care –
streamlining and revolutionizing the practice of medicine.
In
addition, we
market
our MD@Hand™
software
application, which also leverages the connectivity of handheld devices via
the
Internet. This first-in-class PDA software application offers the user access
to
job specific information (I.E. patient histories or databases), instant
messaging, and prescription fulfillment for pharmacists. Our versatile,
PDA-based software application is also used in other, information-intensive
industries. Our proprietary ResidenceWare™
is a
similar collection of Internet-enhanced communication, integration, and
networking tools developed for the real estate marketplace in cooperation with
prominent commercial and residential real estate management companies.
Numerous sales professionals, lodging managers and hoteliers currently use
the software to access such information as tenant histories and property
databases, as well as for instant messaging directly with occupying
tenants.
MD@Hand
Information
supplied to and from the physician via the handheld device
includes:
Case/Episode
diagnosis and Treatment Information:
|
·
|
Episode
by episode multiple diagnosis and physician chosen treatment
pathways
|
|
·
|
Patient
cumulative treatment (electronic medical record) histories, including
hospitalizations and histories from patient encounters with other
physicians
|
|
·
|
Eight
levels best care medical
protocols
|
|
·
|
Tentacle
links to the physician desktop reference (PDR) and prescription drug
databases
|
Medical
Order Entry and Fulfillment:
|
·
|
Full
Pharmacy Benefits Management programs with electronic script writing
with
drug formulary and drug to drug interaction checks prior to script
transmission
|
|
·
|
Lab
Order Entry with complete reporting including results, pending, ticklers,
out of limits, historical, summary,
etc.
|
|
·
|
Accident/Worker's
Compensation intervention modules. In addition, instaCare software
applications provide both on-line and off-line (fax) order
entry.
|
Payor-Related
Applications
|
· |
Plan
and Procedure Eligibility
|
|
· |
Procedure/Drug
Authorization
|
|
· |
Hospitalization
Admit Decision Tree and schema.
|
Benefit
for Physicians
|
·
|
All
access to medication and drug data, interaction databases and formulary
information is provided free of charge to all participating physicians
via
the PDA through instaCare's network
|
|
·
|
Lowers
office costs by centralizing all formulary and prescription
m
|
|
·
|
Medical
data on one or multiple PDAs and by reducing paperwork and phone
time
|
|
·
|
Improves
quality of care by providing timely information including Best
Care Guidelines to
help assure an excellent standard of care
|
|
·
|
Improves
office workflow by providing a compendium of prescription, lab results,
referable physicians
|
|
·
|
Reduces
time pulling and refilling charts reduces errors by offering immediate
access to drug data, current formulary tables, lab results and
Best
Care Guidelines
|
Benefit
For Health Plans
|
· |
High
degree of formulary compliance
|
|
· |
Expedites
claims and Improves outcomes
|
|
· |
Helps
in creating excellent standard for quality healthcare for all patients
|
|
· |
Reduces
cost of operations in many ways (i.e.: cutting down paperwork and
phone
support)
|
|
· |
Assures
correct utilization of resources
|
How
Does it Work
The
following diagram shows how the PDA's communicate with remote host
systems:
Source
of Principal Suppliers
Our
suite
of software-both medical and real estate and hotel/motel related- is proprietary
code and does not require raw materials or principal suppliers. Our software
is
utilized through over-the-counter PDA's and computer products, as previously
discussed. However, our ResidenceWare product is manufactured by third parities.
Of the units placed, approximately one half (1/2) are units manufactured and/or
distributed by companies such as ASUS, Casio and Viewsonic. The remaining units
were manufactured by Dell Computer, Inc. (Dell). Since October 1, 2004, all
units placed have been Dell units. However, since we are now in the process
of
installing units at hotels that were referrals from existing customers we have
recently placed an order for additional ASUS units. We do not foresee any
additional change or additions of in PDA manufacturers in the near future.
Dependence
on a Few Major Customers
Beginning
with the first quarter 2007 and throughout the remainder of the year we
generated revenues primarily through our medical and retail pharmaceutical
distributions from five companies. We maintain strategic relationships with
these companies whereby these companies place orders and then we service these
orders and supply product directly to the patients and/or those entities where
the patients reside. We then accept assignment for the billing and future
servicing of these patients. We maintain relationships with these original
five
resellers but have also added fourteen additional customers and books of
business with institutional care clients whereby we sell product and then
receive revenues form the direct filing of reimbursement claims with medical
insurance companies. In the future we expect the majority of the growth in
our
business to come as a direct result of our direct to patient distribution.
Government
Approval and Effect on Us
Medical
applications
Recent
government and industry legislation and rulemaking, especially the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"), and industry
groups such as the Joint Commission on Accreditation of Healthcare Organizations
("JCAHO"), require the use of standard transactions, standard identifiers,
security and other standards and requirements for the transmission of certain
electronic health information. New national standards and procedures under
HIPAA
include the "Standards for Electronic Transactions and Code Sets" (the
"Transaction Standards"); the "Security Standards" (the "Security Standards");
and "Standards for Privacy of Individually Identifiable Health Information"
(the
"Privacy Standards"). The Transaction Standards require the use of specified
data coding, formatting and content in all specified "Health Care Transactions"
conducted electronically. However, because all HIPAA Standards are subject
to change or interpretation and because certain other HIPAA Standards, not
discussed above, are not yet published, we cannot predict the future impact
of
HIPAA on our business and operations. Additionally, certain state laws are
not
pre-empted by the HIPAA Standards and may impose independent obligations upon
our customers or us.
Failure
to comply with HIPAA, as well as other government organizations, may have a
material adverse effect on our business. Government regulation of healthcare
and
healthcare information technology, are in a period of ongoing change and
uncertainty and creates risks and challenges with respect to our compliance
efforts and our business strategies. The healthcare industry is highly regulated
and is subject to changing political, regulatory and other influences. Federal
and state legislatures and agencies periodically consider programs to reform
or
revise the United States healthcare system. These programs may contain proposals
to increase governmental involvement in healthcare or otherwise change the
environment in which healthcare industry participants operate. Particularly,
compliance with HIPAA and related regulations are causing the healthcare
industry to incur substantial cost to change its procedures. Healthcare industry
participants may respond by reducing their investments or postponing investment
decisions, including investments in our products and services. Although we
expect these regulations to have the beneficial effect of spurring adoption
of
our software products, we cannot predict with any certainty what impact, if
any,
these and future healthcare reforms might have on our business. Existing laws
and regulations also could create liability, cause us to incur additional cost
or restrict our operations.
Specific
risks include, but are not limited to, risks relating to:
Electronic
Prescribing:
The
use
of our software by physicians to perform a variety of functions, including
electronic prescribing, electronic routing of prescriptions to pharmacies and
dispensing, is governed by state and federal law. States have differing
prescription format requirements, which we have programmed into our software.
Many existing laws and regulations, when enacted, did not anticipate methods
of
e-commerce now being developed. While federal law and the laws of many states
permit the electronic transmission of prescription orders, the laws of several
states neither specifically permit nor specifically prohibit the practice.
Given
the rapid growth of electronic transactions in healthcare, and particularly
the
growth of the Internet, we expect the remaining states to directly address
these
areas with regulation in the near future. It is possible that aspects of our
MD@Hand software tools could become subject to government regulation. Compliance
with these regulations could be burdensome, time-consuming and expensive. We
also could become subject to future legislation and regulations concerning
the
development and marketing of healthcare software systems. These could increase
the cost and time necessary to market new services and could affect us in other
respects not presently foreseeable. We cannot predict the effect of possible
future legislation and regulation; and,
Medical
Devices: The
United States Food and Drug Administration (the "FDA") has promulgated a draft
policy for the regulation of computer software products as medical devices
under
the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic Act.
To the extent that computer software is a medical device under the policy,
we,
as a manufacturer of such products, could be required, depending on the product,
to:
|
·
|
register
and list our products with the FDA;
|
|
·
|
notify
the FDA and demonstrate substantial equivalence to other products
on the
market before marketing such products; or
|
|
·
|
obtain
FDA approval by demonstrating safety and effectiveness before marketing
a
product.
|
Depending
on the intended use of a device, the FDA could require us to obtain extensive
data from clinical studies to demonstrate safety or effectiveness, or
substantial equivalence. If the FDA requires this data, we would be required
to
obtain approval of an investigational device exemption before undertaking
clinical trials. Clinical trials can take extended periods of time to complete.
We cannot provide assurances that the FDA will approve or clear a device after
the completion of such trials. In addition, these products would be subject
to
the Federal Food, Drug and Cosmetic Act's general controls, including those
relating to good manufacturing practices and adverse experience reporting.
Although it is not possible to anticipate the final form of the FDA's policy
with regard to computer software, we expect that the FDA is likely to become
increasingly active in regulating computer software intended for use in
healthcare settings.
Anti-Kickback
Regulation:
As
a
distributor of prescription drugs along the distribution chain that ultimately
supply physicians, we are subject to the federal anti-kickback statute, which
applies to Medicare, Medicaid and other state and federal programs. The statute
prohibits the solicitation, offer, payment or receipt of remuneration in return
for referrals or the purchase, or in return for recommending or arranging for
the referral or purchase, of goods, including drugs, covered by the programs.
Licensure
and Prescription Drug Distribution:
As
a
distributor of drugs, we are subject to regulation by and licensure with the
Food and Drug Administration (FDA), the Drug Enforcement Agency (DEA) and
various state agencies that regulate wholesalers or distributors. We are subject
to periodic inspections of our facilities by regulatory authorities, and
adherence to policies and procedures for compliance with applicable legal
requirements.
Currently,
we do not bear any costs or any effects regarding compliance with environmental
laws (federal, state, and local).
Personnel
We
currently employ 10 employees, of which 4 are full-time employees, and 6
sales/service representatives. No full-time employees are covered by labor
agreements or employment contracts.
Consultants
Chris
Knapp.
On July
15, 2006, we entered into a consulting agreement with Chris Knapp, wherein
Mr.
Knapp agreed to assist us in increasing corporate awareness within the
healthcare industry. The term of the agreement commenced on July 15, 2006 and
will continue until the agreement is terminated pursuant to written notification
by either party. We agreed to compensate Mr. Knapp with 100,000 shares of our
common stock (issued on September 7, 2006) and 100,000 options to purchase
shares of our common stock at $0.32 per share through December 31, 2006. No
options have been granted thus far, although Mr. Knapp continues to assist
the
Company.
Waypoint
Capital Partners.
On
August 22, 2006, we entered into a consulting agreement with Waypoint Capital
Partners, wherein Waypoint agreed to assist us in obtaining equity and/or debt
financing. Pursuant to the agreement we issued 197,370 shares of our common
stock to Waypoint on September 7, 2006 as compensation for its services. The
term of the agreement was for six months, however, by mutual agreement the
parties terminated the agreement on December 10, 2006. The parties continue
to
work on an arms length basis.
Barbara
Asbell.
On
August 24, 2006, we entered into a consulting agreement with Barbara Asbell,
wherein Ms. Asbell agreed to provide the Company with general business,
recruiting, personnel relations and medical IT consulting. The term of the
agreement began on August 24, 2006 and terminated on October 31, 2006. We
continue to engage Ms. Asbell from time to time and did so on February 12,
2007
for 90 days, May 17, 2007 for 90 days, September 13, 2007 for 60 days, and
November 20, 2007 for 90 days.
Leslie
Abraham Wolf.
On
August 24, 2006, we entered into a consulting agreement with Leslie Abraham
Wolf, wherein Ms. Wolf agreed to provide the Company with general business,
pharmaceutical and diagnostics sales, worker’s compensation and medical claims
consulting. The term of the agreement began on August 24, 2006 and terminated
on
October 31, 2006. We continue to engage Ms. Wolf from time to time and did
so on
February 12, 2007 for 90 days, May 17, 2007 for 90 days, and September 13,
2007
for 60 days.
Joseph
Wolf.
On
August 24, 2006, we entered into a consulting agreement with Dr. Joseph Wolf,
wherein Dr. Wolfl agreed to provide the Company with general business,
recruiting, personnel relations and medical IT consulting. The term of the
agreement began on August 24, 2006 and terminated on October 31, 2006. We
continue to engage Dr. Wolf from time to time and did so on February 12, 2007
for 90 days, May 17, 2007 for 90 days, and September 13, 2007 for 60
days.
Michelle
Thais Abraham.
On
August 24, 2006, we entered into a consulting agreement with Michelle Thais
Abraham, wherein Ms. Abraham agreed to provide the Company with general
business, pharmaceutical and diagnostics sales, worker’s compensation and
medical claims consulting. The term of the agreement began on August 24, 2006
and terminated on October 31, 2006. We continue to engage Ms. Abraham from
time
to time and did so on February 12, 2007 for 90 days, May 17, 2007 for 90 days,
and September 13, 2007 for 60 days.
Patents,
Proprietary Rights and Licenses
In
February 2001, a broad based patent application was filed covering the methods
and apparatus of our software technology and the integration of our software
technology into commercial computer networks and commercial personal digital
assistant (PDA) devices. In May 2001, the inventors of the technology, methods
and apparatus covered by the patent application sold the technology and assigned
the intellectual property rights to Medicius, Inc. In July 2002, we prepared
an
additional derivative patent application that added additional patent claims
to
our claim portfolio. It was our intent to file derivative patent applications
as
needed covering the processes, use and functionality of our technologies and
products as we further developed our methods and processes.
Through
our merger with Medicius, Inc. in 2002 we gained assignment of proprietary
systems covered by a portfolio of pending utility patent applications that
make
claim to methods and systems for managing medical patient-specific information
and concurrently implementing fulfillment of this information by multiple
health-services related providers for medically-related services for use over
a
computer network. The proprietary systems allow for patient information to
be
gathered from multiple authorized sources and then this information is provided
at the point-of-care, and coordinated and compared with prescription formulary
compliance, medical services providers and their payors, and multiple-rules
based treatment plans provided by various sources (content). Patient case and
episode information and care management, in coordination with the implementation
of substantially paperless ordering and fulfillment of lab tests, prescriptions
and referrals, is made available to attending health care professionals and
support personnel via networked computer systems and PDA systems running our
proprietary software methods. The inventive system includes, in seamless
essentially real-time communication over the Internet, a network of fully secure
private sub-networks among the participants in the system, anchored by a PC
as
the client-server link to the Internet, with each of a plurality of PDA’s either
docked to it or connected by commercially available wireless communications
protocols. A suite of software applications, including medical, communications
and database applications are resident on each PDA, and communications modules
resident in the system automatically link to the PC via an available ISP to
update those databases by a novel packet transmission method to maintain
confidentiality of the transmitted information. Data is transferred by wireless
link, such as radio frequency links among and between servers and PDA’s used in
connection with the system.
The
original patent application, Patent Application 09776544, Information Management
and Communications System and Method, Attorney Docket 0444.002, consisting
of
forty-eight separate claims was filed on February 2, 2001. This application
encompassed the method, system and apparatus of the invention described above.
In July 2002, we completed a derivative application that added seventeen
additional claims to the application. These claims specifically augmented the
original methods and apparatus to include methods surrounding a proprietary
use
of what is commonly known as Wi-Fi to transmit the packet data and databases
described above.
During
a
follow-up with the USPTO, our CFO and the Inventor of the above described
methods and processes was informed by a representative of the USPTO that Patent
Application 09776544 had been abandoned due to a non-timely filing of a fee
and
response by patent counsel. Unable to discuss these issues with counsel due
to
his lingering illness, the Inventor has subsequently petitioned the USPTO to
re-activate the application. We intend to engage new patent counsel to prosecute
the applications.
Item
1A. Risk Factors.
Risks
Relating To Our Business and Marketplace
Our
limited operating history could delay our growth and result in the loss of
your
investment.
We
were
incorporated on March 2, 2001 and have previously been in the development stage
and thus have had a limited operating history on which to base an evaluation
of
our business and prospects. Beginning in 2005, we have commenced operations
and
are no longer considered to be in the development stage. However, our prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development. Such risks
include, but are not limited to, dependence on the growth of use of electronic
medical information and services, the adoption of PDA based Internet appliances
for the transmission and display of medical information, the need to establish
our brand name, the ability to establish a sufficient client base, the level
of
use of medical providers and the management of growth. To address these risks,
we must maintain and increase our customer base, implement and successfully
execute our business and marketing strategy, continue to develop and improve
our
point of care software and patient processing system, provide superior customer
service, respond to competitive developments and attract, retain, and motivate
qualified personnel. There can be no assurance that we will be successful in
addressing such risks, and the failure to do so could lead to an inability
to
meet our financial obligations and therefore result in bankruptcy and the loss
of your entire investment in our common shares.
If
we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board, which would limit the ability of broker-dealers
to
sell our securities and the ability of stockholders to sell their securities
in
the secondary market.
Companies
trading on the OTC Bulletin Board, such as us, generally must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended,
and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. More specifically, NASD has
enacted Rule 6530, which determines eligibility of issuers quoted on the OTC
Bulletin Board by requiring an issuer to be current in its filings with the
Commission. Pursuant to Rule 6530(e), if we file our reports late with the
Commission three times in a two-year period or our securities are removed from
the OTC Bulletin Board for failure to timely file twice in a two-year period
then we will be ineligible for quotation on the OTC Bulletin Board. We filed
our
Form 10-QSB for the periods ended June 30, 2006 and September 30, 2006 late,
therefore, one more late filing will result in de-quotation from the OTC
Bulletin Board. As a result, the market liquidity for our securities could
be
severely adversely affected by limiting the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their securities in
the
secondary market.
We
have historically lost money and losses are expected to continue in the near
future, which means that we may not be able to continue operations unless we
obtain additional funding.
We
have
historically lost money. We had an accumulated deficit as of December 31, 2007,
and 2006 of $19,525,307 and $18,058,490, respectively. In addition, our
development activities since inception have been financially sustained by
capital contributions. Future losses are likely to occur. Accordingly, we may
experience significant liquidity and cash flow problems if we are not able
to
raise additional capital as needed and on acceptable terms. We received a
substantial number of sales orders and refill orders beginning in mid-September
2006. However, at this time we have depleted our cash resources and as a result
we were unable to pre-pay certain diabetic test suppliers for approximately
$5,400,000 in product to fill these orders, causing our customers to wait
additional time to receive product from us. Thus, from time to time we might
need to turn to the capital markets to obtain additional financing to fund
payment of obligations and to provide working capital for operations. No
assurances can be given that we will be successful in reaching or maintaining
profitable operations.
We
have been dependent on a small number of major customers to support our
prescription drug distribution plan and to refer direct to patient
business.
In
2007
our four largest customers accounted for approximately 98% of our net sales
through the referral of direct to patient and direct to medical service entity
businesses. We expect that a small but growing number of customers will continue
to account for a substantial majority of our sales and that the relative dollar
amount and mix of products sold can change significantly from year to year
and
how we are paid for business generated, assigned and referred by these customers
can change as well. There can be no assurance that our major customers will
continue to purchase products or refer the direct to patient and direct to
medical entity business to us at current levels, or that the mix of products
purchased will be in the same ratio. The loss of our largest customers, who
not
only buy product directly, but also refer substantial “direct to patient”
business upon which we accept assignment or may provide direct billing and
collection services or accept medical assignment for “direct to patient”
business, or a decrease in product sales would have a material adverse effect
on
our business and financial condition.
Our
internal controls may be inadequate, which could cause our financial reporting
to be unreliable and lead to misinformation being disseminated to the public.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. As defined in Exchange Act Rule 13a-15(f),
internal control over financial reporting is a process designed by, or under
the
supervision of, the principal executive and principal financial officer and
effected by the board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that: (i) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions
are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts
and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company, and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on the financial statements.
We
have
one individual performing the functions of all officers and directors. This
individual is responsible for monitoring and ensuring compliance with our
internal control procedures. As a result, our internal controls may be
inadequate or ineffective, which could cause our financial reporting to be
unreliable and lead to misinformation being disseminated to the public.
Investors relying upon this misinformation may make an uninformed investment
decision.
We
may not be able to retain our key personnel or attract additional personnel,
which could affect our ability to generate revenue sufficient to continue as
a
going concern diminishing your return on investment.
Our
performance is substantially dependent on the services and on the performance
of
our Management. instaCare is, and will be, heavily dependent on the skill,
acumen and services of our CFO, Secretary and Treasurer, Keith Berman and our
Chairman Robert Jagunich. Our performance also depends on our ability to
attract, hire, retain and motivate our officers and key employees. The loss
of
the services of our executives could result in lost revenue depending on the
length of time and effort required to find a qualified replacement. We have
not
entered into long-term employment agreements with our key personnel and
currently have no "Key Employee" life insurance policies.
Our
future success may also depend on our ability to identify, attract, hire, train,
retain and motivate other highly skilled technical, managerial, marketing and
customer service personnel. Competition for such personnel is intense, and
there
can be no assurance that we will be able to successfully attract, assimilate
or
retain sufficiently qualified personnel. If we are unable to attract, retain,
and train the necessary technical, managerial, marketing and customer service
personnel, our expectations of increasing our clientele could be hindered,
and
the profitability of instaCare reduced.
Recent
and possible future issuances of common stock will have a dilutive affect on
existing shareholders.
instaCare
is authorized to issue up to 1,250,000,000 Shares of common stock. As of March
28, 2008, there were 34,700,688 shares
of
common stock issued and outstanding. Additional issuances of common stock may
be
required to raise capital, to acquire stock or assets of other companies, to
compensate employees or to undertake other activities without stockholder
approval. These additional issuances of common stock will increase outstanding
shares and further dilute stockholders' interests. Because our common stock
is
subject to the existing rules on penny stocks and thinly traded, a large sale
of
stock, such as the shares we seek to have registered via this registration
statement, may result in a large drop in the market price of our securities
and
substantially reduce the value of your investment.
Our
common stock has been relatively thinly traded, may experience high price
volatility and we cannot predict the extent to which a trading market will
develop.
Our
common stock has traded on the Over-the-Counter Bulletin Board. Our common
stock
is thinly traded compared to larger more widely known companies in our industry.
Thinly traded common stock can be more volatile than common stock trading in
an
active public market. We cannot predict the extent to which an active public
market for the common stock will develop or be sustained after this offering.
Achieving
market acceptance of new or newly integrated products and services is likely
to
require significant efforts and expenditures.
Achieving
market acceptance for new or newly integrated products and services is likely
to
require substantial marketing efforts and expenditure of significant funds
to
create awareness and demand by participants in the healthcare industry. In
addition, deployment of new or newly integrated products and services may
require the use of additional resources for training our existing sales and
customer service personnel and for hiring and training additional salespersons
and customer service personnel. There can be no assurance that the revenue
opportunities from new or newly integrated products and services will justify
amounts spent for their development, marketing and rollout.
We
could be subject to breach of warranty claims if our software products,
information technology systems or transmission systems contain errors,
experience failures or do not meet customer expectations.
We
could
face breach of warranty or other claims or additional development costs if
the
software and systems we sell or license to customers or use to provide services
contain undetected errors, experience failures, do not perform in accordance
with their documentation, or do not meet the expectations that our customers
have for them. Undetected errors in the software and systems we provide or
those
we use to provide services could cause serious problems for which our customers
may seek compensation from us. We attempt to limit, by contract, our liability
for damages arising from negligence, errors or mistakes. However, contractual
limitations on liability may not be enforceable in certain circumstances or
may
otherwise not provide sufficient protection to us from liability for damages.
If
our systems or the Internet experience security breaches or are otherwise
perceived to be insecure, we could lose existing clients and limit our ability
to attract new clients.
A
security breach could damage our reputation or result in liability. We retain
and transmit confidential information, including patient health information.
Despite the implementation of security measures, our infrastructure or other
systems that we interface with, including the Internet, may be vulnerable to
physical break-ins, hackers, improper employee or contractor access, computer
viruses, programming errors, attacks by third parties or similar disruptive
problems. Any compromise of our security, whether as a result of our own systems
or systems that they interface with, could reduce demand for our services.
We
do not have the financial resources to litigate actions involving our copyrights
or patent applications.
We
have
applied to receive patent rights, and trademarks relating to our software.
However, patent and intellectual property legal issues for software programs,
such as our products, are complex and currently evolving. Patent applications
are secret until patents are issued in the United States, or published in other
countries, therefore, we cannot be sure that we are first to file any patent
application for our technologies, primarily the technology that allows for
the
safe, secure and near seamless transmission of sensitive medical information
from the point of care, directly to our mail order pharmacy. Should any of
our
patent claims be compromised or if, for example, one of our competitors has
filed or obtained a patent before our claims have been prosecuted, or should
a
competitor with more resources desire to litigate and force us to defend or
prosecute any patent rights, our ability to develop the market for our mail
order pharmacy could be severely compromised, for we do not have the financial
resources to litigate actions involving our patents and copyrights.
Our
auditors have expressed substantial doubt as to our ability to continue as
a
going concern.
Due
to
our increasing deficit and our lack of revenue sufficient to support existing
operations, there is substantial doubt about our ability to continue as a going
concern. We may need to obtain additional financing in the event that we are
unable to realize sufficient revenue. We may incur additional indebtedness
from
time to time to finance acquisitions, provide for working capital or capital
expenditures or for other purposes There can be no assurance that we will have
funds sufficient to continue operations, and the failure to do so could lead
to
an inability to meet our financial obligations and therefore result in
bankruptcy and the loss of your entire investment in instaCare's common
shares.
Risks
Relating To Our Common Stock
Because
our common stock is deemed a low-priced “Penny” stock, an investment in our
common stock should be considered high risk and subject to marketability
restrictions.
Since
our
common stock is a penny stock, as defined in Rule 3a51-1 under the Securities
Exchange Act, it will be more difficult for investors to liquidate their
investment even if and when a market develops for the common stock. Until the
trading price of the common stock rises above $5.00 per share, if ever, trading
in the common stock is subject to the penny stock rules of the Securities
Exchange Act specified in rules 15g-1 through 15g-10. Those rules require
broker-dealers, before effecting transactions in any penny stock,
to:
|
·
|
Deliver
to the customer, and obtain a written receipt for, a disclosure
document;
|
|
·
|
Disclose
certain price information about the
stock;
|
|
·
|
Disclose
the amount of compensation received by the broker-dealer or any associated
person of the broker-dealer;
|
|
·
|
Send
monthly statements to customers with market and price information
about
the penny stock; and
|
|
·
|
In
some circumstances, approve the purchaser’s account under certain
standards and deliver written statements to the customer with information
specified in the rules. |
Consequently,
the penny stock rules may restrict the ability or willingness of broker-dealers
to sell the common stock and may affect the ability of holders to sell their
common stock in the secondary market and the price at which such holders can
sell any such securities. These
additional procedures could also limit our ability to raise additional capital
in the future.
If
we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board, which would limit the ability of broker-dealers
to
sell our securities and the ability of stockholders to sell their securities
in
the secondary market.
Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, and must be
current in their
reports under Section 13, in order to maintain price quotation privileges on
the
OTC Bulletin Board. More specifically, FINRA has enacted Rule 6530, which
determines eligibility of issuers quoted on the OTC Bulletin Board by requiring
an issuer to be current in its filings with the Commission. Pursuant to
Rule 6530(e), if we file our reports late with the Commission three times in
a
two-year period or our securities are removed from the OTC Bulletin Board for
failure to timely file twice in a two-year period then we will be ineligible
for
quotation on the OTC Bulletin Board. As a result, the market liquidity for
our
securities could be severely adversely affected by limiting the ability of
broker-dealers to sell our securities and the ability of stockholders to sell
their securities in the secondary market.
We
have the ability to issue additional shares of our common stock and shares
of
preferred stock without asking for stockholder approval, which could cause
your
investment to be diluted.
Our
Certificate of Incorporation authorizes the Board of Directors to issue up
to
1,250,000,000 shares of common stock and 5,000,000 shares of preferred stock.
The power of the Board of Directors to issue shares of common stock, preferred
stock or warrants or options to purchase shares of common stock or preferred
stock is generally not subject to shareholder approval. Accordingly, any
additional issuance of our common stock, or preferred stock that may be
convertible into common stock, may have the effect of diluting one’s
investment.
FINRA
sales practice requirements may also limit a stockholder's ability to buy and
sell our stock.
In
addition to the “penny stock” rules described above, FINRA has adopted rules
that require that in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable
for
that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer's financial status, tax status, investment
objectives and other information. Under interpretations of these rules, the
FINRA believes that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. The FINRA
requirements make it more difficult for broker-dealers to recommend that their
customers buy our common stock, which may limit your ability to buy and sell
our
stock and have an adverse effect on the market for our shares.
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item
2. Properties.
We
currently maintain an executive office at 2660 Townsgate Road, Suite 300,
Westlake Village, CA 91361. The space consists of approximately 2,300 square
feet. The monthly rental for the space is $4,000 per month on a month to month
basis until March 31, 2009.
On
June
7, 2005, we entered into an agreement for the right to use offices, warehouses
and
shipping facilities for the storage and shipping of pharmaceuticals located
at
515 Inman Avenue, Colonia, NJ 07067 and 25 Minna Street, Rahway, NJ 07065 for
a
monthly rental fee of $3,500. These buildings total 4,000 square feet but our
right to use is not exclusive.
We
are
currently completing leasehold improvements on a 4,000 square foot facility
in
Hope, ND to use as our fulfillment center. When this leasehold is completed,
we
will pay $1,000 per month on a month to month basis.
Item
3. Legal Proceedings.
We
transact commerce in several medical products market channels. We also
transact commerce moving confidential medical dats through our proprietary
medical information technology devices and networks. Healthcare is a very
litigious industry. The industry is also very intertwined. From time to time,
we
may become involved in claims and litigation that arise out of the normal course
of business or the normal course of the business of our suppliers, payors and
customers. Other than as noted below there are no pending matters at the current
time that in management’s judgment may be considered potentially material to
us
instaCare
Corp. vs. Ronald Kelly, et. al. (“Kelly”)
In
July
of 2005, the Company filed a complaint in the United States District Court,
for
the Central District of California (Case Number CV 05-4932-RSWL), against Ronald
Kelly, Linda R. Kelly, Kimberly Kelly, and Kelly Company World Group, Inc.,
seeking damages for:
3. |
Breach
of Fiduciary Duty;
|
7. |
Breach
of Contract/Breach of Corporate Merger Agreement;
and
|
8. |
Accounting
and Ancillary Relief.
|
On
December 18, 2006, the United States District Court, for the Central District
of
California ordered, adjudged and decreed that the Company shall have judgment
against Kelly in the amount of $200,000, pursuant to the stipulation of the
parties.
In
addition, pursuant to a mutual release agreement executed by both parties,
Kelly
waived any right, claim or ownership interest in any shares of common stock
of
the Company. Kelly returned 31,958,000 (pre-reverse split) shares of common
stock to the Company, which will be placed in one of the Company’s majority
owned subsidiaries.
instaCare
Corp. vs. Investor Relations Services Inc. (“IRS”), Summit Trading, Ltd.
(“STL”)
In
August
of 2005, the Company filed suit in the Superior Court for the State of
California (Case Number BC337976) against IRS and STL, seeking Declaratory
Relief and rescission
of the alleged December 2004 agreements between the Company and IRS/STL. The
complaint also sought damages for Intentional Interference with an Advantageous
Business Relationship as a result of actions taken by IRS/STL.
On
January 17, 2007, the Superior Court for the State of California in Los Angeles
County rendered its tentative decision against Investors Relations Services
and
Summit Trading, Ltd., finding that the December 2004 agreements were never
submitted to the Board of Directors, were never approved or authorized by the
Board of Directors, and that the Company has no obligations to either IRS or
STL. In March 2007, the Company filed a motion with the Superior Court for
the
State of California for reimbursement of attorney’s fees and costs.
Item
4. Submission of Matters to a Vote of Security Holders.
We
did
not submit any matters to a vote of our security holders during the fourth
quarter of 2007.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
(a)
Market Information
Our
Common Stock was approved for trading on the National Association of Security
Dealers’ over-the-counter bulletin board market (OTC:BB) under the symbol ISCR
on February 4,2002. Our common stock has traded infrequently on the OTC:BB,
which limits our ability to locate accurate high and low bid prices for each
quarter within the last two fiscal years. Therefore, the following table lists
the quotations for the high and low bid prices as reported by a Quarterly Trade
and Quote Summary Report of the OTC Bulletin Board for the fiscal years 2007
and
2006. The quotations from the OTC Bulletin Board reflect inter-dealer prices
without retail mark-up, markdown, or commissions and may not represent actual
transactions.
|
|
2007
|
|
2006
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
1st
Quarter
|
|
$
|
0.37
|
|
$
|
0.27
|
|
$
|
0.75
|
|
$
|
0.007
|
|
2nd
Quarter
|
|
$
|
0.45
|
|
$
|
0.17
|
|
$
|
0.50
|
|
$
|
0.21
|
|
3rd
Quarter
|
|
$
|
0.17
|
|
$
|
0.04
|
|
$
|
0.65
|
|
$
|
0.24
|
|
4th
Quarter
|
|
$
|
0.05
|
|
$
|
0.03
|
|
$
|
0.42
|
|
$
|
0.23
|
|
(b)
Holders of Common Stock
As
of
March 29, 2008, there were approximately 542 holders of record of our Common
Stock and 34,700,688 shares
outstanding. As of March 28, 2008, the closing price of our shares of common
stock on the OTC:BB was $0.03 per share.
(c)
Dividends
During
the fiscal years ended December 31, 2007, we accrued Dividends to Mercator
Momentum Fund, LP and Monarch Pointe Fund, Ltd. and Mercator Advisory Group,
LLC
(“MAG”) totaling $241,478. As of December 31, 2006, we paid $206,086 and accrued
$50,914 pursuant to the rights of the Series “C” convertible preferred. We had
no earnings and a stockholders’ deficit and therefore no basis for issuance of a
dividend. In order to prevent potential litigation with the purchaser, the
Company elected to pay the mandatory dividend. As of December 31, 2007, the
Company had accrued dividends payable in the amount of $292,392.
On
June
9, 2006, we declared an 8 1/3% special stock dividend payable to our
stockholder’s of record as of June 9, 2006. Pursuant to the terms of the
dividend declaration, each stockholder of record received 8.334 shares for
each
100 shares of our common stock they own.
We
intend
to follow a policy of retaining earnings, if any, to finance the growth of
the
business and do not anticipate paying any cash dividends in the foreseeable
future. The declaration and payment of future dividends on the Common Stock
will
be the sole discretion of the Board of Directors and will depend on our
profitability and financial condition, capital requirements, statutory and
contractual restrictions, future prospects and other factors deemed
relevant.
(d)
Securities Authorized for Issuance under Equity Compensation
Plans
2003
Stock Option Plan
Effective
January 1, 2003, we adopted the 2003 Stock Option Plan. The maximum number
of
shares that may be issued pursuant to the plan is 312,500 shares. As of December
31, 2007, 203,125 shares have been granted and subsequently, 166,250 expired
and
36,875 have been exercised under this plan.
2004
Stock Option Plan
Effective
April 21, 2004, we adopted the “2004” Stock Option Plan, as amended, with a
maximum number of 6,312,500 shares that may be issued. As of December 31, 2007,
2,978,297 options have been granted under this plan. As of December 31, 2007
all
option granted have been exercised.
2005
Merger Consolidated Stock Option Plan
Effective
February 5, 2005, we adopted the “2005” Merger Consolidated Stock Option Plan.
The maximum number of shares that may be issued pursuant to the plan is
1,125,000 shares. As of December 31, 2007, 825,000 shares have been granted
under this plan.
2006
Business Development Stock Option Plan
Effective
December 8, 2006, we adopted our “2006” Employee Stock Option Plan” as amended
with a maximum number of 5,500,000 shares that may be issued.
As of
December 31, 2007, 4,140,867 options have been granted under this
plan.
All
of
our Stock Option Plans are intended to encourage directors, officers, employees
and consultants to acquire ownership of common stock. The opportunity so
provided is intended to foster in participants a strong incentive to put forth
maximum effort for our continued success and growth, to aid in retaining
individuals who put forth such efforts, and to assist in attracting the best
available individuals to the Company in the future. As of December 31, 2007,
5,102,711 options remain available for issuance.
Officers
(including officers who are members of the board of directors), directors (other
than members of the stock option committee to be established to administer
the
stock option plans) and other employees and consultants and its subsidiaries
(if
established) will be eligible to receive options under the stock option plans.
The committee will administer the stock option plans and will determine those
persons to whom options will be granted, the number of options to be granted,
the provisions applicable to each grant and the time periods during which the
options may be exercised. No options may be granted more than ten years after
the date of the adoption of the stock option plans.
Non-qualified
stock options will be granted by the committee with an option price equal to
the
fair market value of the shares of common stock to which the non-qualified
stock
option relates on the date of grant. The committee may, in its discretion,
determine to price the non-qualified option at a different price. In no event
may the option price with respect to an incentive stock option granted under
the
stock option plans be less than the fair market value of such common stock
to
which the incentive stock option relates on the date the incentive stock option
is granted.
Each
option granted under the stock option plans will be exercisable for a term
of
not more than ten years after the date of grant. Certain other restrictions
will
apply in connection with the plans when some awards may be exercised. In the
event of a change of control (as defined in the stock option plans), the date
on
which all options outstanding under the stock option plans may first be
exercised will be accelerated. Generally, all options terminate 90 days after
a
change of control.
The
following table sets forth information as of December 31, 2007 regarding
outstanding options granted under the plans, warrants issued to consultants
and
options reserved for future grant under the plan.
Plan
Category
|
|
Number
of shares to be
issued upon
exercise of
outstanding options,
warrants and rights
(a)
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
|
Number of shares
remaining available for
future issuance under
equity compensation
plans (excluding shares
reflected in column (a))
(c)
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by stockholders
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by stockholders
|
|
|
825,000
|
|
$
|
1.73
|
|
|
5,102,711
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
825,000
|
|
$
|
1.73
|
|
|
5,102,711
|
|
(1) |
Includes
109,375 options remaining for issuance under the 2003 Option Plan,
3,334,203 options remaining for issuance under the 2004 Option Plan,
300,000 options remaining for issuance under the 2005 Option Plan,
and
1,359,133 options remaining under the 2006 Option
Plan.
|
Recent
Sales of Unregistered Securities
On
January 4, 2007, we issued a total of 227,200 shares of our common stock for
services rendered to the Company to the following service
providers:
Name
|
|
Number
of
Shares
|
|
BMI
Consulting, Inc.
|
|
|
56,800
|
|
DCF,
Inc.
|
|
|
56,800
|
|
Lima
Capital, Inc.
|
|
|
56,800
|
|
Desert
Southwest Capital, Inc.
|
|
|
56,800
|
|
The
above
shares issued were registered in a Registration Statement on Form S-8POS filed
on December 8, 2006.
On
January 4, 2007, we issued 150,000 shares of our restricted common stock to
Crescent Fund, LLC for services provided to the Company. We believe that the
issuance of the shares was exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933 by virtue of Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment
decision.
On
February 7, 2007, Mercator Momentum Fund, LP. and Monarch Pointe Fund, LP.
Converted 500 Series C Preferred Stock into 232,666 shares of our common stock.
The 232,666 shares of common stock were issued on February 28,
2007.
On
February 12, 2007, we issued a total of 250,000 shares of our common stock
for
services rendered to the Company to the following service
providers:
Name
|
|
Number
of
Shares
|
|
Jeff
Stone
|
|
|
50,000
|
|
Barbara
Asbell
|
|
|
70,000
|
|
Leslie
Wolf
|
|
|
65,000
|
|
Dr.
Joseph Wolf
|
|
|
65,000
|
|
The
above
shares issued were registered in a Registration Statement on Form S-8POS
filed
on December 8, 2006.
On
February 15, 2007, we issued a total of 242,000 shares of our common stock
for
services rendered to the Company to the following service
providers:
Name
|
|
Number
of
Shares
|
|
John
Heilshorn
|
|
|
33,500
|
|
Keith
Lippert
|
|
|
33,500
|
|
Jeff
Stone
|
|
|
50,000
|
|
Michael
Belcher
|
|
|
125,000
|
|
The
above
shares issued were registered in a Registration Statement on Form S-8POS filed
on September 8, 2006.
On
March
14, 2007, we issued a total of 130,000 shares of our common stock for services
rendered to the Company to the following service providers:
Name
|
|
Number
of
Shares
|
|
Thais
Abraham
|
|
|
65,000
|
|
Wendy
Block
|
|
|
65,000
|
|
The
above
shares issued were registered in a Registration Statement on Form S-8POS filed
on December 8, 2006.
On
March
14, 2007, Mercator Momentum Fund, LP. and Monarch Pointe Fund, LP. Converted
500
Series C Preferred Stock into 238,095 shares of our common stock.
On
March
31, 2007, we issued 50,000 shares of our common stock for services rendered
to
the
Company to the following service provider:
Name
|
|
Number
of
Shares
|
|
Chris
Knapp
|
|
|
50,000
|
|
The
above
shares issued were registered in a Registration Statement on Form S-8POS filed
on December 8, 2006.
On
April
5, 2007, we issued 50,000 shares of
our
restricted common stock to Nathan Kaplan and Svet Milic for license fees. We
believe that the issuance of the shares was exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933 by virtue of
Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
May 7,
2007, Mercator Momentum Fund, LP. and Monarch Pointe Fund, LP. Converted 840
shares of Series C Preferred Stock into 400,000 shares of our common
stock.
On
May
17, 2007, we issued a total of 625,000 shares of our common stock for services
rendered to the Company to the following service providers:
Name
|
|
Number
of
Shares
|
|
Thais
Abraham
|
|
|
158,000
|
|
Barbara
Asbell
|
|
|
175,500
|
|
Leslie
Wolf
|
|
|
145,000
|
|
Dr.
Joseph Wolf
|
|
|
146,500
|
|
The
above
shares issued were registered in a Registration Statement on Form S-8POS filed
on December 8, 2006.
On
July
23, 2007, we issued 184,700 shares of
our
restricted common stock to three individuals for services rendered to the
Company. We believe that the issuance of the shares was exempt from the
registration and prospectus delivery requirements of the Securities Act of
1933
by virtue of Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
August
27, 2007, Mercator Momentum Fund, LP. and Monarch Pointe Fund, LP. Converted
300
shares of Series C Preferred Stock into 500,000 shares of our common
stock.
On
September 11, 2007, we issued a total of 1,000,000 shares of our common stock
for services rendered to the Company to the following service
providers:
Name
|
|
Number
of
Shares
|
|
Thais
Abraham
|
|
|
250,000
|
|
Barbara
Asbell
|
|
|
250,000
|
|
Leslie
Wolf
|
|
|
250,000
|
|
Dr.
Joseph Wolf
|
|
|
250,000
|
|
The
above
shares issued were registered in a Registration Statement on Form S-8POS filed
on August 31, 2007.
On
September 19, 2007, we issued 200,000 shares of
our
restricted common stock to an individual for cash. We believe that the issuance
of the shares was exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933 by virtue of Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
October 3, 2007, we issued a total of 5,250,000 shares of
our
restricted common stock to our officers and directors as a bonus for services
to
the Company. We believe that the issuance of the shares was exempt from the
registration and prospectus delivery requirements of the Securities Act of
1933
by virtue of Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
October 3, 2007, we issued 7,500,000 shares of
our
restricted common stock to our CFO for the conversion of $150,000 of debt.
We
believe that the issuance of the shares was exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933 by virtue of
Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access
to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
November 20, 2007, we issued 833,334 shares of our common stock for services
rendered to the Company to the following service provider:
Name
|
|
Number
of
Shares
|
|
Barbara
Asbell
|
|
|
833,334
|
|
The
above
shares issued were registered in a Registration Statement on Form S-8POS filed
on August 31, 2007.
On
November 26, 2007, we issued 10,500 shares of our common stock for services
rendered to the Company to the following service provider:
Name
|
|
Number
of
Shares
|
|
J.
Barry Johnson
|
|
|
10,500
|
|
The
above
shares issued were registered in a Registration Statement on Form S-8POS filed
on August 31, 2007.
On
November 27, 2007, we issued 400,000 shares of
our
restricted common stock to two individuals for services provided to the Company.
We believe that the issuance of the shares was exempt from the registration
and
prospectus delivery requirements of the Securities Act of 1933 by virtue of
Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
December 5, 2007, we issued 231,559 shares of
our
restricted common stock to Centurion Credit Resources as financing fees in
connection with our line of credit. We believe that the issuance of the shares
was exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933 by virtue of Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business
matters that it was capable of evaluating the merits and risks of its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
December 5, 2007, we issued 200,000 shares of
our
restricted common stock to Parallel Marketing Resources for services rendered
to
the Company. We believe that the issuance of the shares was exempt from the
registration and prospectus delivery requirements of the Securities Act of
1933
by virtue of Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
December 5, 2007, we issued 833,333 shares of our common stock for services
rendered to the Company to the following service provider:
Name
|
|
Number
of
Shares
|
|
Barbars
Asbel in the name of Yoel Grun
|
|
|
833,333
|
|
The
above
shares issued were registered in a Registration Statement on Form S-8POS filed
on August 31, 2007.
Subsequent
Issuances After Year-End.
On
January 2, 2008, we issued 446,071 shares of
our
restricted common stock to Centurion Credit Resources as financing fees in
connection with our line of credit. We believe that the issuance of the shares
was exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933 by virtue of Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
January 2, 2008, we issued 750,000 shares of our common stock to employees
for
services rendered to the Company to the following service provider:
Name
|
|
Number
of
Shares
|
|
Alan
Binder
|
|
|
250,000
|
|
Dale
Richter
|
|
|
250,000
|
|
Shabnam
Shahrabi
|
|
|
100,000
|
|
Frank
Schwenden
|
|
|
150,000
|
|
The
above
shares issued were registered in a Registration Statement on Form S-8POS filed
on August 31, 2007.
On
January 4, 2008, we issued 4,223 shares of
our
restricted common stock to Centurion Credit Resources as financing fees in
connection with our line of credit. We believe that the issuance of the shares
was exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933 by virtue of Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
January 4, 2008, we issued 1,250,000 shares of
our
restricted common stock to our CFO for services provided to the Company. We
believe that the issuance of the shares was exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933 by virtue of
Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
January 4, 2008, we issued 1,250,000 shares of
our
restricted common stock to Michael Petras for services provided to the Company.
We believe that the issuance of the shares was exempt from the registration
and
prospectus delivery requirements of the Securities Act of 1933 by virtue of
Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
January 14, 2008, we issued 400,000 shares of
our
restricted common stock to two individuals for services provided to the Company.
We believe that the issuance of the shares was exempt from the registration
and
prospectus delivery requirements of the Securities Act of 1933 by virtue of
Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access
to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
On
January 31, 2008, we issued 648,630 shares of
our
restricted common stock to Centurion Credit Resources as financing fees in
connection with our line of credit. We believe that the issuance of the shares
was exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933 by virtue of Section 4(2).
The
recipient of the shares was afforded an opportunity for effective access to
files and records of the Company that contained the relevant information needed
to make its investment decision, including the Company’s financial statements
and 34 Act reports. We reasonably believe that the recipient, immediately prior
to issuing the shares, had such knowledge and experience in our financial and
business matters that it was capable of evaluating the merits and risks of
its
investment. The recipient had the opportunity to speak with our president and
directors on several occasions prior to its investment decision.
Issuer
Purchases of Equity Securities
We
did
not repurchase any of our equity securities during the years ended December
31,
2007 or 2006.
Item
6. Selected Financial Data.
Not
applicable.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
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 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.
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:
· |
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 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;
|
· |
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. In each of the last two operating years our order intake was
concentrated in the first five months of the calendar year and then again 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 fiscal years ended December 31, 2007 and
2006.
The
following table summarizes selected items from the statement of operations
at
December 31, 2007 compared to December 31, 2006.
INCOME:
|
|
For
the Year Ended
December
31,
|
|
Increase
(Decrease)
|
|
|
|
2007
|
|
2006
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
6,254,278
|
|
$
|
19,220,265
|
|
$
|
(12,965,987
|
)
|
|
(67
|
)%
|
Cost
of Sales
|
|
|
5,845,782
|
|
|
19,186,237
|
|
$
|
(13,340,455
|
)
|
|
(70
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
408,496
|
|
|
34,028
|
|
|
374,468
|
|
|
1,100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit Percentage of Sales
|
|
|
6
|
%
|
|
0.18
|
%
|
|
|
|
|
5.82
|
%
|
Revenue
Our
revenue for the fiscal year ended December 31, 2007 was $6,254,278 compared
to
revenue of $19,220,265 in the fiscal year ended December 31, 2006. This resulted
in a decrease in revenue of $12,965,987, or 67%, from the same period a year
ago. The decrease in revenue over the fiscal year ended December 31, 2006 was
a
result of our market focus towards the direct sale of diabetic test strips
into
several prescription drug channels and our efforts to increase our gross profit
margin.
Cost
of sales / Gross profit percentage of sales
Our
cost
of sales for the fiscal year ended December 31, 2007 was $5,845,782, a decrease
of $13,340,455, or 70% from $19,186,237 for the fiscal year ended December
31,
2006. The decrease in the cost of sales in the current period was a direct
result of our decreased sales during the year and an increase in retail market
sales. In addition, pursuant to supplier agreements, we were to receive volume
rebates on bulk purchases totaling $564,107. At December 31, 2006 we had not
received payment on the accrued rebates and had doubt as to future
collectibility therefore we wrote down the amount due at December 31,
2006.
Gross
profit as a percentage of sales increased from 0.18% for the fiscal year ended
December 31, 2006 to 0.18% for the fiscal year ended December 31, 2006. The
increase in gross profit margin was caused by a change in our product mix
whereby we increased our sales levels in the retail verses wholesale markets,
which historically have a lower profit margin.
EXPENSES:
|
|
For
the Year Ended
December
31,
|
|
|
|
|
|
2007
|
|
2006
|
|
Increase
/ (Decrease)
|
|
|
|
Amount
|
|
Amount
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
General
& administrative expenses
|
|
$
|
270,317
|
|
$
|
637,463
|
|
$
|
(367,146
|
)
|
|
(58
|
)%
|
Consulting
services
|
|
|
728,438
|
|
|
569,743
|
|
|
158,695
|
|
|
28
|
%
|
Payroll
expense
|
|
|
342,777
|
|
|
485,627
|
|
|
(143,150
|
)
|
|
(29
|
)%
|
Professional
fees
|
|
|
148,079
|
|
|
592,968
|
|
|
(444,889
|
)
|
|
(75
|
)%
|
Depreciation
|
|
|
46,726
|
|
|
48,027
|
|
|
(1,301
|
)
|
|
(3
|
)%
|
Total
expenses
|
|
|
1,536,337
|
|
|
2,334,128
|
|
|
(797,791
|
)
|
|
(34
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating (loss)
|
|
|
(1,127,841
|
)
|
|
(2,300,100
|
)
|
|
1,172,259
|
|
|
(51
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
costs
|
|
|
(45,429
|
)
|
|
(249,408
|
)
|
|
203,979
|
|
|
(82
|
)%
|
Interest
(expense)
|
|
|
(236,509
|
)
|
|
(205,302
|
)
|
|
(31,207
|
)
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(1,409,779
|
)
|
$
|
(2,754,810
|
)
|
$
|
1,345,031
|
|
|
(49
|
)%
|
General
and Administrative Expenses
General
and administrative expenses for the fiscal year ended December 31, 2007 were
$270,317, a decrease of $367,146, or 58%, from $637,463 for the fiscal year
ended December 31, 2006. The decrease in general and administrative expenses
was
due over all overhead decrease from the decline in sales revenue.
Consulting
Services
Consulting
services for the fiscal year ended December 31, 2007 were $728,438, an increase
of $158,695, or 28%, from $569,743 for the fiscal year ended December 31, 2006.
The increase in consulting services was due to our decreased sales limiting
our
ability to maintain internal staff.
Payroll
expense
Payroll
expenses for the fiscal year ended December 31, 2007 were $342,777, a decrease
of $143,150, or 29%, from $485,627 for the fiscal year ended December 31, 2006.
The decrease was due to the elimination full time employees who were replaced
be
regional part-time and at-will specialists.
Professional
Fees
Professional
fees for the fiscal year ended December 31, 2007 were $148,079, a decrease
of
$444,889, or 78%, from $592,968 for the fiscal year ended December 31, 2006.
The
decrease in professional fees was due to the elimination of previous legal
fees
required in connection with litigation surrounding the Ronald Kelly, etal and
Investor Relations Services, Inc. matters.
Depreciation
Depreciation
for the fiscal year ended December 31, 2007 was $46,726, a decrease of $1,301
from $48,027 for the fiscal year ended December 31, 2006. The decrease in
depreciation is the expected result of asset reaching there expected useful
lives.
Total
Expenses
Total
expenses for the fiscal year ended December 31, 2007 were $1,536,337, a decrease
of $797,791, or 34%, from $2,334,128 for the fiscal year ended December 31,
2006. The decrease in total expenses was primarily due to a reduction in general
and administrative expenses and professional fees.
Net
Operating Loss
Net
operating loss for the fiscal year ended December 31, 2007 was $1,127,841,
versus a net operating loss of $2,300,100 for the fiscal year ended December
31,
2006, a change of net operating loss of $1,172,259. The decrease in net
operating loss for the year ended December 31, 2007 was primarily attributable
to the decrease in overall expenses due to our limited sales activity during
the
year ended December 31, 2007.
Financing
Costs
Financing
costs for the fiscal year ended December 31, 2007 were $45,429, a decrease
of
$203,979, or 82%, from $249,408 for the fiscal year ended December 31, 2006.
During the year ended December 31, 2006, we paid various penalties related
to
our financing activities. In 2007 we did not experience the same penalties
and
were able to minimize our financing costs.
Interest
Expense
Interest
expense for the fiscal year ended December 31, 2007 was $236,509, an increase
of
$31,207, or 15%, from $205,302 for the fiscal year ended December 31, 2006.
The
increase in interest expense was the result of changes in interest rates during
the year.
Net
Loss
Net
loss
for the fiscal year ended December 31, 2007 was $1,409,779, a decrease of
$1,345,031, or 49%, from $2,754,810 for the fiscal year ended December 31,
2006.
The decrease in net loss was the result of our overall decrease in professional
fees and general and administrative expenses during the year.
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.
The
following table summarizes our current assets, liabilities and working capital
at December 31, 2007 compared to December 31, 2006.
|
|
December
31,
|
|
December
31,
|
|
Increase
/ (Decrease)
|
|
|
|
|
|
2006
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
$
|
773,660
|
|
$
|
286,667
|
|
$
|
486,993
|
|
|
170
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
$
|
2,758,243
|
|
$
|
2,604,610
|
|
$
|
153,633
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
Capital (deficit)
|
|
$
|
(1,984,583
|
)
|
$
|
(2,317,943
|
)
|
$
|
(333,360
|
)
|
|
(14
|
)%
|
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.
During the year ended December 31, 2007 MAG converted 2,140 shares of their
Series “C” preferred into 1,370,761 shares of our restricted 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.
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 $0.08 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
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.
On
July
1, 2006, we entered into a fourth 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,
$35,000 towards Pinnacle's due diligence and legal expenses related to the
new
agreement. The new agreement has the following consequences: (1) the principal
amount due under the Note automatically increases from $1,010,309 to $1,100,000;
(2) the Maturity Date of the newly revised Note was extended to December 24,
2006; and (3) the conversion price for those shares that underlie the Note
was
changed to $0.30.
In
addition to the above, we agreed: (1) to deliver to Pinnacle's counsel an
additional 2,000,000 shares of our common stock (over and above current escrow
holdings) as additional escrow security, (2) issue 150,000 shares of our common
stock to Pinnacle in consideration for their willingness to enter into the
extension agreement; and (3) upon receipt of any properly crafted Seller's
Representation Letter, deliver to Pinnacle an opinion of counsel to the effect
that commencing July 1, 2006 , 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. On August 3, 2006, we were informed
through media outlets and the printed press that the principals of Pinnacle
Investment Partners, LP had been charged with several financial crimes and
that
the fund had been frozen and its officers remanded. 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.”
Promissory
Notes with Dennis Cantor and Novex International
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 through the year
ended December 31, 2007. As of December 31, 2007, the remaining principal
balance was $130,000 and we are currently negotiating a revised payment
schedule.
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 seventeen
additional draw downs through December 31, 2008 and twenty two additional draw
downs through March 28, 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.
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 2006 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
December 31, 2007, our cash balance was $4,353. 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.
Although
we recorded an operating profit in the period ending March 31, 2006, we have
incurred additional operating losses for the remainder of 2006 and in each
quarter in 2007. Given our recent operating history, predictions of future
operating results difficult to ascertain. The recent addition of a credit line
has helped but we have found it increasingly difficult to transact commerce
in
the very cash intensive prescription drug industry. Thus, our prospects must
be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stages of commercial viability,
particularly companies in new and rapidly evolving technology markets. Such
risks include, but are not limited to, an evolving and unpredictable business
model and the management of growth. To address these risks we must, among other
things, implement and successfully execute our business and marketing strategy,
continue to develop and upgrade technology and products, respond to competitive
developments, and continue to attract, retain and motivate qualified personnel.
There can be no assurance that we will be successful in addressing such risks,
and the failure to do so can have a material adverse effect on our business
prospects, financial condition and results of operations.
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.
Critical
Accounting Policies and Estimates
Revenue
Recognition:
The
Company recognizes revenue on multi-deliverables in compliance with the
requirements of EITF 00-21. As previously disclosed, the Company recognizes
revenue based on contractual milestones achieved pursuant to terms outlined
in
each individual contract. Typical milestones would include completion of
installation and functionality testing of hardware and/or software in the
prescribed environment. Upon effective use, the client is invoiced, and the
Company recognizes revenue. In addition, the company’s business model assumes
several types of follow-on sales, such as paid advertising and additional
hardware/software sales. Paid advertising consists of commercial use of the
Company’s Residence Ware message management system whereby each company
advertising on the Residence Ware pay a fee to the Company based on each sale
generated through the advertisements. All revenue generated through the on-line
adverting is recognized upon receipt of payment per SOP 97-2. Aftermarket sales
and services are recognized upon shipment of product or completion of
services
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.
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.
Item
7A. Quantitative and Qualitative Disclosures about Market
Risk.
Not
applicable.
Item
8. Financial Statements and Supplementary Data.
Management
Responsibility for Financial Information
We
are
responsible for the preparation, integrity and fair presentation of our
financial statements and the other information that appears in this annual
report on Form 10-K. The financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and include
estimates based on our best judgment.
We
maintain a comprehensive system of internal controls and procedures designed
to
provide reasonable assurance, with an appropriate cost-benefit relationship,
that our financial information is accurate and reliable, our assets are
safeguarded, and our transactions are executed in accordance with established
procedures.
We
retained Weaver & Martin, LLC, an independent registered public accounting
firm, to audit our consolidated financial statements. Its accompanying report
is
based on audits conducted in accordance with the standards of the Public Company
Accounting Oversight Board (United States).
Item
9. Changes in and Disagreements With Accountants On Accounting and Financial
Disclosure.
None.
Item
9A. Controls and Procedures.
Our
Chief
Financial Officer, Keith Berman, has evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this Report. Based on the evaluation, Mr. Berman concluded that our
disclosure controls and procedures are not effective in timely altering them
to
material information relating to us (including our consolidated subsidiaries)
required to be included in our periodic SEC filings.
There
were no changes in our internal control over financial reporting that occurred
during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as is defined in the Securities Exchange
Act
of 1934. These internal controls are designed to provide reasonable assurance
that the reported financial information is presented fairly, that disclosures
are adequate and that the judgments inherent in the preparation of financial
statements are reasonable. There are inherent limitations in the effectiveness
of any system of internal control, including the possibility of human error
and
overriding of controls. Consequently, an effective internal control system
can
only provide reasonable, not absolute, assurance, with respect to reporting
financial information.
Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework and criteria established in Internal
Control — Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management
concluded that our internal control over financial reporting was not effective
as of December 31, 2007.
/s/
Keith
Berman
Keith
Berman
Chief
Financial Officer
Item
9B. Other Information.
None.
PART
III
Directors
and Executive Officers
Our
executive officers, directors, and key employees are:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
Keith
Berman
|
|
53
|
|
Chief
Financial Officer and Director
|
|
|
|
|
|
Robert
Jagunich
|
|
60
|
|
Director
|
Our
shareholders elect our directors annually and our board of directors appoints
our officers annually. Vacancies in our board are filled by the board itself.
Set forth below are brief descriptions of the recent employment and business
experience of our executive officers and directors.
Keith
Berman has
served as Chief Financial Officer, Secretary, Treasurer and Director of the
Company since January of 2003. For over the past 15 years, Mr. Berman has been
involved in the development of healthcare software including Intranet and
Internet systems. From July 1999 to present, Mr. Berman has held the position
of
President, founder and director of Caredecision.net, Inc. a private company
engaged in e-health technology development. From March 2001 through June 2002
Mr. Berman also held the Position of President and Director or Medicius, Inc.
From January 1996 to June 1999 Mr. Berman was the President and founder of
Cymedix, the operating division of Medix Resources, Inc., now Ramp Corp. (RCO).
Cymedix was a pioneer company in what was then known as i-health (Internet
healthcare) now the e-health industry. Mr. Berman received a BA in 1975 and
an
MBA in 1977, from Indiana University.
Robert
Jagunich has
served as a Director
of the Company since January of 2003. Mr. Jagunich has 27 years of experience
in
the medical systems and device industry. From August 1992 to present, he has
held the position of President at New Abilities Systems, a privately held
manufacturer of advanced electronic systems used in rehabilitation. He also
provides consulting services to companies such as Johnson and Johnson and has
served as a senior executive in such publicly held companies as Laserscope
and
Acuson. From April 1996 to December 1997 Mr. Jagunich acted as a director of
Cymedix Corporation, the operating entity of Medix Resources, Inc., now Ramp
Corp. (AMEX:RCO). He received his BS in 1969, and his MS and MBA in 1971, from
the University of Michigan.
Mr.
Berman, officer and director, devotes his complete business time to the Company.
Mr.
Jagunich attends meetings of the board of directors when held and provides
33%
of his business time in a professional capacity to the Company.
We
have
not yet adopted a code of ethics that applies to our principal executive
officers or persons performing similar functions, since we have been focusing
our efforts on obtaining financing for the company. We expect to adopt a code
by
the end of the current fiscal year.
Audit
Committee
The
entire board of directors acts as our audit committee. We do not have an audit
committee financial expert serving on our audit committee at this time. We
propose to expand our board of directors in the near future to include a
financial expert.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our officers, directors,
and persons who beneficially own more than 10% of our common stock to file
reports of securities ownership and changes in such ownership with the
Securities and Exchange Commission (“SEC”). Officers, directors and greater than
10% beneficial owners are also required by rules promulgated by the SEC to
furnish us with copies of all Section 16(a) forms they file.
Based
solely upon a review of the copies of such forms furnished to us, or written
representations that no Form 5 filings were required, we believe that during
the
fiscal year ended December 31, 2007, there was compliance with all Section
16(a)
filing requirements applicable to our officers, directors and greater than
10%
beneficial owners.
ITEM
10. EXECUTIVE
COMPENSATION
The
following table sets forth information the remuneration of our chief executive
officers and our two most highly compensated executive officers who served
as
executive officers at the end of December 31, 2007 and earned in excess of
$100,000 per annum during any part of our last two fiscal years:
Summary
Compensation Table
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-
Equity
Incentive
Plan
Compensation
($)
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All
Other
Compensation
($)
|
|
Total
($)
|
|
Robert
Cox,
|
|
|
2007
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
Former
CEO (1)
|
|
|
2006
|
|
$
|
66,500
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
$
|
66,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith
Berman,
|
|
|
2007
|
|
$
|
18,340
|
|
|
-0-
|
|
$
|
91,125
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
$
|
109,465
|
|
CFO
(2)
|
|
|
2006
|
|
$
|
36,200
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
$
|
36,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Jagunich,
|
|
|
2007
|
|
|
-0-
|
|
|
-0-
|
|
$
|
86,250
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
$
|
86,250
|
|
Director
(3)
|
|
|
2006
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
(1) On
August 15, 2006, Mr. Cox resigned as Chief Executive Officer and
Chairman.
(2) Mr.
Berman has served as Chief Financial Officer since January 2003.
(3) Mr.
Jagunich has served as a Director since January 2003.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
Name
(a)
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(b)
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(c)
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
(d)
|
|
Option
Exercise
Price (S) (e)
|
|
Option
Expiration
Date (f)
|
|
Number
of Shares or Units of Stock That Have Not Vested (#)
(g)
|
|
Market Value of Shares or Units of Stock That Have Not Vested ($) (h)
|
|
Equity
Incentive
Plan
Awards:
Number of Unearned
Shares,
Units
or
Other
Rights That Have Not
Vested (#) (i)
|
|
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned Shares,
Units or Other
Rights That Have
Not Vested (j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Cox,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former CEO (1)
|
|
|
337,500
|
|
|
-0-
|
|
|
-0-
|
|
$
|
1.76
|
|
|
2/15/10
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith
Berman,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secretary/Treasurer
|
|
|
337,500
|
|
|
-0-
|
|
|
-0-
|
|
$
|
1.76
|
|
|
2/15/10
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Jagunich
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
112,500
|
|
|
-0-
|
|
|
-0-
|
|
$
|
1.76
|
|
|
02/15/10
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
(1) On
August
15, 2006, Mr. Cox resigned as Chief Executive Officer and Chairman.
Compensation
of Directors
All
directors will be reimbursed for expenses incurred in attending Board or
committee, when established, meetings. From time to time, certain directors
who
are not employees may receive shares of our common stock.
Stock
Option Plans
2003
Stock Option Plan
Effective
January 1, 2003, we adopted the 2003 Stock Option Plan. The maximum number
of
shares that may be issued pursuant to the plan is 312,500 shares. As of December
31, 2007, 166,250 shares have been granted and subsequently expired under this
plan.
2004
Stock Option Plan
Effective
April 21, 2004, we adopted the “2004” Stock Option Plan, as amended, with a
maximum number of 6,312,500 shares that may be issued. As of December 31, 2007,
2,978,297 options have been granted, and exercised under this plan.
2005
Merger Consolidated Stock Option Plan
On
February 5, 2005, we adopted our “2005” Merger Consolidated Stock Option Plan.
The maximum number of shares that may be issued pursuant to the plan is
1,125,000 shares. As of December 31, 2007, 825,000 shares have been granted
under this plan.
2006
Stock Option Plan
On
December 8, 2006 we adopted our “2006 Employee Stock Option Plan and granted
incentive and nonqualified stock options with rights to purchase 1,500,000
shares of our $0.001 par value common stock. On August 24, 2006, we authorized
an increase of 4,000,000 shares to the plan. As of December 31, 2007, 4,140,867
have been granted and exercised under this plan.
ITEM
11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The
following table sets forth certain information, as of March 28, 2007, concerning
shares of our common stock, the only class of our securities that are issued
and
outstanding, held by (1) each stockholder known by us to own beneficially
more than five percent of the common stock, (2) each of our directors,
(3) each of our executive officers, and (4) all of our directors and
executive officers as a group:
Name
and Address of Beneficial Owner (1)
|
|
Amount and Nature of
Beneficial Ownership
|
|
Percent of Class (2)
|
|
Keith Berman, CFO
1623 Elmsford
Westlake Village,
CA 91361
|
|
|
11,939,299
|
|
|
34.4
|
%
|
Robert
Jagunich, Director (3)
765
Christine Drive
Palo
Alto, CA 94303
|
|
|
5,189,809
|
|
|
15.0
|
%
|
Officers
and directors as a group (6 persons)
|
|
|
15,879,108
|
|
|
49.4
|
%
|
(1)
|
To
our knowledge, except as set forth in the footnotes to this table
and
subject to applicable community property laws, each person named
in the
table has sole voting and investment power with respect to the shares
set
forth opposite such 34,700,688 shares
of Common Stock outstanding as of March 28, 2008.
|
(2)
|
If
a person listed on this table has the right to obtain additional
shares of
Common Stock within 60 days from March 28, 2008 the additional shares
are
deemed to be outstanding for the purpose of computing the percentage
of
class owned by such person, but are not deemed to be outstanding
for the
purpose of computing the percentage of any other
person.
|
(3)
|
Includes
1,250,000 shares r/n/o Michael Petras, an affiliate of Mr.
Jagunich.
|
We
did
not have any equity compensation plans outstanding as of December 31,
2007.
Changes
in Control
None.
ITEM
12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Other
than as disclosed below; our present directors, officers or principal
shareholders, nor any family member of the foregoing, nor, to the best of our
information and belief, any of our former directors, senior officers or
principal shareholders, nor any family member of such former directors, officers
or principal shareholders, has or had any material interest, direct or indirect,
in any transaction, or in any proposed transaction which has materially affected
or will materially affect us.
Keith
Berman
We
have
received cash advances from our chief executive officer for operational
expenses. The advances are due on demand and accrued interest at a rate of
9.5%.
On September 28, 2007, he elected to convert $150,000 of the principal balance
into 7,500,000 shares of our common stock or $0.02 per share. The market value
of our shares on the date of conversion was $0.04. As of December 31, 2007,
the
remaining principal balance was $280. In addition, we have accrued interest
totaling $9,883, which is unpaid at December 31, 2007.
Future
Transactions
All
future affiliated transactions will be made or entered into on terms that are
no
less favorable to us than those that can be obtained from any unaffiliated
third
party. A majority of the independent, disinterested members of our board of
directors will approve future affiliated transactions. We believe that of the
transactions described above have been on terms as favorable to us as could
have
been obtained from unaffiliated third parties as a result of arm’s length
negotiations.
Conflicts
of Interest
In
accordance with the laws applicable to us, our directors are required to act
honestly and in good faith with a view to our best interests. In the event
that
a conflict of interest arises at a meeting of the board of directors, a director
who has such a conflict will disclose the nature and extent of his interest
to
the meeting and abstain from voting for or against the approval of the matter
in
which he has a conflict.
Director
Independence
Our
common stock trades in the OTC Bulletin Board. As such, we are not currently
subject to corporate governance standards of listed companies, which require,
among other things, that the majority of the board of directors be
independent.
Since
we
are not currently subject to corporate governance standards relating to the
independence of our directors, we choose to define an “independent” director in
accordance with the NASDAQ Global Market’s requirements for independent
directors (NASDAQ Marketplace Rule 4200). The NASDAQ independence definition
includes a series of objective tests, such as that the director is not an
employee of the company and has not engaged in various types of business
dealings with the company.
We
do not
have any directors that may be considered an independent director under the
above definition. We do not list that definition on our Internet
website.
We
presently do not have an audit committee, compensation committee, nominating
committee, executive committee of our Board of Directors, stock plan committee
or any other committees.
ITEM
13. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
(1)
AUDIT
FEES
The
aggregate fees billed for professional services rendered by Weaver & Martin,
LLC, for the audit of our annual financial statements and review of the
financial statements included in our Form 10-QSB or services that are normally
provided by the accountant in connection with statutory and regulatory filings
or engagements for fiscal years 2007 and 2006 were $42,550 and $—,
respectively.
(2)
AUDIT-RELATED FEES
NONE.
(3)
TAX
FEES
NONE.
(4)
ALL
OTHER FEES
NONE.
(5)
AUDIT
COMMITTEE POLICIES AND PROCEDURES
We
do not
have an audit committee.
(6)
If
greater than 50 percent, disclose the percentage of hours expended on the
principal accountant’s engagement to audit the registrant’s financial statements
for the most recent fiscal year that were attributed to work performed by
persons other than the principal accountant’s full-time, permanent
employees.
Not
applicable.
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
The
following information required under this item is filed as part of this
report:
(a)
1.
Financial Statements
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
Consolidated
Balance Sheets
|
F-2
|
Consolidated
Statements of Operations
|
F-4
|
Consolidated
Statements of Stockholders Equity
|
F-5
|
Consolidated
Statements of Cash Flows
|
F-6
|
Footnotes
to Consolidated Financial Statements
|
F-8
|
(b)
2.
Financial Statement Schedule
None.
(c)
3.
Exhibit Index
|
|
|
|
|
|
Incorporated
by reference
|
Exhibit
number
|
|
Exhibit
description
|
|
Filed
herewith
|
|
Form
|
|
Period
ending
|
|
Exhibit
No.
|
|
Filing
date
|
3(i)(a)
|
|
Articles
of Incorporation – Filed March 2, 2001
|
|
|
|
10-SB
|
|
|
|
3a
|
|
9/27/01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3(i)(b)
|
|
Articles
of Amendments to Articles of Incorporation – Filed May 9,
2001
|
|
|
|
10-SB
|
|
|
|
3b
|
|
9/27/01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3(i)(c)
|
|
Articles
of Amendments to Articles of Incorporation – Filed August 2,
2002
|
|
|
|
10-QSB
|
|
6/30/02
|
|
3.1c
|
|
8/22/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3(ii)
|
|
Bylaws
of CareDecision Corporation – March 16, 2001
|
|
|
|
10-SB
|
|
|
|
3c
|
|
9/27/01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1
|
|
Business
Consulting Agreement – Mark W. Lancaster – February 17,
2002
|
|
|
|
S-8
|
|
|
|
4.11
|
|
3/1/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Consulting
Agreement – Mark Chaim Drizin – February 26, 2002
|
|
|
|
S-8
|
|
|
|
4.12
|
|
3/1/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3
|
|
Consulting
Agreement – Barbara Asbell – July 30, 2002
|
|
|
|
S-8
|
|
|
|
4.11
|
|
8/7/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4
|
|
Consulting
Agreement – Barbara Asbell – August 13, 2002
|
|
|
|
S-8
|
|
|
|
4.11
|
|
9/4/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.5
|
|
Service
Agreement – Robert Jagunich – September 1, 2002
|
|
|
|
S-8
|
|
|
|
4.11
|
|
10/1/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6
|
|
Consulting
Agreement – Glen E. Greenfelder Jr. – October 1, 2002
|
|
|
|
S-8
|
|
|
|
4.11
|
|
12/17/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7
|
|
Consulting
Agreement – Dr. Joseph Wolf – January 3, 2003
|
|
|
|
S-8
|
|
|
|
4.11
|
|
1/24/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8
|
|
Consulting
Agreement – Thomas Chillemi – January 10, 2003
|
|
|
|
S-8
|
|
|
|
4.12
|
|
1/24/03
|
|
|
|
|
|
|
Incorporated
by reference
|
Exhibit
number
|
|
Exhibit
description
|
|
Filed
herewith
|
|
Form
|
|
Period
ending
|
|
Exhibit
No.
|
|
Filing
date
|
10.9
|
|
Consulting
Agreement – Dailyfinancial.com Inc. – October 21, 2002
|
|
|
|
SB-2/A
|
|
|
|
10.1
|
|
4/29/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.10
|
|
Agent’s
Representation Agreement – CareDecision.net – August 20,
2002
|
|
|
|
SB-2/A
|
|
|
|
10.2
|
|
4/29/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.11
|
|
Service
Agreement – Robert Jagunich – September 1, 2002
|
|
|
|
SB-2/A
|
|
|
|
10.3
|
|
4/29/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.12
|
|
Secured
Convertible Revolving Promissory Note –
M
& E Equities, LLC – April 23, 2002
|
|
|
|
SB-2/A
|
|
|
|
10.4
|
|
4/29/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.13
|
|
Service
Agreement – Robert Jagunich – December 11, 2002
|
|
|
|
SB-2/A
|
|
|
|
10.5
|
|
4/29/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.14
|
|
Consulting
Agreement – Wizard Enterprises –
December
13, 2002
|
|
|
|
SB-2/A
|
|
|
|
10.6
|
|
4/29/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.15
|
|
Consulting
Agreement – Wizard Enterprises –
December
20, 2002
|
|
|
|
SB-2/A
|
|
|
|
10.7
|
|
4/29/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.16
|
|
Consulting
Agreement – Barbara Asbell –
December
13, 2002
|
|
|
|
SB-2/A
|
|
|
|
10.8
|
|
4/29/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.17
|
|
Program
Agreement between PharmaCare Management Services, Inc. and
CareDecision.net Incorporated –
May
4, 2001
|
|
|
|
SB-2/A
|
|
|
|
10.9
|
|
4/29/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.18
|
|
Consulting
Agreement – Paradigm Partners
September
15, 2002
|
|
|
|
SB-2/A
|
|
|
|
10.10
|
|
4/29/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.19
|
|
Letter
of Intent between ATR Search and Medicius
April
3, 2002
|
|
|
|
SB-2/A
|
|
|
|
10.11
|
|
4/29/02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.20
|
|
Consulting
Agreement – Ely Mandell – August 5, 2003
|
|
|
|
SB-2/A
|
|
|
|
4.12
|
|
8/14/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.21
|
|
Consulting
Agreement – Dr. Joseph A. Wolf – July
15, 2003
|
|
|
|
SB-2/A
|
|
|
|
4.13
|
|
8/14/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.22
|
|
Consulting
Agreement – Leslie – Michelle Abraham -
July
15, 2003
|
|
|
|
SB-2/A
|
|
|
|
4.14
|
|
8/14/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.23
|
|
Consulting
Agreement – Thomas Chillemi –
July
10, 2003
|
|
|
|
SB-2/A
|
|
|
|
4.15
|
|
8/14/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.24
|
|
Consulting
Agreement – Anthony Quintiliana –
July
1, 2003
|
|
|
|
SB-2/A
|
|
|
|
4.16
|
|
8/14/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.25
|
|
Consulting
Agreement – Barbara Asbell –
July
1, 2003
|
|
|
|
SB-2/A
|
|
|
|
4.17
|
|
8/14/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.26
|
|
Consulting
Agreement – Thomas Chillemi –
March
28, 2003
|
|
|
|
SB-2/A
|
|
|
|
10.13
|
|
8/29/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.27
|
|
Consulting
Agreement – Dr. Joseph A. Wolfe –
December
1, 2003
|
|
|
|
S-8
|
|
|
|
4.13
|
|
12/16/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.28
|
|
Consulting
Agreement – Leslie – Michelle Abraham –
December
1, 2003
|
|
|
|
S-8
|
|
|
|
4.14
|
|
12/16/03
|
|
|
|
|
|
|
Incorporated
by reference
|
Exhibit
number
|
|
Exhibit
description
|
|
Filed
herewith
|
|
Form
|
|
Period
ending
|
|
Exhibit
No.
|
|
Filing
date
|
10.29
|
|
Consulting
Agreement – Thomas Chillemi –
December
1, 2003
|
|
|
|
S-8
|
|
|
|
4.15
|
|
12/16/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.30
|
|
Consulting
Agreement – Anthony Quintiliano –
December
1, 2003
|
|
|
|
S-8
|
|
|
|
4.16
|
|
12/16/03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.31
|
|
Subscription
Agreement – Mercator Momentum Fund, LP, Monarch Pointe Fund, LTD &
Mercator Advisory Group, LLC – February 7, 2005
|
|
|
|
SB-2/A
|
|
|
|
10.1
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.32
|
|
Certificate
of Designation of Preferences and Rights of Series C Convertible
Preferred
Stock – Mercator Momentum Fund, LP, Monarch Pointe Fund, LTD &
Mercator Advisory Group, LLC – February 2005
|
|
|
|
SB-2/A
|
|
|
|
10.2
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.33
|
|
Registration
Rights Agreement – Mercator Momentum Fund, LP, Monarch Pointe Fund, LTD
& Mercator Advisory Group, LLC – February 2005
|
|
|
|
SB-2/A
|
|
|
|
10.3
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.34
|
|
Warrant
Agreement ($0.02) – Mercator Advisory Group, LLC – February 7,
2005
|
|
|
|
SB-2/A
|
|
|
|
10.4
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.35
|
|
Warrant
Agreement ($0.02) – Mercator Momentum Fund, LP – February 7,
2005
|
|
|
|
SB-2/A
|
|
|
|
10.5
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.36
|
|
Warrant
Agreement ($0.02) - Monarch Pointe Fund, Ltd. – February 7,
2005
|
|
|
|
SB-2/A
|
|
|
|
10.6
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.37
|
|
Warrant
Agreement ($0.03) - Mercator Advisory Group, LLC – February 7,
2005
|
|
|
|
SB-2/A
|
|
|
|
10.7
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.38
|
|
Warrant
Agreement ($0.03) - Mercator Momentum Fund, LP – February 7,
2005
|
|
|
|
SB-2/A
|
|
|
|
10.8
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.39
|
|
Warrant
Agreement ($0.03) – Monarch Pointe Fund, Ltd. – February 7,
2005
|
|
|
|
SB-2/A
|
|
|
|
10.9
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.40
|
|
Secured
Convertible Promissory Note – Pinnacle Investment Partners, LP – March 24,
2004
|
|
|
|
SB-2/A
|
|
|
|
10.10
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.41
|
|
Pledge
and Security Agreement – Pinnacle Investment Partners, LP – March 24,
2004
|
|
|
|
SB-2/A
|
|
|
|
10.11
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.42
|
|
Securities
Purchase Agreement – Pinnacle Investment Partners, LP – March 24,
2004
|
|
|
|
SB-2/A
|
|
|
|
10.12
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.43
|
|
Note
Extension Agreement – Pinnacle Investment Partners, LP – September 24,
2004
|
|
|
|
SB-2/A
|
|
|
|
10.13
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.44
|
|
Note
Extension – Pinnacle Investment Partners, LP – February 10,
2005
|
|
|
|
SB-2/A
|
|
|
|
10.14
|
|
2/11/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.45
|
|
The
2004 Stock Option Plan - Amended
|
|
|
|
S-8
|
|
|
|
99
|
|
9/8/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.46
|
|
Intangible
Property, License Acquisition Agreement – CN Pharmacy, Svetislav Milic,
& Nathan Kaplan – June 7, 2005
|
|
|
|
8-K
|
|
|
|
10.1
|
|
10/21/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.47
|
|
Secured
Promissory Note – Mercator Momentum Fund, LP – August 25,
2005
|
|
|
|
8-K
|
|
|
|
10.2
|
|
10/21/05
|
|
|
|
|
|
|
Incorporated
by reference
|
Exhibit
number
|
|
Exhibit
description
|
|
Filed
herewith
|
|
Form
|
|
Period
ending
|
|
Exhibit
No.
|
|
Filing
date
|
10.48
|
|
Secured
Promissory Note – Monarch Pointe Fund,LTD – August 25,
2005
|
|
|
|
8-K
|
|
|
|
10.3
|
|
10/21/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
Resignation
letter of Robert L. Cox, August 15, 2006
|
|
|
|
10-QSB
|
|
6/30/06
|
|
17
|
|
9/1/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
instaCare
Corp.
|
|
|
By:
|
|
|
|
|
Keith
Berman, Chief Financial Officer |
Date:
Pursuant
to the requirements of the Securities Exchange Act of 1934, the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated have signed this report below.
Name
|
Title
|
Date
|
|
|
|
|
Chief
Financial Officer
|
|
Keith
Berman
|
|
|
|
|
|
|
Director
|
|
Robert
Jagunich
|
|
|
Report
of
Independent Registered Public Accounting Firm
Stockholders
and Directors
Instacare
Corp
Westlake
Village, California
We
have
audited the accompanying consolidated balance sheet of Instacare Corp as of
December 31, 2007 and 2006 and the related consolidated statements of
operations, shareholders’ equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatements. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Instacare Corp as of
December 31, 2007 and 2006 and the consolidated results of its operations,
shareholders’ equity, and cash flows for the years then ended in conformity with
U.S. generally accepted accounting principles
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has suffered recurring losses from operations. This
factor raises substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans with regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Weaver
& Martin, LLC
Kansas
City Missouri
March
31, 2008
instaCare
Corp.
Consolidated
Balance Sheet
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,353
|
|
$
|
19,501
|
|
Accounts
receivable
|
|
|
669,041
|
|
|
267,166
|
|
Inventory
|
|
|
96,450
|
|
|
-
|
|
Prepaid
expenses
|
|
|
3,816
|
|
|
--
|
|
Total
current assets
|
|
|
773,660
|
|
|
286,667
|
|
|
|
|
|
|
|
|
|
Fixed
assets:
|
|
|
|
|
|
|
|
Furniture
and fixtures
|
|
|
2,530
|
|
|
2,530
|
|
Computer
equipment
|
|
|
232,365
|
|
|
232,365
|
|
|
|
|
234,895
|
|
|
234,895
|
|
Less
accumulated depreciation
|
|
|
198,645
|
|
|
151,919
|
|
Fixed
assets, net
|
|
|
36,250
|
|
|
82,976
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
Deposits
|
|
|
3,412
|
|
|
3,412
|
|
|
|
|
|
|
|
|
|
|
|
$
|
813,322
|
|
$
|
373,055
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
120,107
|
|
$
|
408,438
|
|
Accrued
liabilities
|
|
|
199,265
|
|
|
225,486
|
|
Accrued
interest
|
|
|
412,837
|
|
|
205,285
|
|
Line
of credit
|
|
|
467,044
|
|
|
-
|
|
Demand
note - related party
|
|
|
280
|
|
|
63,000
|
|
Notes
payable, current portion
|
|
|
181,021
|
|
|
-
|
|
Convertible
notes payable
|
|
|
1,377,689
|
|
|
1,702,401
|
|
Total
current liabilities
|
|
|
2,758,243
|
|
|
2,604,610
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
85,109
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 3,249,000 shares authorized 207,526
shares authorized, no shares issued and outstanding
|
|
|
207
|
|
|
208
|
|
Preferred
series “A stock, $0.001 par value, 750,000 shares authorized,
no shares outstanding
|
|
|
-
|
|
|
-
|
|
Preferred
series “C” stock, $0.001 par value, 1,000,000 shares authorized,
17,860 and 20,000 shares issued and outstanding
|
|
|
18
|
|
|
20
|
|
Preferred
series “D” stock, $0.001 par value, 1,000 shares authorized,
no shares issued and outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock, $0.001 par value, 1,250,000,000 shares authorized 29,200,026
and 9,461,621 shares issued and outstanding
|
|
|
29,200
|
|
|
9,462
|
|
Shares
authorized and un-issued, 3,700,294
|
|
|
3,700
|
|
|
-
|
|
Prepaid
share-based compensation
|
|
|
(105,000
|
)
|
|
(29,934
|
)
|
Additional
paid-in capital
|
|
|
17,459,200
|
|
|
15,796,265
|
|
Dividend
payable
|
|
|
292,392
|
|
|
50,914
|
|
Accumulated
(deficit)
|
|
|
(19,709,747
|
)
|
|
(18,058,490
|
)
|
|
|
|
(2,030,030
|
)
|
|
(2,231,555
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
813,322
|
|
$
|
373,055
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
instaCare
Corp.
Consolidated
Statements of Operations
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
6,254,278
|
|
$
|
19,220,265
|
|
Cost
of sales
|
|
|
5,845,782
|
|
|
19,186,237
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
408,496
|
|
|
34,028
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
270,317
|
|
|
637,463
|
|
Consulting
services
|
|
|
728,438
|
|
|
569,743
|
|
Payroll
expense
|
|
|
342,777
|
|
|
485,627
|
|
Professional
fees
|
|
|
148,079
|
|
|
592,968
|
|
Depreciation
|
|
|
46,726
|
|
|
48,027
|
|
Total
expenses
|
|
|
1,536,337
|
|
|
2,334,128
|
|
|
|
|
|
|
|
|
|
Net
operating (loss)
|
|
|
(1,127,841
|
)
|
|
(2,300,100
|
)
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
Financing
costs
|
|
|
(45,429
|
)
|
|
(249,408
|
)
|
Interest
expense, net
|
|
|
(236,509
|
)
|
|
(205,302
|
)
|
Total
other income (expense)
|
|
|
(281,938
|
)
|
|
(454,710
|
)
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(1,409,779
|
)
|
$
|
(2,754,810
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of Common shares outstanding – basic and fully
diluted
|
|
|
15,717,861
|
|
|
8,073,584
|
|
|
|
|
|
|
|
|
|
Net
(loss) per share – basic and fully diluted
|
|
$
|
(0.09
|
)
|
$
|
(0.34
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
instaCare,
Corp.
Consolidated
Statement of Changes of Stockholders’ Deficit
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Shares
Authorized
and
Un-issued
|
|
Unamortized
Warrant
& Options
|
|
Prepaid
Stock
Comp
|
|
Dividend
Payable
|
|
Accumulated
(Deficit)
|
|
Total
Stockholders'
(Deficit)
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
227,526
|
|
$
|
228
|
|
|
7,236,013
|
|
$
|
7,236
|
|
$
|
14,964,989
|
|
$
|
56
|
|
$
|
(13,517
|
)
|
$
|
(60,000
|
)
|
$
|
-
|
|
$
|
(15,046,680
|
)
|
$
|
(147,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
previously authorized
|
|
|
-
|
|
|
-
|
|
|
68,355
|
|
|
68
|
|
|
(12
|
)
|
|
(56
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
--
|
|
|
243,491
|
|
Shares
issued for services
|
|
|
-
|
|
|
-
|
|
|
1,448,610
|
|
|
1,449
|
|
|
609,820
|
|
|
-
|
|
|
-
|
|
|
(296,934
|
)
|
|
-
|
|
|
-
|
|
|
581,335
|
|
Escrow
shares issued for debt repayment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
162,311
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
162,311
|
|
Shares
issued for license renewal
|
|
|
-
|
|
|
-
|
|
|
87,050
|
|
|
87
|
|
|
37,576
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
37,663
|
|
Options
issued for services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,359
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,359
|
|
Warrants
issued for financing
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
14,844
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
14,844
|
|
Shares
issued as dividend
|
|
|
-
|
|
|
-
|
|
|
621,593
|
|
|
622
|
|
|
(622
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization
of prepaid compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
60,000
|
|
|
-
|
|
|
-
|
|
|
60,000
|
|
Amortization
of warrants and options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,517
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,517
|
|
Dividend
payable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
50,914
|
|
|
(257,000
|
)
|
|
(206,086
|
)
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,754,810
|
)
|
|
(2,754,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
227,526
|
|
|
228
|
|
|
9,461,621
|
|
|
9,462
|
|
|
15,796,265
|
|
|
-
|
|
|
-
|
|
|
(29,934
|
)
|
|
50,914
|
|
|
(18,058,490
|
)
|
|
(2,231,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
200
|
|
|
9,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,000
|
|
Shares
issued for services
|
|
|
-
|
|
|
-
|
|
|
7,106,118
|
|
|
7,106
|
|
|
555,026
|
|
|
3,250
|
|
|
-
|
|
|
(105,000
|
)
|
|
-
|
|
|
-
|
|
|
460,385
|
|
Shares
issued for license fees
|
|
|
-
|
|
|
-
|
|
|
139,100
|
|
|
139
|
|
|
37,572
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
37,711
|
|
Options
and warrants issued for services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
443,335
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
443,335
|
|
Option
exercised for cash
|
|
|
-
|
|
|
-
|
|
|
2,357,534
|
|
|
2,357
|
|
|
253,314
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
255,670
|
|
Options
exercised for services
|
|
|
-
|
|
|
-
|
|
|
833,333
|
|
|
833
|
|
|
21,667
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
22,500
|
|
Shares
issued for debt conversion
|
|
|
-
|
|
|
-
|
|
|
7,500,000
|
|
|
7,500
|
|
|
322,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
330,000
|
|
Shares
issued for conversion of preferred
|
|
|
(2,140
|
)
|
|
(1
|
)
|
|
1,370,761
|
|
|
1,371
|
|
|
(1,371
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares
issued for financing
|
|
|
-
|
|
|
-
|
|
|
231,559
|
|
|
232
|
|
|
21,085
|
|
|
450
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
21,767
|
|
Amortization
of prepaid compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
29,934
|
|
|
-
|
|
|
-
|
|
|
29,934
|
|
Dividend
payable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
241,478
|
|
|
(241,478
|
)
|
|
-
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,409,779
|
)
|
|
(1,409,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
225,386
|
|
$
|
227
|
|
|
29,200,026
|
|
$
|
29,200
|
|
$
|
17,459,200
|
|
$
|
3,700
|
|
$
|
-
|
|
$
|
(105,000
|
)
|
$
|
292,392
|
|
$
|
(19,709,747
|
)
|
$
|
(2,030,030
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
instaCare,
Corp.
Consolidated
Statements of Cash Flows
|
|
For
the year ended
|
|
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(1,409,779
|
)
|
$
|
(2,754,810
|
)
|
Adjustments
to reconcile net (loss) to net cash (used) by operating
activities:
|
|
|
|
|
|
|
|
Shares
issued for services
|
|
|
460,385
|
|
|
641,334
|
|
Shares
issued for license fees
|
|
|
37,711
|
|
|
37,663
|
|
Shares
issued for financing
|
|
|
21,767
|
|
|
-
|
|
Options
and warrants issued for services
|
|
|
465,835
|
|
|
-
|
|
Amortization
of options issued for services
|
|
|
29,934
|
|
|
20,876
|
|
Amortization
of warrants issued for financing
|
|
|
-
|
|
|
147,181
|
|
Depreciation
|
|
|
46,726
|
|
|
48,027
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(236,902
|
)
|
|
(247,584
|
)
|
Inventory
|
|
|
(96,450
|
)
|
|
127,373
|
|
Prepaid
expenses
|
|
|
(3,816
|
)
|
|
55,956
|
|
Accounts
payable
|
|
|
(288,331
|
)
|
|
364,588
|
|
Accrued
interest
|
|
|
213,254
|
|
|
190,984
|
|
Accrued
expenses
|
|
|
(26,221
|
)
|
|
202,543
|
|
Net
cash (used) by operating activities
|
|
|
(785,887
|
)
|
|
(991,710
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from line of credit
|
|
|
1,007,967
|
|
|
-
|
|
Payments
on line of credit
|
|
|
(540,923
|
)
|
|
-
|
|
Proceeds
from note payable - related party
|
|
|
155,580
|
|
|
96,000
|
|
Payments
on note payable - related party
|
|
|
(68,300
|
)
|
|
(33,000
|
)
|
Payments
on notes payable
|
|
|
(24,254
|
)
|
|
-
|
|
Proceeds
from convertible note payable
|
|
|
-
|
|
|
545,000
|
|
Payments
on convertible note payable
|
|
|
(25,000
|
)
|
|
(100,000
|
)
|
Dividend
paid
|
|
|
-
|
|
|
(206,086
|
)
|
Issuance
of common stock
|
|
|
265,670
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
770,740
|
|
|
301,914
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
(15,148
|
)
|
|
(689,794
|
)
|
Cash
– beginning
|
|
|
19,501
|
|
|
709,295
|
|
Cash
– ending
|
|
$
|
4,353
|
|
$
|
19,501
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
29,256
|
|
$
|
321,283
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Non-cash
transactions:
|
|
|
|
|
|
|
|
Number
of shares issued for services
|
|
|
7,939,451
|
|
|
1,448,610
|
|
Number
of shares issued for debt conversion
|
|
|
7,500,000
|
|
|
-
|
|
Number
of shares issued for licensing
|
|
|
139,100
|
|
|
87,050
|
|
Number
of shares issued for financing
|
|
|
231,559
|
|
|
-
|
|
Number
of shares issued for dividend
|
|
|
-
|
|
|
621,593
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
instaCare
Corp.
Notes
to Consolidated Financial Statements
Note
1 – Significant accounting policies and procedures
Organization
We
were
organized July 6, 2000 (Date of Inception) under the laws of the State of Nevada
as Promedicius, Inc. In May 2001, we changed our name to Medicius, Inc. On
June
21, 2002, we merged with ATR Search Corp., a development stage company, and
a
Nevada corporation. The merger has been accounted for as a recapitalization
and
the historical financial statements of Medicius Inc. are presented
herein.
On
June
21, 2002, we filed an amendment to its articles of incorporation changing our
name to CareDecision Corporation and subsequently changed our name to InstaCare
Corp. effective April 14, 2005.
On
November 19, 2004, we incorporated two Nevada subsidiary companies, Pharma
Tech
Solutions, Inc. and PDA Services, Inc. On November 24, 2004, we entered into
an
“Agreement and Plan of Merger”, as amended on December 27, 2004, between Pharma
Tech Solutions, Inc. and CareGeneration, Inc. (“CareGen”), a Nevada corporation.
This agreement included CareGen’s private acquisition of retail pharmaceutical
license applications, client lists, receivables, business contacts,
relationships, goodwill and the rights to use the wholesale pharmaceutical
distribution license, trade names and sales names of Kelly Company World Group,
Inc., a Delaware corporation. On February 25, 2005, the merger was completed
whereby CareGen merged with Pharma Tech wherein CareGen ceased to exist and
Pharma Tech continued as a majority owned subsidiary.
On
January 4, 2005, we commenced prescription drug distribution operations which
are, currently being conducted through PDA Services, Inc. and is in the process
of establishing facility in Hope, North Dakota. Specializing in rapid delivery
of prescription drugs and diagnostic products, we are in the final stages of
augmenting its prescription drug and prescription diagnostics distribution
business by creating a nationwide network over the internet. We have also
created a fully integrated prescription fulfillment program through which
physicians can directly submit prescriptions using a hand-held device, tablet
PC, or PDA that is enabled through a Wi-Fi link to the Internet.
We
have
established its first fulfillment center to service uninsured and underinsured
patients in Phoenix, AZ, while also securing its retail prescription license
in
the state of Arizona.
Through
the acquisition of CareGen, we acquired a retail mail order business concept
for
the distribution of pharmaceutical and healthcare supplies and is currently
developing our distribution platform.
Cash
and cash equivalents
Cash
and
cash equivalents include all cash balances in non-interest bearing accounts
and
money-market accounts. We places our temporary cash investments with quality
financial institutions. At times such investments may be in excess of Federal
Deposit Insurance Corporation (FDIC) insurance limit. We do not believe it
is
exposed to any significant credit risk on cash and cash equivalents. For the
purpose of the statements of cash flows, all highly liquid investments with
an
original maturity of three months or less are considered to be cash equivalents.
There are no cash equivalents as of December 31, 2007 and 2006.
Accounts
receivable
We
have
elected to record bad debts using the direct write-off method. Generally
accepted accounting principles require that the allowance method be used to
recognize bad debts; however, the effect using the direct method is not
materially different from the results that would have been obtained under the
allowance method.
Investments
Investments
in companies over which we exercise significant influence are accounted for
by
the equity method whereby we includes our proportionate share of earnings and
losses of such companies in earnings. Other long-term investments are recorded
at cost and are written down to their estimated recoverable amount if there
is
evidence of a decline in value, which is other than temporary.
Inventory
Inventories
are stated at the lower of cost or market. Cost is determined on a standard
cost
basis that approximates the first-in, first-out (FIFO) method. Market is
determined based on net realizable value. Appropriate consideration is given
to
obsolescence, excessive levels, deterioration, and other factors in evaluating
net realizable value. As of December 31, 2007 and 2006, inventory was $96,450
and $0, respectively.
Fixed
assets
Fixed
assets are stated at the lower of cost or estimated net recoverable amount.
The
cost of property, plant and equipment is depreciated using the straight-line
method based on the lesser of the estimated useful lives of the assets or the
lease term based on the following life expectancy:
Computer
equipment
|
5
years
|
Software
|
5
years
|
Office
furniture and fixtures
|
7
years
|
Repairs
and maintenance expenditures are charged to operations as incurred. Major
improvements and replacements, which extend the useful life of an asset, are
capitalized and depreciated over the remaining estimated useful life of the
asset. When assets are retired or sold, the costs and related accumulated
depreciation and amortization are eliminated and any resulting gain or loss
is
reflected in operations.
Consolidation
policy
The
accompanying consolidated financial statements include our accounts and the
accounts of our wholly-owned subsidiary corporations, after elimination of
all
material inter-company accounts, transactions, and profits. Investments in
unconsolidated subsidiaries representing ownership of at least 20% but less
than
50% are accounted for under the equity method. Non-marketable investments in
which the Company has less than 20% ownership and in which it does not have
the
ability to exercise significant influence over the investee are initially
recorded at cost and periodically reviewed for impairment. As of December 31,
2007 and 2006, we did not have non-marketable investments.
Revenue
recognition
We
recognize revenue from our sales of pharmaceutical supplies upon delivery to
its
customer where the fee is fixed or determinable, and collectibility is probable.
Cash payments received in advance are recorded as deferred revenue. We are
not
generally obligated to accept returns, except for defective products.
Revenue
from proprietary software sales that does not require further commitment from
the company is recognized upon shipment. Consulting revenue is recognized when
the services are rendered. License revenue is recognized ratably over the term
of the license.
The
cost
of services, consisting of staff payroll, outside services, equipment rental,
communication costs and supplies, is expensed as incurred.
Advertising
costs
We
expense all costs of advertising as incurred. There were no advertising costs
included in general and administrative expenses as of December 31, 2007 and
2006, respectively.
Use
of
estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Fair
value of financial instruments
Fair
value estimates discussed herein are based upon certain market assumptions
and
pertinent information available to management as of December 31, 2007 and 2006.
The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts receivable, accounts payable and notes payable. Fair values were
assumed to approximate carrying values because they are short term in nature
and
their carrying amounts approximate fair values or they are payable on
demand.
Impairment
of long-lived assets
We
reviews our long-lived assets and intangibles periodically to determine
potential impairment by comparing the carrying value of the long-lived assets
with the estimated future cash flows expected to result from the use of the
assets, including cash flows from disposition. Should the sum of the expected
future cash flows be less than the carrying value, we would recognize an
impairment loss. An impairment loss would be measured by comparing the amount
by
which the carrying value exceeds the fair value of the long-lived assets and
intangibles. We recognized impairment losses in the amount of $0 and $0 as
of
December 31, 2007 and 2006, respectively.
Loss
per share
Net
loss
per share is provided in accordance with Statement of Financial Accounting
Standards No. 128 (SFAS #128) “Earnings Per Share”. Basic loss per share is
computed by dividing losses available to common stockholders by the weighted
average number of common shares outstanding during the period. There were no
securities considered to be dilutive in the computation of earnings (loss)
per
share.
Income
Taxes
We
account for income taxes in accordance with SFAS No. 109, "Accounting for Income
Taxes”. Deferred taxes are provided on the liability method whereby deferred tax
assets are recognized for deductible temporary differences, and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws
and
rates on the date of enactment.
We
adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
-
an interpretation of FASB Statement No. 109 (“FIN 48”) as of January 1, 2007.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in
companies’ financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. As a result, we apply a more-likely-than-not
recognition threshold for all tax uncertainties. FIN 48 only allows the
recognition of those tax benefits that have a greater than fifty percent
likelihood of being sustained upon examination by the taxing authorities. As
a
result of implementing FIN 48, we have reviewed our tax positions and determined
there were no outstanding, or retroactive tax positions with less than a 50%
likelihood of being sustained upon examination by the taxing authorities,
therefore the implementation of this standard has not had a material affect
on
the Company.
We
classify tax-related penalties and net interest as income tax expense. As of
December 31, 2007 and 2006, no income tax expense has been incurred. See Note
6.
Concentrations
In
2007,
five customers of the Company accounted for approximately 99% of our net sales
compared to 96% of total sales being attributable to four major customers in
2006. Since January 1, 2006 the
company’s operations require maintaining strategic relationships with its
customers whereby the Company delivers product and services the patient base
that underlies these strategic relationships, accepting assignment of insurance
benefit through its Colonia Natural Pharmacy strategic partnership for the
billing and future servicing of these patients. The Company also maintains
relationships with the entities where the patients reside. As
of
December 31, 2007 and 2006, we obtained the majority of its pharmaceutical
products from five and three major suppliers, respectively. There can be no
assurance that our major customers will continue to purchase products. The
loss
of our largest customers or a decrease in product sales would have a material
adverse effect on our business and financial condition.
Reclassifications
Certain
reclassifications have been made to prior periods to conform to current
presentation.
Recent
pronouncements
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.
Year
end
The
Company has adopted December 31 as its fiscal year end.
Note
2 – Going concern
The
accompanying consolidated financial statements have been prepared assuming
that
we will continue as a going concern. Our ability to continue as a going concern
is dependent upon attaining profitable operations based on the development
of
distributions platforms through which our products that can be sold. We intend
to use borrowings and security sales to mitigate the affects of our cash
position, however, no assurance can be given that debt or equity financing,
if
and when required, will be available. The condensed consolidated 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 we be unable to continue in existence.
Note
3 – Inventory
Inventory
consisted of diabetic test strips valued at $96,450 and $0 at December 31,
2007
and 2006, respectively.
Note
4 – Fixed assets
Fixed
assets consisted of the following at December 31:
|
|
2007
|
|
2006
|
|
Furniture
and fixtures
|
|
$
|
2,530
|
|
$
|
2,530
|
|
Computers
and equipment
|
|
|
232,365
|
|
|
232,365
|
|
Subtotal
|
|
|
234,895
|
|
|
234,895
|
|
Less
accumulated depreciation
|
|
|
(198,645
|
)
|
|
(151,919
|
)
|
Total
fixed assets, net
|
|
$
|
36,250
|
|
$
|
82,976
|
|
Depreciation
expense totaled $46,726 and $48,027 for the years ended December 31, 2007 and
2006, respectively.
Note
5 – Notes payable and related parties
As
of
December 31, 2007 we have received cash advances from our chief executive
officer for operational expenses. The advances are due on demand and accrued
interest at a rate of 9.5%. On September 28, 2007, he elected to convert
$150,000 of the principal balance into 7,500,000 shares of our common stock
or
$0.02 per share. The market value of our shares on the date of conversion was
$0.04. As of December 31, 2007, the remaining principal balance was $280. In
addition, we have accrued interest totaling $9,883, which is unpaid at December
31, 2007.
Notes
payable consisted of the following as of December 31:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Demand
note from a related party, bearing interest at 9.5%
|
|
$
|
280
|
|
$
|
63,000
|
|
|
|
|
|
|
|
|
|
Promissory
note, bearing interest at 9.5% per annum, Matured
August 25, 2006, currently in default.
|
|
|
87,309
|
|
|
87,309
|
|
|
|
|
|
|
|
|
|
Convertible
promissory note, bearing interest at 12% per
annum, matured December 24, 2006, currently in default.
|
|
|
920,379
|
|
|
1,100,379
|
|
|
|
|
|
|
|
|
|
Convertible
promissory note, bearing interest at 1.25% per month, matured on
October
31, 2007, currently in default.
|
|
|
170,000
|
|
|
159,713
|
|
|
|
|
|
|
|
|
|
Promissory
note, bearing interest at 12% per annum, Matured
July 31, 2006, currently in default.
|
|
|
130,000
|
|
|
155,000
|
|
|
|
|
|
|
|
|
|
Convertible
promissory note, bearing interest at 1.5% Monthly,
matured December 31, 2007.
|
|
|
200,000
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Promissory
note, bearing interest at 9% Per
annum, maturing June 20, 2010
|
|
|
136,131
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Line
of credit, with interest being paid in shares equal to 5% of each
advance.
|
|
|
467,044
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
notes payable
|
|
|
2,111,143
|
|
|
1,765,401
|
|
|
|
|
|
|
|
|
|
Less:
Current portion
|
|
|
2,026,034
|
|
|
1,765,401
|
|
|
|
|
|
|
|
|
|
Total
long term notes payable
|
|
$
|
85,109
|
|
$
|
—
|
|
We
have
recorded interest expense totaling $236,509 and $205,302 during the years ended
December 31, 2007 and 2006, respectively.
Note
6 – Income taxes
For
the
year ended December 31, 2007, the Company incurred net operating losses and
accordingly, no provision for income taxes has been recorded. In addition,
no
benefit for income taxes has been recorded due to the uncertainty of the
realization of any tax assets. At December 31, 2007, the Company had
approximately $19,525,307 of federal and state net operating losses. The net
operating loss carry forwards, if not utilized will begin to expire in
2018-2021.
The
components of the Company’s deferred tax asset are as follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
2006
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
|
$
|
6,833,857
|
|
$
|
6,320,500
|
|
Total
deferred tax assets
|
|
|
6,833,857
|
|
|
6,320,500
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets before valuation allowance
|
|
|
6,833,857
|
|
|
6,320,500
|
|
Less:
Valuation allowance
|
|
|
(6,833,857
|
)
|
|
(6,320,500
|
)
|
Net
deferred tax assets
|
|
$
|
-0-
|
|
$
|
-0-
|
|
For
financial reporting purposes, the Company has incurred a loss since inception
to
December 31, 2007. Based on the available objective evidence, including the
Company’s history of its loss, management believes it is more likely than not
that the net deferred tax assets will not be fully realizable. Accordingly,
the
Company provided for a full valuation allowance against its net deferred tax
assets at December 31, 2007.
A
reconciliation between the amount of income tax benefit determined by applying
the applicable U.S. and State statutory income tax rate to pre-tax loss is
as
follows:
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Federal
and state statutory rate
|
|
|
35
|
%
|
|
35
|
%
|
Change
in valuation allowance on deferred tax assets
|
|
|
(35
|
)%
|
|
(35
|
)%
|
|
|
|
- |
|
|
-
|
|
Note
7 – Stockholder’s equity
Common
stock
We
are
authorized to issue up to 1,250,000,000 shares of $0.001 par value common
stock.
Preferred
stock
We
are
authorized to issue 5,000,000 shares of $0.001 par value preferred stock; of
which 750,000 shares are designated as Series A, 1,000,000 shares are designated
as Series C, and 1,000 shares are designated as Series D.
Series
“A” convertible preferred stock
Holders
of series “A”: convertible stock shall not have the right to vote on matters
that come before the shareholders. Series “A” Convertible Preferred stock may be
converted at a rate of .225 shares of common stock for each share of Series
“A”
Convertible Preferred stock. Series “A” Convertible Preferred stock shall rank
senior to common stock in the event of liquidation. Holders’ of Series “A”
convertible stock shall be entitled to a 6% annual dividend payable in common
stock, accrued and payable at the time of conversion, subject to adjustments
resulting from stock splits, recapitalization, or share combination.
Series
“C” convertible preferred stock
Holders
of series “C”: convertible stock shall not have the right to vote on matters
that come before the shareholders. 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 shall be equal to eighty
percent of the market price rounded to the nearest thousandth, not to exceed
$1.60 per share. Series “C” convertible stock shall rank senior to common stock
in the event of liquidation. Holders’ of Series “C” convertible stock shall be
entitled to a mandatory monthly dividend equal to the share price multiplied
by
the prime interest rate plus five tenths percent. Series “C” convertible stock
shall have a redemptions price of $100 per share, subject to adjustments
resulting from stock splits, recapitalization, or share combination.
Series
D convertible preferred stock
Holders
of series “D”: convertible stock shall not have the right to vote on matters
that come before the shareholders. Series “D” convertible preferred stock may be
converted, the number of shares into which one share of Series “D” Preferred
Stock shall be convertible shall be determined by dividing the Series “D”
Purchase price by the existing conversion price which shall be equal to eighty
percent of the market price rounded to the nearest thousandth, not to exceed
$1.60 per share. Series “D” convertible stock shall rank senior to common stock
in the event of liquidation. Holders’ of Series “D” convertible stock shall be
entitled to a mandatory monthly dividend equal to the share price multiplied
by
the prime interest rate plus five-tenths percent. Series “D” convertible stock
shall have a redemptions price equal to 101% of the purchase price per share,
subject to adjustments resulting from stock splits, recapitalization, or share
combination.
2006
Issuances
During
January 2006, the Company issued 68,355 shares of common stock as previously
authorized in December 2005.
During
the fiscal year ended December 31, 2006, the Company issued 1,448,610 shares
of
its common stock for services relating to various consulting agreements. The
Company recorded consulting expense in the amount of $581,335 and prepaid
shares-based compensation of $29,934 which was expensed during the year ended
December 31, 2007.
On
April
17 and May 22, 2006, the Company issued 62,050 and 25,000 shares of common
stock
valued at $37,663 to Messer’s Millic and Kaplan for licensing fees.
On
June
16, 2006 the Company issued 621,593 shares of its common stock pursuant to
the
dividend grant dated June 9, 2006. Pursuant to the grant, each share holder
of
record on the date of grant was entitled to receive a stock dividend in the
amount of 8.334% shares for each 100 shares of our common stock
owned.
2007
Issuances
During
the year ended December 31, 2007 we issued 810,500 shares of our common stock
for the exercise of options issued pursuant to our 2004 stock option plan to
various consultants for cash totaling $11,100 and services valued at
$23,081.
During
the year ended December 31, 2007 we issued 4,140,867 shares of our common stock
for the exercise of options issued pursuant to our 2006 stock option plan to
various consultants for cash totaling $244,614 and services valued at $99,500.
As of December 31, 2007,750,000 of these shares were un-issued.
On
January 4, 2007, we issued 150,000 shares of restricted common stock for
services valued at $49,500, the fair value of the underlying
shares.
During
the year ended December 31, 2007, we issued 1,370,761 shares of common stock
for
the conversion of 2,140 shares of our preferred “C” stock to Mercator Momentum
Fund and Monarch Pointe Fund pursuant to the 2005 purchase agreement.
On
April
5, 2007, we issued 50,000 shares of common stock for license renewal fees to
two
individuals. We recorded licensing fees in the amount of $19,000, the fair
value
of the shares.
On
July
23, 2007, we issued of 184,700 shares of our restricted common stock for accrued
expenses totaling $38,787.
On
September 19, 2007, we issued 200,000 shares of restricted common stock for
cash
totaling $10,000.
On
September 28, 2007, we authorized the issuance of 7,500,000 shares of our
restricted common stock at a price of $0.02 per share to our chief executive
officer for the conversion of $150,000 of the principal balance of his note.
The
market price per share on the date of conversion was $0.04. The shares were
subsequently issued on October 3, 2007.
On
September 28, 2007, we authorized the issuance of 5,250,000 shares of our
restricted common stock to its two directors as compensation for services from
July 1, 2007 through July 1, 2008. The fair value of the shares on the date
of
grant was $210,000 and will be amortized over the one-year service period.
As of
December 31, 2007, we have recorded compensation expense in the amount of
$105,000 and unamortized cost of shares issued for services of $105,000. The
shares were subsequently issued on October 3, 2007.
On
November 26, 2007, we issued a total of 400,000 shares of our restricted common
stock for services valued at $12,000, the fair value of the underlying
shares.
On
December 5, 2007, we issued 200,000 shares of our restricted common stock for
services valued at $6,000, the fair value of the underlying shares.
On
December 5, 2007, issued 231,559 shares of our restricted common stock for
financing expenses valued at $11,249, the fair value of the underlying
shares.
On
December 21, 2007, we authorized the issuance of 446,071 shares of our
restricted common stock for financing expenses valued at $13,382, the fair
value
of the underlying shares. As of December 31, 2007, the shares are
un-issued.
On
December 28, 2007, we authorized the issuance of 2,500,000 shares of our
restricted common stock to our two directors for services valued at $75,000,
the
fair value of the underlying shares. As of December 31, 2007, the shares are
un-issued.
On
December 28, 2007, we authorized the issuance of 4,223 shares of our common
stock for financing expenses valued at $127, the fair value of the underlying
shares. As of December 31, 2007, the shares are un-issued.
Note
8 – Options
2004
Stock Option Plan
Effective
April 21, 2004, we adopted the “2004” Stock Option Plan, as amended, with a
maximum number of 6,312,500 shares that may be issued. As of December 31, 2007,
2,978,297 options have been granted, and exercised under this plan.
During
the year ended December 31, 2007, we issued options to purchase up to 810,500
shares of par value common stock at a weighted average exercise price of $0.05
per share for various consulting services received. We recorded an expense
in
the amount of $22,766 the fair value of the options using the Black-Scholes
pricing model. As of December 31, 2007, all options were exercised in exchange
for cash in the amount of $11,100 and services valued at $23,081.
The
following is a summary of activity of outstanding stock options under the 2004
Stock Option Plan:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
Exercise
|
|
|
|
Of
Shares
|
|
Price
|
|
|
|
|
|
|
|
Balance,
January 1, 2006
|
|
|
-
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
1,141,610
|
|
|
0.46
|
|
Options
cancelled
|
|
|
-
|
|
|
-
|
|
Options
exercised
|
|
|
1,141,610
|
|
|
0.46
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
-
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2007
|
|
|
-
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
810,500
|
|
|
0.05
|
|
Options
cancelled
|
|
|
-
|
|
|
-
|
|
Options
exercised
|
|
|
810,500
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
-
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
Exercisable,
December 31, 2007
|
|
|
-
|
|
$
|
-0-
|
|
2005
Merger Consolidated Stock Option Plan
On
February 5, 2005, we adopted our “2005” Merger Consolidated Stock Option Plan.
The maximum number of shares that may be issued pursuant to the plan is
1,125,000 shares. As of December 31, 2007, 825,000 shares have been granted
under this plan.
The
following is a summary of activity of outstanding stock options under the 2004
Stock Option Plan:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
Exercise
|
|
|
|
Of
Shares
|
|
Price
|
|
|
|
|
|
|
|
Balance,
January 1, 2006
|
|
|
825,000
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
-
|
|
|
-0-
|
|
Options
cancelled
|
|
|
-
|
|
|
-0-
|
|
Options
exercised
|
|
|
-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
825,000
|
|
$
|
.73
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2007
|
|
|
825,000
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
-
|
|
|
-0-
|
|
Options
cancelled
|
|
|
-
|
|
|
-0-
|
|
Options
exercised
|
|
|
-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
825,000
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
Exercisable,
December 31, 2007
|
|
|
825,000
|
|
$
|
1.73
|
|
2006
Stock Option Plan
On
December 8, 2006 we adopted our “2006 Employee Stock Option Plan and granted
incentive and nonqualified stock options with rights to purchase 1,500,000
shares of our $0.001 par value common stock. On August 24, 2006, we authorized
an increase of 4,000,000 shares to the plan.
During
the year ended December 31, 2007, we issued options to purchase up to 4,140,867
shares of par value common stock at a weighted average exercise price of $0.15
per share for various consulting services received. We recorded an expense
in
the amount of $252,324 the fair value of the options using the Black-Scholes
pricing model. As of December 31, 2007, all options were exercised for cash
totaling $244,614 and services valued at $99,500.
The
following is a summary of activity of outstanding stock options under the 2006
Stock Option Plan:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
Exercise
|
|
|
|
Of
Shares
|
|
Price
|
|
Balance,
January 1, 2006
|
|
|
-
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
-
|
|
|
-0-
|
|
Options
cancelled
|
|
|
-
|
|
|
-
|
|
Options
exercised
|
|
|
-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
-
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2007
|
|
|
-
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
4,140,867
|
|
|
0.15
|
|
Options
cancelled
|
|
|
-
|
|
|
-
|
|
Options
exercised
|
|
|
4,140,867
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
-
|
|
$
|
-0-
|
|
Exercisable,
December 31, 2007
|
|
|
-
|
|
$
|
-0-
|
|
Note
8 – Warrants
During
the year ended December 31, 2007, we issued warrants to purchase up to 1,233,340
shares of par value common stock at a weighted average exercise price of $.06
per share for various services. We recorded an expense in the amount of $37,620
the fair value of the warrants using the Black-Scholes pricing model.
The
following is a summary of activity of outstanding warrants as of December 31,
2007:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
Exercise
|
|
|
|
Of
Shares
|
|
Price
|
|
|
|
|
|
|
|
Balance,
January 1, 2006
|
|
|
1,378,750
|
|
$
|
1.92
|
|
|
|
|
|
|
|
|
|
Warrants
granted
|
|
|
50,000
|
|
|
0.32
|
|
Warrants
cancelled
|
|
|
-
|
|
|
-
|
|
Warrants
exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
1,428,750
|
|
$
|
1.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2007
|
|
|
1,428,750
|
|
$
|
1.86
|
|
|
|
|
|
|
|
|
|
Warrants
granted
|
|
|
1,233,340
|
|
|
0.06
|
|
Warrants
cancelled
|
|
|
-
|
|
|
-
|
|
Warrants
exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
2,662,090
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
Exercisable,
December 31, 2007
|
|
|
2,662,090
|
|
$
|
1.03
|
|
Note
9 – Commitments and Contingencies
Leases
The
following is a schedule by years of future minimum rental payments required
under operating leases that have non-cancelable lease terms in excess of one
year as of December 31, 2007:
2008
|
|
$
|
48,000
|
|
2009
|
|
|
12,000
|
|
Total
|
|
$
|
60,000
|
|
Rent
expense amounted to $72,860 and $101,024 for the years ended December 31, 2007
and 2006, respectively.
Note
10 – Subsequent events
During
January 2008, we issued 3,700,294 shares previously authorized as of December
31, 2007.
During
January, 2008, we issued 616,775 shares of our restricted common stock to two
consultants for services.
In
2008,
we issued 1,183,593 shares of our restricted common stock to Centurion Credit
Resources pursuant to our financing agreement dated November 19,
2007.