Amendment No. 1 to 05/06 Quarterly
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
___________________________
FORM
10-QSB/A
___________________________
|X|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the quarterly period ended May 31, 2006
OR
|_|
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Commission
file number 0-26715
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
58-0962699
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
45
Ludlow Street, Suite 602
Yonkers,
New York 10705
(Address
of principal executive offices) (Zip Code)
(914)
375-7591
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark 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. Yes |X| No |_|
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: As of July 14, 2005, we had 16,055,470 shares
of common stock outstanding, $0.10 par value.
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC.
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
May
31,
2006
Explanatory
Note:
This
Quarterly Report on Form 10-QSB/A is being filed as Amendment Number 1
to our
Quarterly Report on Form 10-QSB which was originally filed with the Securities
and Exchange Commission (“SEC”) on July 24, 2006. We are filing this form
10-QSB/A to re-order the Items in conformity with the rules for Form 10-QSB
and
make corresponding changes in the table of contents. In addition, this
Form
10-QSB/A is being filed to restate our financial statements for the fiscal
quarter ended May 31, 2006 to reflect additional operating and non-operating
gains and losses related to the classification of and accounting
for:
(1)
the
warrants issued in connection with issuance of convertible debt;
(2)
conventional convertible debt issued
(3)
beneficial conversion features of certain of the debt instruments
and
(4)
the
classification of certain liabilities between short and long term
In
addition, we are including currently dated Sarbanes Oxley Act Section 302
and Section 906 certifications of the Chief Executive Officer and Chief
Financial Officer that are attached to this Form 10-QSB/A as Exhibits 31.1
and
32.1.
For
the
convenience of the reader, this Form 10-QSB/A sets forth the entire Form
10-QSB,
which was prepared and relates to the Company as of May 31, 2006. However,
this
Form 10-QSB/A only amends and restates the Items described above to reflect
the
effects of the restatement and no attempt has been made to modify or update
other disclosures presented in our May 31, 2006 Form 10-QSB. Accordingly,
except
for the foregoing amended information, this Form 10-QSB/A continues to
speak as
of July 24, 2006 (the original filing date of the May 31, 2006 Form 10-QSB),
and
does not reflect events occurring after the filing of our May 31, 2006
Form
10-QSB and does not modify or update those disclosures affected by subsequent
events. Forward looking statements made in the 2006 Form 10-QSB have not
been
revised to reflect events, results or developments that have become known
to us
after the date of the original filing (other than the current restatements
described above), and such forward looking statements should be read in
their
historical context. Unless otherwise stated, the information in this Form
10-QSB/A not affected by such current restatements is unchanged and reflects
the
disclosures made at the time of the original filing.
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Page
Number
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Part
I.
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Financial
Information:
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|
|
Item
1.
|
Financial
Statements
Condensed
Consolidated Balance Sheets (unaudited)
|
3
|
|
Condensed
Consolidated Statements of Operations (unaudited)
|
4
|
|
Condensed
Consolidated Statements of Cash Flows (unaudited)
|
5
|
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
6-12
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|
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Item
2.
|
Management’s
Discussion and Analysis of Financial Condition
|
13
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|
and
Results of Operations
|
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|
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Item
3.
|
Controls
and Procedures
|
19
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Part
II.
|
Other
Information
|
20
|
|
|
|
Item
1.
|
Legal
Proceedings
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
|
Item
5.
|
Other
Information
|
|
Item
6.
|
Exhibits
|
|
|
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|
Signatures
|
|
|
Certifications
|
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|
Item
1. Financial Statements
Comprehensive
Healthcare Solutions, Inc. and Subsidiaries
|
|
Restated
Condensed Consolidated Balance Sheet
|
|
|
|
|
|
May
31, 2006
|
|
|
|
(Unaudited)
|
|
|
|
(As
restated)
|
|
ASSETS
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
|
$
|
52,842
|
|
Accounts
receivable, net
|
|
|
33,669
|
|
Other
current assets
|
|
|
25,000
|
|
|
|
|
|
|
Total
current assets
|
|
|
111,511
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
30,368
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
141,879
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
Current
liabilities:
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
325,401
|
|
Loan
payable
|
|
|
40,000
|
|
Due
to related party
|
|
|
110,321
|
|
Convertible
debentures, short term
|
|
|
240,807
|
|
Derivative
liabilities
|
|
|
721,623
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,438,152
|
|
|
|
|
|
|
Convertible
debentures and notes, long term
|
|
|
121,960
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
1,560,112
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
Preferred
stock, no par value; 5,000 shares
|
|
|
|
|
authorized
and no shares issued and outstanding
|
|
|
-
|
|
Common
stock, $.10 par value: 20,000,000
|
|
|
|
|
shares,
15,418,184 shares issued
|
|
|
1,541,818
|
|
Additional
paid-in capital
|
|
|
2,218,127
|
|
Accumulated
deficit
|
|
|
(5,178,178
|
)
|
Total
stockholders’ equity
|
|
|
(1,418,233
|
)
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
141,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
Comprehensive
Healthcare Solutions, Inc. and Subsidiaries
|
|
Restated
Condensed
Consolidated Statements of Operations
|
|
For
the Three Months Ended May 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
Three
Months
|
|
|
|
Ended
|
|
Ended
|
|
|
|
May
31, 2006
|
|
May
31, 2005
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
(As
restated)
|
|
|
|
Net
revenue
|
|
$
|
141,852
|
|
$
|
137,427
|
|
Cost
of sales
|
|
|
120,701
|
|
|
115,322
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
21,151
|
|
|
22,105
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
75,312
|
|
|
150,417
|
|
Professional
fees
|
|
|
39,325
|
|
|
91,600
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(93,486
|
)
|
|
(219,912
|
)
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
Gain
on derivative liabilities
|
|
|
582,018
|
|
|
-
|
|
Interest
expense,
net
|
|
|
(82,763
|
)
|
|
(2,767
|
)
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
499,255
|
|
|
(2,767
|
)
|
|
|
|
|
|
|
|
|
Income
(loss)
before income taxes
|
|
|
405,769
|
|
|
(222,679
|
)
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
(loss)
|
|
$
|
405,769
|
|
$
|
(222,679
|
)
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding -
|
|
|
|
|
|
|
|
basic
and diluted
|
|
|
15,369,065
|
|
|
13,303,959
|
|
Earnings
(loss)
per share - basic and diluted
|
|
$
|
0.03
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Healthcare Solutions, Inc. and Subsidiaries
|
|
Restated
Condensed
Consolidated Statements of Cash Flows
|
|
For
the Three Months Ended May 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
Three
Months
|
|
|
|
Ended
|
|
Ended
|
|
|
|
May
31, 2006
|
|
May
31, 2005
|
|
|
|
(Unaudited)
(As
restated)
|
|
(Unaudited)
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
405,769
|
|
$
|
(222,679
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
Provision
for bad debt
|
|
|
-
|
|
|
(10,000
|
)
|
Depreciation
and amortization
|
|
|
4,442
|
|
|
11,635
|
|
Gain
on derivative liabilities
|
|
|
(553,928
|
)
|
|
-
|
|
Interest
expense, amortization of debt discount
|
|
|
43,584
|
|
|
-
|
|
Expense
for shares and warrants issued for services rendered
|
|
|
7,887
|
|
|
54,003
|
|
Changes
in current assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(10,194
|
)
|
|
16,195
|
|
Accounts
payable and accrued expenses
|
|
|
19,630
|
|
|
(51,763
|
)
|
Net
cash used by operating activities
|
|
|
(82,810
|
)
|
|
(202,609
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
Issue
of stock for operations
|
|
|
|
|
|
|
|
Proceeds
from issuance of debentures and notes
|
|
|
775,000
|
|
|
2200,000
|
|
Proceeds
from loans from related party
|
|
|
14,495
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
89,495
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
6,685
|
|
|
(2,609
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of the period
|
|
|
46,157
|
|
|
17,133
|
|
Cash
and cash equivalents, end of the period
|
|
$
|
52,842
|
|
$
|
14,524
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
15
|
|
$
|
2,767
|
|
Income
taxes
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Non
cash disclosure:
Issuance
of Derivative liability
|
|
$
|
28,090
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
|
Comprehensive
Healthcare Solutions, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
NOTE
1 -
ORGANIZATION
Comprehensive
Healthcare Solutions, Inc. and its wholly owned subsidiaries, (the “Company”) is
engaged in the business of selling and distributing hearing aids and providing
the related audiological services.
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim
Financial Statements
The
accompanying interim unaudited condensed consolidated financial information
has
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations, although management
believes that the disclosures are adequate to make the information presented
not
misleading. In the opinion of management, all adjustments, consisting only
of
normal recurring adjustments, necessary to present fairly the financial position
of the Company as of May 31, 2006 and the related operating results and cash
flows for the interim period presented have been made. The results of operations
of such interim period are not necessarily indicative of the results of the
full
fiscal year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company’s 10-KSB and Annual
Report for the fiscal year ended February 28, 2006.
Use
of
Estimates
Use
of
estimates and assumptions by management is required in the preparation of
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates and
assumptions.
Revenue
Recognition
In
accordance with Emerging Issues Task Force (“EITF”) 00-21, we have determined
that certain of our contractual arrangements contain multiple deliverables
which
represent separate units of accounting, specifically, the initial hearing
screening and the subsequent delivery of the hearing aid and any follow up
services necessary. Revenue related to initial screening services is recognized
upon delivery of the screening services as there is no further obligation to
provide subsequent service, objective and reliable evidence of the fair value
of
these services exists and the delivery of these services have value to the
customer on a stand-alone basis. Revenue is recognized on the delivery of
hearing aids in accordance with Financial Accounting Standards Board Statement
of Financial Accounting Standards (“SFAS”) No. 48: Revenue
Recognition When Right of Return Exists when
delivery of the product has occurred and follow up service is completed assuming
that collectibility is reasonably assured. If collection is doubtful, no revenue
is recognized until such receivables are collected. Generally, customers have
a
45 day period in which to either return the product or request follow up
service; we therefore recognize revenue for products delivered only upon
expiration of the 45 day return period.
Earnings
(Loss) Per Common Share
Basic
earning (loss)-per-share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding during the period. Diluted
earnings (loss) per share is computed by dividing income (loss) by the
weighted-average number of common shares outstanding during the period,
increased to include the number of additional common shares that would have
been
outstanding if the dilutive potential common shares had been issued, by
application of the treasury stock method, if not anti-dilutive. In both periods
presented, the dilutive potential common shares were not included in the
computation of diluted loss per share, because the inclusion of
Comprehensive
Healthcare Solutions, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
stock
options, warrants or convertible debentures ("Warrants") would be anti-dilutive
or because the exercise prices were greater than the average market prices
of
the common shares. At May 31, 2006, a total of 8,000,128 Warrants with exercise
or conversion prices ranging from $0.25 to $1.20 per share were not included
in
the computation of diluted earnings
per
share since the exercise prices were greater than the average market prices
of
the common shares.
Weighted
average number
|
|
Three
Months Ended
|
|
of
shares outstanding
|
|
May
31, 2006
|
|
May
31, 2005
|
|
Basic
|
|
|
15,369,065
|
|
|
13,303,959
|
|
Effect
of dilutive securities: Warrants
|
|
|
-
|
|
|
-
|
|
Diluted
|
|
|
15,369,065
|
|
|
13,303,959
|
|
For
additional disclosures regarding the employee stock options, see the Form 10-KSB
dated February 28, 2006.
Accounting
for Convertible debentures, Warrants and Derivative Instruments
Statement
of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended, requires all derivatives to be
recorded on the balance sheet at fair value. These derivatives, including
embedded derivatives in our structured borrowings, are separately valued and
accounted for on the accompanying balance sheet. Fair values for exchange-traded
securities and derivatives are based on quoted market prices. Where market
prices are not readily available, fair values are determined using market based
pricing models incorporating readily observable market data and requiring
judgment and estimates.
We
use
the Black Scholes Pricing Model to determine fair values of our derivatives..
Valuations derived from this model are subject to ongoing internal and external
verification and review. The model uses market-sourced inputs such as interest
rates, exchange rates and option volatilities. Selection of these inputs
involves management’s judgment and may impact net income.
In
particular, we use volatility rates for
a
time period similar to the length of the underlying convertible instrument
based
upon the daily
closing
stock price of the Company's common stock.
We did
not use any stock prices prior to February
2002 when the Company emerged from bankruptcy. We determined that share prices
prior to this period do not reflect the ongoing business valuation of our
current operations. We use a risk-free interest rate, which is the U. S.
Treasury bill rate, for a security with a maturity that approximates the
estimated expected life of our derivative or security. We use the closing market
price of the Company's common stock on the date of issuance of a derivative
or
at the end of a quarter to determine fair value of a derivative at the end
of
the period. The volatility factor used in Black Scholes has a significant effect
on the resulting valuation of our derivative liabilities. The volatility for
the
calculation of the embedded and freestanding derivatives as
of May
31, 2006 ranged
from 163%
to
189%,
this
volatility rate will likely change in the future. The Company's stock price
will
also change in the future. To the extent that our stock price increases or
decreases, derivative liabilities will also increase or decrease, absent any
change in volatility rates.
In
September 2000, the Emerging Issues Task Force issued EITF 00-19, “Accounting
for Derivative Financial Instruments Indexed to and Potentially Settled in,
a
Company’s Own Stock,” (“EITF 00-19”) which requires freestanding contracts that
are settled in a company’s own stock, including common stock warrants, to be
designated as an equity instrument, asset or a liability. Under the provisions
of EITF 00-19, a contract designated as an asset or a liability must be carried
at fair value on a company’s balance sheet, with any changes in fair value
recorded in the company’s results of operations. A contract designated as an
equity instrument must be included within equity, and no fair value adjustments
are required from period to period. In accordance with EITF 00-19, all
of our
warrants to purchase common stock and
embedded conversion options are
accounted for as liabilities at fair value and the unrealized changes in the
values of these derivatives are shown in our consolidated statement of
operations as “Gain (loss) on derivative liabilities.”
Comprehensive
Healthcare Solutions, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
We
have
penalty provisions in the registration agreements on our debentures and warrants
that require us to make certain payments in the event of our failure to
maintain, for certain prescribed periods, an effective registration statement
for the common stock securities underlying the debentures and the associated
warrants and failure to maintain the listing of our common stock for quotation
on certain public securities markets. The EITF 05-04, which has not been
adopted, considers alternative treatments including whether or not the
registration right itself is a separate derivative liability, or if it is a
derivative considered as a combined unit with the conversion feature of a
convertible instrument. If the unit is considered separate, the EITF discusses
possible alternative treatments including the possibility that the combined
unit
is a derivative liability only if the maximum liquidated damages exceed the
difference between the fair value of registered and unregistered shares. In
September 2005, the FASB staff reported that the EITF postponed further
deliberations on Issue No. 05-04 The Effect of a Liquidated Damages Clause
on a
Freestanding Financial Instrument Subject to Issue No. 00-19 (“EITF 05-04”)
pending the FASB reaching a conclusion as to whether a registration rights
agreement meets the definition of a derivative instrument.
We
consider the liquidated damages provision in our various security instruments
to
be combined with our registration rights and conversion derivatives, and
accordingly, we do not account for the provision as a separate liability. We
currently record any registration delay payments as expenses in the period
when
they are incurred. If the FASB were to adopt an alternative view, we could
be
required to account for the registration delay payments as a separate
derivative. Accordingly, we would need to record the fair value of the estimated
payments, although no authoritative methodology currently exists for evaluating
such computation.
New
Accounting Standards
In
June
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of
FASB Statement No. 109” (FIN 48). FIN 48 prescribes a recognition threshold
and measurement attribute for financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return, and also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company does not expect that
the adoption of FIN 48 will have an impact on the Company’s financial position
and results of operations.
RESTATEMENT
AND RECLASSIFICATIONS OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Summary
of Restatement and Reclassification Items
In
September, 2006, the Company concluded that it was necessary to restate its
financial results for the three months ended May 31, 2006 to reflect corrections
to accounting for: (1) the warrants issued in connection with issuance of
convertible debt; (2) conventional convertible debt issued and (3) the
beneficial conversion features of certain debt instruments, and (4) to correct
the classification of its debt.
The
Company had previously classified the value of one of the warrants to purchase
common stock, as a liability and therefore, the fair value of this instrument
was recorded as a derivative liability on the Company’s balance sheet. However,
the Company recorded the transaction at the fair value of their respective
components rather than allocating the proceeds. The components of the
instruments are the warrants, the conversion option of the convertible debenture
and the debt. Changes in the fair value of this instrument will result in
adjustments to the amount of the recorded derivative liabilities and the
corresponding gain or loss will be recorded in the Company’s statement of
operations. At the date of the conversion of each respective instrument or
portion thereof (or exercise of the options or warrants or portion thereof,
as the case may be), the corresponding derivative liability will be reclassified
as equity.
The
Company had previously not recognized expense for instruments that are
considered conventional convertible debt. After further review, the Company
has
determined that there is no beneficial conversion feature since the conversion
price of the debenture was above the market price at issuance. The Company
also
determined that upon issuing commitments to issue more than its authorized
shares, the fair value of the embedded conversion option should have been
recorded as a derivative liability. A debt discount was recorded. Subsequent
to
this event the Company commenced amortizing the debt discount over the term
of
the debt, and revalued the derivative liabilities at the end of the
period.
The
Company had previously recorded the expense for the beneficial conversion
feature over the term of the debenture. After further review the Company
determined that no beneficial conversion feature should be recorded as the
embedded conversion option is being recorded at its fair value.
The
Company reclassified certain convertible debenture from long term to short
term
as the debentures were in default and immediately due and payable.
Balance
Sheet Impact
The
following table sets forth the effects of the restatement adjustments on the
Company’s consolidated balance sheet as of May 31, 2006:
ASSETS
|
|
|
|
|
|
As
previously reported on
|
|
Adjustment
|
|
As
restated
|
|
|
|
Form
10-QSB
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
52,842
|
|
$
|
-
|
|
$
|
52,842
|
|
Accounts
receivable, net
|
|
|
33,669
|
|
|
|
|
|
33,669
|
|
Other
current assets
|
|
|
25,000
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
111,511
|
|
|
|
|
|
111,511
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
30,368
|
|
|
|
|
|
30,368
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
141,879
|
|
$
|
-
|
|
$
|
141,879
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
325,401
|
|
$
|
-
|
|
$
|
325,401
|
|
Revolving
line of credit
|
|
|
40,000
|
|
|
|
|
|
40,000
|
|
Due
to related party
|
|
|
110,321
|
|
|
|
|
|
110,321
|
|
Convertible
debentures, short term
|
|
|
-
|
|
|
240,807
|
|
|
240,807
|
|
Derivative
liabilities
|
|
|
215,749
|
|
|
505,874
|
|
|
721,623
|
|
Total
current liabilities
|
|
|
691,471
|
|
|
746,681
|
|
|
1,438,152
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
debentures and notes, long term
|
|
|
705,000
|
|
|
(583,040
|
)
|
|
121,960
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,396,471
|
|
|
163,641
|
|
|
1,560,112
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, no par value; 5,000 shares
|
|
|
|
|
|
|
|
|
|
|
authorized
and zero shares issued and outstanding
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common
stock, $.10 par value; 20,000,000 shares
|
|
|
|
|
|
|
|
|
|
|
authorized;
15,418,184 shares issued and outstanding
|
|
|
1,541,818
|
|
|
|
|
|
1,541,818
|
|
Additional
paid-in capital
|
|
|
2,267,352
|
|
|
(49,225
|
)
|
|
2,218,127
|
|
Accumulated
deficit
|
|
|
(5,063,762
|
)
|
|
(114,416
|
)
|
|
(5,178,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' deficit
|
|
|
(1,254,592
|
)
|
|
(163,641
|
)
|
|
(1,418,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
141,879
|
|
$
|
-
|
|
$
|
141,879
|
|
Statement
of Operations Impact
The
following tables set forth the effects of the restatement adjustments on the
Company’s consolidated statement of operations for the three months ended May
31, 2006:
|
|
As
previously reported
|
|
Adjustment
|
|
As
restated
|
|
Net
sales
|
|
$
|
141,852
|
|
$
|
-
|
|
$
|
141,852
|
|
Cost
of sales
|
|
|
120,701
|
|
|
|
|
|
120,701
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
21,151
|
|
|
-
|
|
|
21,151
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
75,312
|
|
|
|
|
|
75,312
|
|
Professional
fees
|
|
|
39,325
|
|
|
-
|
|
|
39,325
|
|
Loss
from operations
|
|
|
(93,486
|
)
|
|
-
|
|
|
(93,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss)
on derivative liabilities
|
|
|
43,782
|
|
|
538,236
|
|
|
582,018
|
|
Interest
expense, net
|
|
|
(24,170
|
)
|
|
(58,593
|
)
|
|
(82,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expense
|
|
|
19,612
|
|
|
479,643
|
|
|
499,255
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(73,874
|
)
|
|
479,643
|
|
|
405,769
|
|
Provision
for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(73,874
|
)
|
$
|
479,643
|
|
$
|
405,769
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.00
|
)
|
$
|
0.03
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
15,369,065
|
|
|
-
|
|
|
15,369,065
|
|
Cash
Flow Impact
The
following tables set forth the effects of the restatement adjustments on the
Company’s consolidated cash flows for the three months ended May 31,
2006:
|
|
As
previously reported on form 10-QSB
|
|
Adjustment
|
|
As
restated
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(73,874
|
)
|
$
|
479,643
|
|
$
|
405,769
|
|
Adjustments
to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
|
|
by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Provision
for doubtful accounts
|
|
|
-
|
|
|
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
4,442
|
|
|
|
|
|
4,442
|
|
Interest
expense for beneficial conversion feature
|
|
|
13,081
|
|
|
(13,081
|
)
|
|
-
|
|
Gain
on derivative liabilities
|
|
|
(43,782
|
)
|
|
(510,146
|
)
|
|
(553,928
|
)
|
Interest
expense, amortization of debt discount
|
|
|
-
|
|
|
43,584
|
|
|
43,584
|
|
Expense
for shares and warrants issued for services rendered
|
|
|
7,887
|
|
|
|
|
|
7,887
|
|
Changes
in current assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(10,194
|
)
|
|
|
|
|
(10,194
|
)
|
Accounts
payable and accrued expenses
|
|
|
19,630
|
|
|
|
|
|
19,630
|
|
Net
Cash Used by Operating Activities
|
|
|
(82,810
|
)
|
|
-
|
|
|
(82,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from convertible debentures
|
|
|
75,000
|
|
|
|
|
|
75,000
|
|
Proceeds
from loans from related party
|
|
|
14,495
|
|
|
|
|
|
14,495
|
|
Net
Cash Provided by Financing Activities
|
|
|
89,495
|
|
|
-
|
|
|
89,495
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
6,685
|
|
|
-
|
|
|
6,685
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
46,157
|
|
|
-
|
|
|
46,157
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
52,842
|
|
$
|
-
|
|
|
52,842
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
15
|
|
|
|
|
$
|
15
|
|
Taxes
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash disclosure:
Issuance
of Derivative liability
|
|
|
-
|
|
$
|
28,090
|
|
$
|
28,090
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Certain
statements contained in this filing are “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995, such as
statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors that could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition and other
uncertainties detailed from time to time in our filings with the Securities
and
Exchange Commission.
The
Company
Directly,
and indirectly through our subsidiaries, Accutone Inc. and Interstate Hearing
Aid Service Inc., we are in the business of audiological services. We changed
the focus of our marketing at both our subsidiaries to include, not only the
individual, self-pay patients, but health care entities and organizations which
could serve as patient referral sources for us. The hearing aid industry is
competitively changing at a rapid pace. As a result, we decided to identify
additional business opportunities for growth in various portions of the medical
industry. Based on marketing research, we redirected our focus towards the
44
million plus uninsured and underinsured people throughout the United States.
To
position ourselves to take advantage of this huge market, on March 1, 2004
pursuant to a Stock Purchase Agreement, we acquired one hundred percent (100%)
of the issued and outstanding shares of common stock of Comprehensive Network
Solutions, Inc. (CNS) based in Austin, Texas from the CNS shareholders in
consideration for the issuance of a total of 250,000 restricted shares of our
common stock to the CNS shareholders. Pursuant to the Agreement, CNS became
our
wholly owned subsidiary. Following this acquisition, we changed our name to
Comprehensive Healthcare Solutions, Inc. to better reflect the fact that we
operate in several medical venues. This acquisition positioned us to take
advantage of the opportunity to provide access to discounted health care
provider networks and services. Refer to Subsequent Events in Item 2,
Management’s Discussion and Analysis for further information about these
marketing efforts.
Currently,
our net revenue include transaction fees generated from our prescription
discount cards as well as the sales of dental vision cards and Gold Cards.
However, the majority of our net revenue was generated by fees earned by the
provision of audiological testing in our offices as well as those provided
on
site in Nursing Homes, Assisted Living Facilities, Senior Care Facilities and
Adult Day Care Centers as well as the sales and distribution of hearing aids
generated in each of these venues. A majority of our audiology revenue was
derived from reimbursements from Medicare, Medicaid and third party payers.
Generally, reimbursement from these parties can take as long as 60 to 120 days.
With the implementation of the billing of Medicare payers on-line we have
improved our collection cycle, reducing reimbursement turnaround times from
approximately 90 days to approximately 60 days. Medicaid reimbursements can
only
be billed with various paper submissions which are mailed on a weekly basis.
As
a result, Medicaid payments, which constitute approximately 40% of our
reimbursement, continue to take 60 to 90 days to be realized.
The
acquisition of CNS allowed us to utilize the resources of both companies to
enter the health benefit market with consumer choice products for individuals,
employers, associations, unions and political subdivisions. Our current business
plan focuses on marketing health care benefits that enable prospective clients
to choose appropriate providers and financial arrangements that best meet their
individual needs. CNS was primarily in the business of marketing chiro-care
discount cards which management did not believe would be a broad enough benefit.
Utilizing the experience of CNS management in the medical care discount card
arena we were able to develop a marketing plan to sell and distribute medical
care discount cards with a more inclusive group of prescription and medical
coverage. This was additionally facilitated by the contacts already developed
and in place by CNS management and marketing team. Since CNS did not achieve
the
anticipated revenue or profitability we anticipated, in the end of calendar
year
2005 we divested our interest in this entity in order to lower our expenses.
During
the last twelve months we have continued to expand our product line with
additional benefits and alternative benefit funding options. These new expanded
products are being offered to individuals and small employers; and customized
private label versions of the products through our broker and consultant
relationships to municipalities, charitable organizations, associations, unions,
political subdivisions and large employers. The offerings are alternative cost
and quality benefit solutions to prospects and clients who are uninsured or
underinsured through existing traditional defined benefit health
plans.
Medical
Discount Card Product and Marketing
We
currently focus on specialty health benefits products, including, but not
limited to three levels of provider networks. We have been and will continue
to
work on expanding our product with additional benefits and alternative benefit
funding options. As a result of the shift in focus of our business,
we changed our name to Comprehensive Healthcare Solutions, Inc. to better
reflect our marketing of “The Solution Card”. Both Comprehensive Healthcare
Solutions and The Solution Card were trademarked by us for further protection
for our new business operations. These expanded products are currently
being offered to municipalities, charitable organizations, employers,
fraternal organizations, union benefit funds, business associations, insurance
companies, and insurance agencies. The offerings are alternative cost and
quality benefit solutions to prospects and clients who are uninsured or
underinsured, and in most instances are offered on a nationwide basis. These
expanded products are also being offered to groups set forth above whose medical
care costs are covered through existing traditional defined benefit health
plans
and have experienced large percentage increases in premiums as well as shrinking
coverage and higher deductibles. The range of discounts on the medical services
and products with the Solution Card family of products is between 10% and 60%
with an overall average savings of 22% to 28%.
Management
believes the core of our back office and fulfillment needs were met with the
finalization of a joint marketing agreement with Alliance HealthCard, Inc.
(symbol: ALHC.OB) on December 18, 2004 and has been renewed for a period of
three years with automatic renewal for an indefinite number of three year terms
unless either party notifies the other in writing of its election not to renew
120 days prior to the end of the period then currently in effect. Alliance
HealthCard, Inc. creates, markets and distributes membership discount savings
programs to predominantly underserved markets, where individuals have either
limited or no health benefits. These programs allow members to obtain discounts
in 16 areas of health care services including physician visits, hospital stays,
pharmacy, dental, vision, patient advocacy and alternative medicine among
others. We offer third-party organizations self-branded or private-label
healthcare discount savings programs through our existing provider network
agreements and systems. Founded in 1998 by health care and finance experts,
Alliance HealthCard, Inc. now provides access to a network of over 600,000
healthcare professionals for the over 800,000 individuals covered by the
Alliance HealthCard, Inc. which is based in Norcross, Georgia.
In
February 2005, Comprehensive Alliance Group, Inc., as a result of the marketing
arrangement between our company and Alliance, finalized an agreement with
Financial Independence Company Insurance Services (FICIS) of Woodland Hills,
California. FICIS is one of the ten largest employee benefit brokerage firms
in
the State of California and has a nationwide representation. The agreement
was a
result of the marketing efforts of our company and Cendant. The agreement is
for
the distribution of health discount cards by FICIS to various Cendant
franchisees, their employees and associates. These discount cards will offer
to
the Cendant Group and other FICIS clients a choice of affordable and convenient
health care options nationwide.
Although
some revenue has been generated from this relationship during the three months
ended May 31, 2006, we have not realized the full extent of the originally
anticipated revenue stream as a result of delays in printing and distribution
of
the cards by FICIS. An appropriate plan of marketing and distribution was
reformulated and the cards were subsequently printed in December 2005. This
revised plan called for the direct mailing of over 500,000 prescription discount
cards to three of the Cendant Real Estate Franchisees: Coldwell Banker, Century
21 and ERA by the end of January 2006. Each card is private labeled with the
logo of each franchise as a “Choice RX” prescription discount card. We believe
that we will begin to realize expanded revenue from these cards by the end
of
the current fiscal year.
Prescription
Discount Cards
We
derive
revenue from the distribution and utilization of our prescription discount
card
as well as those private labeled for various municipalities and organizations.
We receive a transaction fee every time a prescription discount card is used
by
a cardholder to fill an eligible prescription. Our fee is generated on
approximately 80% to 85% of the prescription drugs purchased with the card.
We
believe, based on the demographics on the areas where we are focusing our
marketing and distribution efforts, that between 8% and 15% of the total
population of the cards distributed will be utilized on a regular monthly basis
by the cardholder and their families. These are estimates derived by our
management and there are no guarantees that we will meet these expectations.
These demographics include municipalities and charitable foundations with high
percentages of uninsured and underinsured populations. These groups are prime
candidates to utilize the prescription discount cards and therefore benefit
by
obtaining discounts averaging 22% to 28% of the purchase price of the
prescription drugs purchased with the cards.
Although
we do not sell insured plans, the discounts realized by members through our
programs typically range from 10% to 75% off providers’ usual and customary
fees. In general, the overall average discounted fee is between 22% and 28%.
Our
programs require members to pay the provider at the time of service, thereby
eliminating the need for any insurance claims filing. These discounts, which
are
similar to managed care discounts, typically save the individual more than
the
cost of the program itself.
Membership
Service Programs
As
part
of our marketing program, we are offering memberships to municipalities,
charitable foundations, large employers, unions, union benefits funds,
associations and insurance companies. Cardholders will be offered discounts
for
products and services ranging from 10% to 75% depending on the area of coverage
and the specific procedures, with an average discounted fee of between 22%
and
28%.
Current
Customer Base
In
April
2005, we signed our first agreement with a municipal government, Luzerne County,
Pennsylvania. In May 2005, we delivered over 300,000 Luzerne County private
labeled discount prescription cards to Luzerne County’s Commissioners Offices
for distribution to its residents. The agreement calls for Luzerne County to
share in a portion of the revenue generated by the utilization of the discount
prescription cards by its residents.
On
July
13, 2005, the commissioners of Lehigh County, Pennsylvania approved
commissioner’s bill #2005-68 approving a professional services agreement with
the Company to provide prescription discount cards to the approximate 310,000
residents of the county. The county and the company worked together to have
as
many of the prescription discount cards distributed subsequent to the delivery
date of August 15, 2005.
On
September 15, 2005, we signed a contract with Carbon County, Pennsylvania,
to
deliver approximately 75,000 private labeled Carbon County prescription discount
cards to the county’s residents. We fulfilled the contract through the delivery
of the county’s private labeled prescription discount cards on October 13, 2005.
The initial distribution of the cards began October 13, 2005 at a senior citizen
fair within the county which was attended by approximately 2,500 senior citizens
and resulted in the distribution of in excess of 2,000 cards on that day.
On
September 29, 2005, we executed a contract with Schuylkill County, Pennsylvania
to deliver 165,000 Schuylkill County private labeled prescription discount
cards
to the county by the beginning of November. The county commissioners indicated
to us at that time that a distribution of the discount cards would begin to
take
place in November 2005 throughout the county to its municipal offices, county
aging and adult services offices, human resource offices, religious
organizations, and other venues.
We
have
previously disclosed that we have made presentations regarding our prescription
discount cards to various other municipalities in Pennsylvania and New York.
Although these counties had requested and received contracts as well as
information on the cards and we have been in contact with these counties we
will
not have finalized contracts with these counties until we review the results
of
utilization in the above named counties. Most counties continue to express
interest in proceeding. We will continue to negotiate with these counties during
the early part of 2006 and believe that we can be successful in signing
contracts with some of the counties and municipalities in Pennsylvania and
New
York. We are currently analyzing the revenue streams to ascertain whether we
will generate revenues and profits and provide us with any appropriate Return
on
Investment.
Effective
December 15, 2005, we entered into a settlement agreement with David and Pamala
Streilein in which we agreed to divest our interest in Comprehensive Network
Solutions, Inc. (“CNS”). Pursuant to the settlement agreement, we agreed to
return our shares of CNS to the Streileins in consideration for the cancellation
of the Streileins’ employment agreements with us as well as to forgive all
salary past due and any future salary due under their employment agreements.
CNS
failed to provide the projected sales or revenue that we had anticipated upon
execution of the agreement to acquire this entity. Although this acquisition
allowed us entry into the discount card marketplace, the expense of operating
CNS and paying the employment agreements no longer justified the originally
projected benefit to us. Although there are prospects for CNS to reach
significant revenue and profitability as a result of the State of Texas passing
House Bill #7, which reformed workers’ compensation in Texas. After a review of
potential revenue and the continually escalating expenses, management determined
that it could not adequately fund these operations.
We
believe it is in our best interests to utilize all available funds to expand
and
implement the current prescriptions and discount card programs being marketed
by
us.
Critical
Accounting Policies and Estimates
We
have
identified significant accounting policies that, as a result of the judgments,
uncertainties, uniqueness and complexities of the underlying accounting
standards and operations involved could result in material changes to its
financial condition or results of operations under different conditions or
using
different assumptions. We believe our most significant accounting policies
are
related to the following areas: estimation of fair value of long-lived assets,
revenue recognition and valuation of derivative liabilities. Details regarding
our use of these policies and the related estimates are described fully in
our
2006 Form 10-KSB. During the current period, there have been no material changes
to our significant accounting policies that impacted our financial condition
or
results of operations.
Recently
Issued Accounting Pronouncements
In
June
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of
FASB Statement No. 109” (FIN 48). FIN 48 prescribes a recognition threshold
and measurement attribute for financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return, and also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company does not expect that
the adoption of FIN 48 will have an impact on the Company’s financial position
and results of operations.
THREE
MONTHS ENDED MAY 31, 2006 COMPARED TO THREE MONTHS ENDED MAY 31,
2005
Revenue
Revenue
for the three months ended May 31, 2006 and 2005 was $142,000 and $137,000,
respectively. The increase of approximately $4,000 was due to increased revenue
from discount card sales and was partially offset by a decrease in audiological
services from $124,000 in the three months ended May 31, 2005 to $114,000 in
the
three months ended May 31, 2006. This decrease in audiological sales is due
to
that we have discontinued the servicing of nursing homes.
Cost
of sales
Cost
of
sales was $121,000 and $115,000, in the three months ended May 31, 2006 and
2005, respectively. The cost of sales for audiological services increased from
$105,000 to $109,000 despite a slight decrease in revenue. The increase was
mainly due to increased cost of products, which we were unable to pass on to
our
customers, resulting in a slight erosion in our overall margins from 16.1%
in
the three months ended May 31, 2005 to 14.9% for the same period in
2005.
As
a
percent of revenue the cost of products increased from 33.1% to 48.4% in the
three months ended May 31, 2006 and 2005, respectively,, while direct labor
and
commission as a percent of revenue decreased from 59.5% to 47.4% in the three
months ended May 31, 2005 and 2006, respectively. Gross margins on discount
card
sales increased from 11.2% to 58.6%, for the same periods.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses ("SG&A expenses") were $75,000 and
$150,000 for the three months ended May 31, 2006 and 2005, respectively, a
reduction of $75,000, or 50%. Approximately $65,000 of the decrease was a result
of the disposal of the CNS operation, which was sold in the end of calendar
year
2005.
Professional
fees were also diminished from $92,000 in the three months ended May 31, 2005
as
compared to $39,000 for the same period in 2006, due to reduced payments for
consultants raising financing, legal and accounting fees. As a percentage of
revenue, SG&A expenses decreased from 176.1% to 80.8%.
Other
income
(expense)
Other
income
include
a gain of $582,000
on
derivative liabilities from the outstanding warrants and convertible
debentures,
due to
the decrease in the Company’s share price during the first quarter of fiscal
2007..
Interest expense increased from $3,000 to $83,000
as
new financing was put in place after May 31, 2005.
Liquidity
and Capital Resources
We
incurred significant operating losses in recent years which resulted in severe
cash flow problems that negatively impacted our ability to conduct our business
as structured and ultimately caused us to become and remain insolvent. We
believe that our audiology business should generate sufficient working capital
to finance its current operations at existing levels of revenue. However, we
do
not believe that current cash generated by the audiology business is sufficient
to expand its scope of business activities. In addition, current liabilities
exceed our current assets, and as such, there is no assurance that we will
be
able to continue to conduct business without further financing. There exists
also the possibility that some of the warrant holders may decide to exercise
their warrants which would generate a substantial amount of additional
financing.
We
estimate that in order for us to achieve our marketing goals successfully for
our Solution Card and its other related products we will require between
$750,000 and $1,500,000 of additional capital. Management will need to seek
external sources of financing in order to support any such expansion plans
as
the anticipated cash flows from the sale of our cards will not be sufficient
to
support any expansion plans. If we fail to do so, our growth will continue
to be
curtailed and we will concentrate on increasing the volume and profitability
of
our existing outlets, using any surplus cash flow from operations to expand
our
business as quickly as such resources will support.
We
believe we will be able to raise a minimum of $500,000 through the sales of
our
securities and we will be able to establish credit lines that will further
enhance our ability to finance the expansion of our business. There can be
no
assurance that we will be able to obtain outside financing on a debt or equity
basis on favorable terms, if at all. In the event that there is a failure in
any
of the finance-related contingencies described above, the funds available to
us
may not be sufficient to cover the costs of our operations, capital expenditures
and anticipated growth during the next twelve months.
We
believe that our success will be largely dependent upon our ability to raise
capital and then use such funds to:
•
|
expand
our marketing presence to other municipalities, charitable organizations,
unions, fraternal organizations, religious organizations and other
large
employer groups;
|
•
|
cover
the costs of production and distribution of the additional
5,000,000-750,000,000 cards we anticipate will be sold and or distributed
in the next 12-18 months;
|
•
|
hire
additional marketing, administrative and service personnel;
and
|
|
•
|
increase
awareness of our medical discount cards at various trade
shows.
|
|
On
June 1
and August 1, 2005, we issued convertible debentures in the amounts of $200,000
and $50,000, respectively. The debentures have a term of five years and are
convertible 20% per year to common stock of our company. The conversion rates
are $0.50, $0.75, $0.75, $1.00 and $1.00, for the respective tranches that
are
convertible each year. Interest due may be paid in cash or in shares at the
option of the debenture holder. The debt instruments are currently in default
as
we have not made the required interest payments. The lender cannot accelerate
the due date on the debt.
On
August
19, 2005, we entered into a consulting and financing agreement with
Comprehensive Associates, LLC, a private investment group, pursuant to which
we
received $217,000 net of legal expenses and other related fees, in
consideration for the issuance of two separate convertible debentures of $35,000
and $200,000, which are convertible at $.25 per share. In addition, we entered
into an agreement to issue warrants which could raise an additional $2,665,000,
if and when, the warrants are exercised. Under the consulting agreement, the
investors received warrants to purchase 5 million shares at $0.25 per share.
On
September 29, 2005, Comprehensive Associates, LLC loaned us $28,000 to be
utilized for the printing of cards. Our agreement calls for revenue sharing
on
all of the cards printed as a result of the utilization of these funds, as
well
as a nominal rate of interest on the loan. We
did
not make the required payments of interest, which were due after 90 days. In
addition, we do not have sufficient authorized shares to meet the potential
conversion obligation and we did not file a required registration statement,
therefore, we are in default of the loan. As a result of the default, the loan
is due and payable, although the lender has not issued a demand for payment
of
the debt.
On
September 20, 2005, we entered into a term sheet with Westor Capital Croup,
Inc.
On November 28, 2005, Westor raised a total of $145,000; shortly thereafter
the
agreement with Westor Capital was terminated. Pursuant to the term sheet with
Westor, we were required to file an SB-2 registration statement by January
15,
2006, which was not completed. We therefore are in breach of this agreement.
In
addition, pursuant to our original funding agreement and subsequent redemption
agreement with Comprehensive Associates, LLC we were also required to file
a
registration statement, and therefore we are also in breach of this
agreement.
The loan
is, due to the default, due and payable. The lender has not issued a demand
for
payment of the debt.
As
of May
31, 2006, our liquidity and capital resources included cash and cash equivalents
of $53,000 compared to $46,000 at the beginning of the fiscal year. The $7,000
increase in total cash and cash equivalents from February 28, 2006 to May 31,
2006, was mainly due to the issue of debentures, partially offset by cash used
by operating activities.
Cash
used
in operating activities totaled $83,000 in fiscal 2006 due to continued losses.
The cash used in operations for the same period in the prior year was $203,000.
The reduction in 2006 was mainly due to diminished losses.
Net
cash
provided by financing activities in fiscal 2006 totaled $89,000, mainly from
issuance of debentures of $75,000.
We
have
total liabilities of $1.6
million
and assets of $142,000. Without new financing, we will be forced to liquidate
our businesses. Management is currently working diligently on raising new
financing.
The
following table provides a summary of the amounts due for our long-term
contractual obligations by fiscal year:
|
|
Total
|
|
2007
|
|
2008
to 2009
|
|
2010
to 2011
|
|
2012
and beyond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
debentures
|
|
$
|
250,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
250,000
|
|
$
|
-
|
|
Debt
discount
|
|
|
(128,040
|
)
|
|
-
|
|
|
-
|
|
|
(128,040
|
)
|
|
-
|
|
Total
|
|
$
|
121,960
|
|
$
|
-
|
|
$
|
-
|
|
$
|
121,960
|
|
$
|
-
|
|
Related
Party Transactions
In
May,
2006, the Company issued 52,586 shares to John Treglia, the Company's CEO,
in
compensation for services. During the quarterly period ended May 31, 2006,
Mr.
Treglia lent the Company an additional $14,495 for working capital and the
total
outstanding debt is $110,321 at May 31, 2006. The loan does not accrue interest
and has no fixed repayment date.
Subsequent
Events
As
par of
our new marketing program we have implemented in June and July several contracts
which call for each organization to market our dental vision card as well as
distributing our prescription discount card. These contracts call for each
organization to be charged a wholesale price for our various medical care
discount cards. The organization pays us a net price at which time the cards
are
issued. We incur no costs for billing the cards, once we are paid an annual
fee
the card is sent to the member.
In
June
2005 we entered into an agreement with the Outlook Group, Inc. based in Forest
Hills, NY. This contract was implemented in June of 2006. At the time the
original contract was signed management anticipated that organizations
represented by Outlook would be excellent venues for the distribution of our
prescription discount cards. We have subsequently agreed with each of these
organizations that will be marketing our various medical discount cards to
their
association members and their members’ employees. Some of these organizations
include: Empire State Restaurant and Tavern Association, Long Island Gas
Retailers Association, Health People, and Suffolk County Restaurant and Tavern
Association.
We
also
signed and implemented a contract with Bronx Manhattan Realtors Association
who
is marketing our cards in the same manner as outlined above. No card is issued
until we receive our annual fee for that particular medical care discount
card.
On
July
1, 2006 we signed a contract with Insurance Resources Group, LLC (“IRG”). IRG
markets defined benefit health insurance plans. IRG will be purchasing our
gold
card which includes discounts on prescription drugs, dental care, vision care,
eye ware, hearing care, alternative and preventative health, chiropractic,
diabetic care, 24 hour ask a nurse hotline, physical therapy and health club
memberships. Our enhanced Gold Card will be included in every Defined Benefit
Health Insurance Plan that is sold by IRG.
Item
3. Controls
and Procedures
Evaluation
of disclosure controls and procedures
Our
Chief
Executive Officer and Chief Financial Officer (collectively the “Certifying
Officer”) maintains a system of disclosure controls and procedures that is
designed to provide reasonable assurance that information, which is required
to
be disclosed, is accumulated and communicated to management timely. The
Certifying Officer has concluded that the disclosure controls and procedures
are
not effective at the “reasonable assurance” level. Under the supervision and
with the participation of management, as of the end of the period covered by
this report, the Certifying Officer evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Exchange Act of 1934). Furthermore, the
Certifying Officer concluded that our disclosure controls and procedures in
place were not designed to ensure that information required to be disclosed
by
us, including our consolidated subsidiaries, in reports that we file or submit
under the Exchange Act is (i) recorded, processed, summarized and reported
on a
timely basis in accordance with applicable Commission rules and regulations;
and
(ii) accumulated and communicated to our management, including our Certifying
Officer and other persons that perform similar functions, if any, to allow
us to
make timely decisions regarding required disclosure in our periodic filings.
Changes
in internal controls
We
have
made changes to our internal controls or procedures during
the
first quarter of 2006. We have employed an independent outside consultant to
assist us in identifying some deficiencies and material weaknesses and other
factors that could materially affect these controls or procedures, and
therefore, corrective action is being taken to mitigate these weaknesses in
controls and procedures.
PART
II — OTHER INFORMATION
Item
1. Legal
Proceedings.
There
are
no material legal proceedings pending against us.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds.
Not
applicable
Item
3. Defaults
upon Senior
Securities.
The
Company is in default on its obligations for convertible debentures and notes.
The default is due to non-payment of interest on the debt and not having enough
authorized shares for all the Company’s commitments to issue shares for warrant
and other convertible instruments. Total debt that has been accelerated is
$380,000, plus interest.
Item
4. Submission
of Matters to a Vote of Security Holders.
Not
applicable.
Item
5. Other
Information.
Not
applicable.
Item
6. Exhibits
31.1 Section
302 Certification of Certifying Officer
32.1 Section
906 Certification
of Certifying Officer
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC.
|
By:/s/
John H. Treglia
|
JOHN
H. TREGLIA
|
|
Chief
Executive Officer and
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
Dated:
September
,
2006