Amendment No. 2 to 2006 Annual Year End Report
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
________________________
AMENDMENT
NO.
2 TO
FORM 10-KSB
________________________
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES
EXCHANGE
ACT OF 1934
For
the fiscal year ended February 28, 2006
Commission
File Number: 003-08955
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
58-0962699
|
(State
of other jurisdiction of
incorporation
or organization)
|
(IRS
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
Address, since last report)
Securities
registered pursuant to Section 12(g) of the Act:
|
Common
Stock,
|
|
$.10
par value
|
|
Name
of
each exchange on which registered. NASD OTC Bulletin Board
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 twelve 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. |X| YES |_| NO
The
aggregate market value of the outstanding Common Stock of the registrant held
by
non-affiliates of the registrant as of June 13, 2006, based on the average
bid
and asked price of the Common Stock on the NASD OTC Bulletin Board on said
date
was $1,112,535.
As
of
June 13, 2006, the Registrant had outstanding 15,365,598 shares of common
stock.
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC.
TABLE
OF CONTENTS
Explanatory
Note:
This
Annual Report on Form 10-KSB/A is being filed as Amendment Number 2
to our
Annual Report on Form 10-KSB which was originally filed with the Securities
and
Exchange Commission (“SEC”) on June 13, 2006
and
amended on August 4, 2006.
We are
filing this Form
10-KSB/A
to re-order
the Items in conformity with the rules for Form 10-KSB, and make corresponding
changes in the table of contents. In addition, this Form 10-KSB/A is being
filed
to restate
our
financial statements for the fiscal year ended February 28, 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 liabilities
between short
and
long
term
The
accompanying financial statements for the two fiscal years in the period ended
February 28, 2006 have been restated to effect the changes described above.
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-KSB/A as Exhibits 31.1,
and
32.1.
For
the
convenience of the reader, this Form 10-KSB/A sets forth the entire Form
10-KSB,
which was prepared and relates to the Company as of February 28, 2006. However,
this Form 10-KSB/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 February 28, 2006 Form 10-KSB. Accordingly, except for the
foregoing amended information, this Form 10-KSB/A continues to speak as of
June
13, 2006 (the original filing date of the February 28, 2006 Form 10-KSB),
and
does not reflect events occurring after the filing of our February 28, 2006
Form
10-KSB and does not modify or update those disclosures affected by subsequent
events. Forward looking statements made in the 2006 Form 10-KSB 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-KSB/A not affected by such current restatements is unchanged and reflects
the
disclosures made at the time of the original filing.
PART
I
|
Page
#
|
|
|
Business
|
1
|
Properties
|
14
|
Legal
Proceedings
|
15
|
Submission
of Matters to a Vote of Security Holders
|
15
|
|
|
PART
II
|
|
|
|
Market
for Registrant’s
Common Equity, Related Stockholder
|
|
Matters
and Issuer Purchases of Equity Securities
|
II-1
|
Management’s
Discussion and Analysis of Financial
Condition and
|
|
Results
of Operations
|
II-1
|
|
|
Financial
Statements and Supplementary Data
|
F-1
|
Changes
in Disagreements with Accountants on Accounting and
|
|
Financial
Disclosures
|
16
|
Controls
and Procedures
|
16
|
|
|
PART
III
|
|
|
|
Directors
and Executive Officers of the Registrant
|
III-1
|
Executive
Compensation
|
III-1
|
Security
Ownership of Certain Beneficial Owners and Management
|
III-2
|
Certain
Relationships and Related Transactions
|
III-3
|
Exhibits
|
III-4
|
Principal
Accountant Fees and Services
|
III-4
|
|
|
|
|
CERTIFICATIONS
|
|
ITEM
1. BUSINESS
The
Company
Directly,
and indirectly through our subsidiaries, Accutone Inc. and Interstate Hearing
Aid Service Inc., we are in the business of audiological services. Both
subsidiaries changed the focus of their marketing 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 and marketing of these services and
competing with organizations with stronger capital availability is becoming
more
difficult. As a result management decided to identify additional business
opportunities for substantial growth in various portions of the medical
industry. Based on marketing research, management redirected its focus towards
the 44 million plus uninsured and underinsured people throughout the United
States.
A
major
portion of our net sales were 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 audiological service revenue has represented
reimbursement 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 recognized
a
shorter time of reimbursement from 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 30% of our reimbursements, will continue to take 60 to 90 days
to
be realized. Currently, sales generated from our prescription discount cards
as
well as the sales of dental/vision and gold cards have not yet reached
management’s expectations.
Management
had anticipated a growth in revenue resulting from the prior acquisition of
the
audiology practice of Park Avenue. This did not come to fruition. We believe
that this was caused in part by our inability to attract additional audiologists
on a timely basis and insufficient working capital. Also the decreases in
reimbursement rates from both Medicare and Medicaid impacted the amounts of
revenue received. To counteract these reductions, management began new
marketing efforts with the nursing homes currently contracted with us as a
result of the agreement with Park Avenue as well as additional facilities who
we
believed would avail themselves of our audiological services. The contract
and
its addendum called for the nursing home to pay us directly at hourly rates
for
the testing of their residents. Although we received positive feedback to the
new contract we could not determine that this contract would be profitable
in
the future. Therefore, we made the decision in February 2006 to no longer
service nursing home patients on site.
In
addition to the revenue we currently generate from our audiological services,
management believes that revenue will increase in future periods as a result
of
increased distribution and marketing of our medical discount cards as set forth
herein.
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 275,000 restricted shares of our
common stock to the CNS shareholders. Pursuant to the Agreement, CNS became
our
wholly owned subsidiary. Based on 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 full
advantage of the opportunity to become a major player providing access to
discounted health care provider networks and services.
Medical
Discount Card Product and Marketing
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 the 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. 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 sales, revenue or profitability we anticipated at the time CNS
was
acquired, we made the decision to divest our interest in this entity in order
to
significantly lower our operating expenses by eliminating the costs of
maintaining the CNS operations which generated only minimal revenue.
In
November, 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”). Although the agreement closed in November 2005 and all
business and relationships ended at such time, the agreement was effective
on
December 15, 2005. 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
employments agreement no longer justified the potential benefits to us, when
and
if, CNS commences generating projected revenue. Although the 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, by review
of potential revenue and continuing escalating expenses management determined
that it could not adequately fund these operations until the anticipated revenue
to be generated between June and September 2006 would be achieved. Although
this
transaction will negatively impact our balance sheet to the extent of the
original purchase as well as in excess of $300,000 loaned to cover ongoing
expenses, we still firmly believe that removing an additional burden of
approximately $15,000-$18,000 a month from our cash flow would benefit us in
the
long run. 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.
During
the last twelve months we have continued to expand our product line and
marketing efforts 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 its
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.
We
now
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. 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. 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 substantial discounts in 16
areas of health care services including physician visits, hospital stays,
pharmacy, dental, vision, patient advocacy and alternative medicine among
others. The company offers third-party organizations self-branded or
private-label healthcare discount savings programs through its 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. Alliance HealthCard, Inc. is based in Norcross, GA
and
its website is www.alliancehealthcare.com.
In
February 2005, Comprehensive Healthcare Solution, Inc. and Alliance HealthCard,
Inc. as part of the joint marketing agreement, 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
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. A recent U.S. Census bureau survey reported
that
approximately 44.3 million Americans do not have health insurance
coverage.
This
contract brings to FICIS its packaging of health care discount arrangements
through premier preferred provider networks. As a result of Alliance
HealthCard’s combined successful 6 years experience in packaging discount
programs, FICIS has chosen to integrate these capabilities into their offering
of health benefit services to the Cendant Group of companies as well as other
FICIS clients via its contract with Comprehensive/Alliance. A preliminary
offering of discount card products took place during February 2005 at the
Cendant Real Estate Services conference that included all of the Cendant
franchise real estate agencies including Cendant Mobility, Cendant Mortgage,
Cendant Settlement Services, Coldwell Banker Commercial, ERA, NRT and Century
21
agencies. The above agencies represent over 500,000 franchisees, sales
associates and employees.
Management
expected these venues to begin to generate revenue by the quarter ending August
30, 2005. Although some revenue have already been generated as a result of
this
relationship, the full extent of the benefit of these organizations having
our
discount cards have yet to meet our anticipated revenue stream. This was a
result of the cards not being printed and distributed by FICIS as originally
intended. 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 mail of over 500,000 prescription discount cards to three of
the
Cendant Real Estate Franchisees: Coldwell Banker, Century 21 and ERA which
was
undertaken by the end of January 2006. Each card is private labeled with the
logo of each franchise as a “Choice RX” prescription discount card. Although the
500,000 cards were mailed to the franchisees, the number of cards actually
placed into the hands of sales representatives of each franchisee will take
between 6-9 months before the majority of the cards are distributed. Although
we
have generated some revenue, we believe that we will begin to realize expanded
revenue from these cards by the end of the current year.
Prescription
Discount Cards
We
will
derive revenue from the distribution and utilization of our prescription
discount card as well as those private labeled for the 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 85% of the prescription drugs utilized.
Management believes that between 5% and 8% 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. This utilization estimate
is
based on the demographics on the areas where we are focusing our marketing
and
distribution efforts. These demographics include municipalities and charitable
foundations with high percentages of uninsured and underinsured populations.
Most of the cards already distributed have no expiration date and therefore
the
revenue will be ongoing in the future. 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.
Although
we do not sell insured plans the discounts realized by its 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%.
Prior
marketing efforts resulted in management recognizing the need to have strong,
structured and defined working relationships with organizations experienced
in
the sales, distribution and administration of membership healthcare discount
savings programs. Additionally, management recognized the need for structured
and defined access agreements with quality healthcare professionals through
national preferred provider organizations. These requirements were the prime
moving forces in the Company arranging its joint marketing agreement with
Alliance HealthCard, Inc.
We
believe that these marketing agreements will add to our revenue and potential
profitability. These agreements allow us to develop product pricing unique
to
the healthcare discount savings market. We believe that these agreements are
positive steps but cannot guarantee that the results of these efforts will
succeed.
Our
expectations are that the joint marketing agreement with Alliance HealthCard,
Inc. combined with the accelerated marketing of the medical health care discount
cards will add to both the Company’s revenue and profitability. It should be
noted that the expenses related to the sales and marketing of these discount
cards have utilized and will continue to utilize a major portion of any
additional working capital realized to date. We cannot guarantee that our
discount cards will achieve the required sales volume to generate anticipate
profitability.
Municipalities
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. As a result of the county’s inability to
adequately disseminate these cards to its residents, we met with the county
officials to reformulate a more reliable method of distribution. The original
plan called for the county to distribute cards to various municipal officers
within the county for distribution to the local residents. This was accomplished
but not to the degree of distribution originally anticipated. As part of the
revised plan, the county agreed to mail these cards to its residents utilizing
a
mailing list provided by us to the county. The mailing list provided was broken
down demographically to residents 40-90 years old with incomes of $15,000 or
more annually. This program was anticipated to begin in late January 2006 with
the direct mailing of approximately 70,000 cards to county households which
we
believed would cover a major percentage of the 300,000 plus county residents.
The county did not begin the mailing until the beginning of March 2006. The
county has also provided its residents access to card utilization information
including a list of providers as well as phone contact information on its
website at www.luzernecounty.org. The county will be redesigning and adding
to
the website a list of locations where the Luzerne county private labeled
prescription discount cards may be picked up by residents. We believe that
this
joint effort by us and the county will help to ensure that the Luzerne county
discount cards will be distributed in simple and efficient manner for county
households to receive and utilize the cards. It was our intention to reinforce
this distribution program with newspaper ads and promotional assistance from
the
county. Capital constraints have delayed this promotional program. We believe
that when this occurs it will greatly assist in any increase revenue streams
from utilization of these cards since the demographic statistics from Luzerne
county are that they are approximately 26-30% of the residents uninsured and
an
additional 10-12% either underinsured or with no prescription drug
benefits.
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. The Company initially printed 350,000 of the Lehigh
County’s private labeled prescription discount cards at the county’s request,
and the cards were delivered to the county on August 15, 2005. The initial
distribution commenced at the Lehigh County Fair on August 30, 2005 with a
press
conference and kick-off including the county adding information about the
discount cards on its website at www.lehighcounty.org.
The
website now includes information regarding utilization, provider look up,
telephone contact information, and a list of the sites where the card can be
picked up in person by its residents. The county had also indicated that it
had
invited approximately 35 organizations within the county to participate in
making available the prescription discount cards. Some of these organizations
included the Lehigh County Medical Society, Lehigh County Aging/Adult Services
Offices, Lehigh County Human Resources Offices as well as other service and
religious organizations throughout the county. The county indicated that it
would be in the
best
interest of its residents, the county, and us to use all efforts to distribute
as many cards as soon as possible. A substantial portion of this distribution
took place in the months of October and November 2005. Currently, the county
has
distributed its private labeled prescription discount cards to approximately
280
locations for residents to be able to pick up the Lehigh county private labeled
prescription discount cards. The card has begun to be utilized and the number
of
cards being utilized on a monthly basis continues to increase. Although we
anticipated this utilization to increase we commenced discussions with the
county to supplement distribution via a direct mailing to all county households.
We anticipated that the direct mail program would begin in February 2006 but
capital constraints delayed this distribution. ER purchased a mailing list
of
70,000 residents and one mailing was done by the county. We are beginning to
recognize some of the benefits of this mailing and anticipate that it will
continue to increase. There can be no assurances that any increase will be
material.
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. We
were notified by the county commissioners that a distribution of the discount
cards throughout the county to its municipal offices, county aging and adult
services offices, human resource offices, religious organizations, and other
venues would begin in late October 2005. The actual distribution did not begin
until mid-December 2005. In order to help insure distribution to each household
we intended to implement a direct mail program with the cooperation of the
county. This program has not yet been accomplished with the county but we are
currently working toward that end with county officials. The county has also
included information about the utilization of these cards, provider lookup,
sites where the cards are available and telephone contact information on its
website at www.carboncounty.com/services.htm.
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. The county commissioners have also indicated
to
us that they would arrange a press conference including television and newspaper
coverage of the delivery of the cards to aid in the notification to its
residents of the cards availability and of the places of distribution. This
planned distribution did not take place and the cards were not printed. Similar
to our experiences in Carbon County, we faced difficulty in coordinating
distribution of the cards during county elections as well as the planning of
year-end fiscal requirements for the new year by county officials. We worked
with the prior and continued to work with new county administrators in the
first
two weeks of January and cards are currently ordered and would be printed for
anticipated delivery by the middle of February 2006. We also anticipate using
the county’s network of distribution as well as direct mail programs to all
county households as we are trying to do in other counties. The county’s website
is currently being reconstructed and designed to allow for provider lookup,
utilization information, telephone contact information and sites where the
cards
are available for pick up. We are currently working with the county to this
end.
As
with
many of the municipalities, both elected officials, appointed county officials
and municipal employees were involved in campaigning for November elections
and
in many instances a revision of the base of elected officials hampered decisions
being made within the time frames originally prescribed. We are currently
realizing a minimal revenue stream resulting from the cards successfully
distributed and anticipate that additional cards will be distributed during
January and February 2006 to residents of all of the counties set forth
above.
We
have
previously disclosed that we have made presentations regarding our prescription
discount cards to approximately eight 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
have not finalized contracts with these counties. Most counties continue to
express interest in proceeding. We will continue to negotiate with these
counties during 2006 and believe that we can be successful in signing contracts
with some of the following counties and municipalities in Pennsylvania and
New
York. The efforts to negotiate with these additional counties have been delayed
as our management has had to focus on its current contracts and raising
funds.
Other
Contracts
On
October 5, 2005, we signed a contract with A-1 Printing of Brooklyn, NY. A-1
Printing, one of the largest privately owned producers of prepaid telephone
cards and prints approximately 100 million such cards per year. The agreement
authorizes A-1Printing to attach our discount prescription card -- as a free
gift -- to approximately 10 million prepaid telephone cards distributed
throughout the United States. There will be no charge or cost to us for printing
and distribution and the contract calls for revenue sharing between us and
A-1.
The majority of prepaid telephone cards sold are used by people residing in
the
United States who still have family and friends in their countries of origin.
A-1 Printing currently produces prepaid phone cards in a variety of foreign
languages, marketing to individuals from such areas as Latin America, India,
Pakistan, the Caribbean, and various other countries. A-1 began implementing
this contract in November 2005 and to date has printed and distributed
approximately 250,000 discount cards as part of their prepaid telephone card
program. Although we do not believe that this program will materially impact
our
revenue stream and profitability at the current time it is our belief that
as a
larger number of cards are printed and distributed that additional revenue
will
be recognized although not at the same utilization rate as other current
distribution venues.
On
November 15, 2005, we signed a contract with Follieri Group LLC (www.thefollierigroup.com)
which
is a consultant for the Catholic Church in North America. This contract will
allow us to distribute customized private labeled prescription discount cards,
through The Follieri Foundation, to the approximately 67+ million parishioners
of the many archdioceses throughout the United States. Through this
relationship, we anticipated a potential distribution of in excess of 5 million
cards to parishioners over a 12 month period. These distribution efforts have
goals were not met by the Follieri foundation. Management has been in constant
communication with the foundation and has assisted them in methods to accelerate
the card distributions in the areas where they are most needed throughout the
United States. We believe this is a temporary setback we are still comfortable
that a substantial number of cards will be distributed by the end of 2006.
The
Follieri Foundation is responsible for providing funds and guidance to projects
such as senior housing and day care centers. We intend to commence our
distribution with the archdioceses of Louisiana, Mississippi, Alabama and other
regions impacted by the recent natural disasters, as well as other heavily
populated metropolitan areas. We believe that this relationship should result
in
the distribution of millions more of our prescription discount cards to
parishioners throughout the United States over the next few years.
Through
the Follieri Foundation, in January 2006, we met along with the director of
this
program for the Follieri Foundation the administrators of the following five
organizations located in Louisiana:
1.
|
Catholic
Community Services which is the Catholic charities agency of the
Diocese
of Baton Rouge;
|
2.
|
Covenant
House of New Orleans;
|
|
3.
|
Archdiocese
of Baton Rouge Development Organization;
|
|
4.
|
Archdiocese
Development Organization; and
|
|
5.
|
Louisiana
Knights of Columbus.
|
|
|
|
|
|
|
|
The
purpose of these meetings was to determine the needs of the members of each
these organizations and the most efficient and expedient methods of distributing
the Follieri discount prescription card to as many of these participants as
possible within a short period of time. The need for the Follieri prescription
discount cards has been exacerbated by the natural disasters in the area in
the
last six months. We have not yet calculated the approximate number of cards
that
will be distributed with these organizations but the Follieri Foundation intends
to begin to determine a method to distribute these cards in an attempt to have
them delivered to as many people as possible by the end of July 2006. In order
to accommodate the Foundation need we have ordered and delivered an initial
printing of 300,000 Follieri Foundation private label prescription discount
cards.
In
February 2006 we signed a contract with National Income Life Insurance Company
(NILICO) to distribute our Dental, Vision, Hearing and Prescription benefit
discount cards to NILICO’s licensed insurance agents throughout New York State.
NILICO
is
a wholly owned subsidiary of American Income Life Insurance Company which is
a
50 plus year old company, licensed in 49 states as well as the District of
Columbia, Canada and New Zealand, and is nationally recognized as one of the
significant carriers of supplemental insurance in North America. American Income
Life is a
wholly
owed subsidiary of Torchmark Corporation, (NYSE:TMK) a company specializing
in
life and supplemental health insurance, whose total assets exceed $12.8
billion.
Background
Significant
market changes have occurred over the past two years that creates an
advantageous environment for new health care financing initiatives in all three
major commercial markets - Employee Benefits, Individual Health Benefits and
Workers’ Compensation. These changes present the opportunity for traditional and
complimentary medicine to increase their collaboration coupled with innovative
consumer choice and defined contribution products which management believes
are
the foundation of the existing and revised business strategy and
plans.
As
the
cost of health care has begun to increase in double digits again, employers,
health insurers and the uninsured are all searching for alternatives to
traditional health insurance, health plans and HMO’s. Initial efforts in the
market have focused on medical savings plans and defined contribution
alternatives. This is leading to the logical consumer focused alternative of
limited indemnity reimbursement plans coupled with discounted networks of
preferred providers. Historically consumers, employers and health issuers
focused on choosing the insurance plan that met their anticipated financial
needs and then concerned themselves with what health care providers they could
access. The move toward consumer choice requires the benefit purchaser, now
the
individual with either their own or their employers fixed dollar amount to
spend, to choose the health care providers they want to access and then choose
the financing arrangement that best meets their individual needs. For all
segments of the benefit market, this shift of purchase priority means that
consumers are demanding a broad array of health care providers including
complimentary and alternative care.
Our
current goal is to provide high quality consumer choice and defined contribution
healthcare benefits for employees and uninsured and underinsured individuals
while continuing development of evidence based disease management program for
musculoskeletal conditions of the back, neck and upper extremity.
We
are
focused on those marketing health care benefits that will meet the real
perceived health care needs of consumers, enabling these prospective clients
to
choose appropriate providers and financial arrangements that best meet their
individual needs. Complete development and market implementation of a high
quality musculoskeletal disease management program for target markets with
directed care of workers’ compensation cases.
Product
Strategy
Background:
For
the
past 25 years, cost and quality management of health care insurance and employee
benefit plans have depended on strategies that have produced neither of the
outcomes they were designed to accomplish improved patient outcomes and costs
with customer satisfaction. In various forms, the health care system has morphed
into competing organizations commonly referred to as “managed care” plans. These
plans have competed on the basis of pure costs by contracting with health care
providers at the lowest reimbursement possible and then restricting how these
providers deliver care. That approach has resulted in significant conflict
between the provider and the plan. The consumer, the patient, has become the
victim of this conflict. And since the conflict has not resulted in lower costs,
the plans have “shifted” more costs to the patient in the form of higher
deductibles and co-payments when they access the systems for care. As the cost
shift has increased, the employers who sponsor and pay the cost of the plans
have begun to move toward defined contribution financing and encouraging their
plan members to make consumer choices about the kind of health care they
individually want to purchase. Consumers have at the same time begun to demand
more control over their choices of health care since they are now paying more
of
the actual cost of care.
The
individual health insurance market has continued to shrink as the premium costs
of traditional comprehensive health insurance has become impossible for the
average self employed or contract employee. These self employed and contract
employees were the traditional purchasers of individual health insurance and
now
they are becoming uninsured. Consumer choice benefits with discounted medical
savings cards is an answer to these uninsured or as a less expensive alternative
to those currently insured but having difficulty meeting the increased premium
costs.
“The
Solution Card”™ has been designed to meet the needs that have resulted from
these factors. Our management has identified the need for a niche product to
fill this void and believes it can utilize the various medical care discount
cards in its product line to fill this void.
Products
for individuals:
For
the
individual insured, underinsured and uninsured, “The Solution Card”™ has
pre-packaged a series of benefits that bring together high quality health care
provider networks that can be purchased directly by the consumer. With the
purchase of the provider network access, the individual has the option of
purchasing a custom designed program of highly discounted medical services
and
products.
Private
label products for commercial customers:
For
employers, plan administrators, trade associations, municipalities and unions,
“The Solutions Card”™ through its vendor relationships is able to customize
these pre-packaged products to meet these prospective clients’ special needs.
This customization can include from a simple private labeling of the
pre-packaged products to designing a set of discounted benefits and
administration that would be unique to that client. This flexibility is a
significant differential in the market today and for the foreseeable
future.
Market
Strategy
Overview:
“The
Solution Card”™ is an innovative and exciting concept that allows individuals to
save a significant amount of money on their healthcare. A member will have
access to high quality medical networks of professionals and practitioners
throughout the United States. “The Solution Card”™ is not a substitute for
health insurance. It is a discounted healthcare program that allows for
substantial savings to members.
The
customized products currently being offered are targeted at commercial
purchasers; employers, plan administrators, trade associations, municipalities
and unions. Each of these markets requires their own marketing, sales and
administrative processes.
The
pre-packaged products as mentioned above require product communications that
are
easily understood, readily available, accessible through multiple outlets and
inexpensive to fulfill. The cornerstone of the marketing communication will
be
through a new member guide and enrollment package currently being developed
and
continually being modified so as to allow it fulfill the needs to any union,
trade organization, employer group or municipality. These products will be
available through our internal marketing staff, independent sales
representatives, as well as our website and thru targeted advertising media.
Attractive, pointed explanation of benefits, simple application form and pricing
immediately available are the advantage of these straight forward marketing
communication tools.
Administration
and Fulfillment of Medical Discount Cards
We
will
have the ability to access and utilize the existing customer fulfillment,
customer service and enrollment administrative capabilities of Alliance
HealthCard, Inc. In January 2005, we completed a joint marketing agreement
with
Alliance HealthCard. This agreement enabled us to significantly enhance our
capacity to customize our card products to meet the needs of major commercial
prospects and clients. It enabled both companies to expand their capabilities
in
the retail outlet markets. We brought to the joint venture access to large
group
purchasers headquartered in the Metro New York market that includes a Fortune
500 corporation, unions, associations, fraternal organizations and political
subdivisions. This market has significant need for medical discount cards with
benefits that can be custom designed to compliment existing health plans and
contract or part-time employees. Additionally, we have existing relationships
in
the retail market which can support an expansion of the market while Alliance
HealthCard has already existing large clients.
The
agreement opened new markets for Alliance through CMHS’ existing and potential
client relationships. Alliance HealthCard brought to the joint venture over
6
years of experience in the medical discount card business. The infrastructure
maintained by Alliance to design, fulfill and service large clients, eliminates
our need to develop
this
infrastructure at additional costs and utilizing additional capital. Alliance
is
uniquely qualified to handle and services large clients since its current
clients include CVS Pharmacy and State Farm Insurance which have both been
serviced for over three years. We will be able to utilize Alliance’s established
contracts with high quality provider networks allowing access to discounts
for
medical discount card membership.
Although
both companies continue to maintain their existing clients, they are offering
both their existing products and expanded customized products under the joint
marketing agreement. Both companies, through their key management staffs, retain
long term market relationships with the largest provider networks and health
related organizations providing discounts. These relationships enable the
companies to pool their resources to maximize value to new prospects and
existing clients. Pricing, costs and margins for these pre-packaged products
are
set but may change as the products are market accepted resulting in a higher
volume of sales. As the numbers of clients grow, the costs per client are
subject to renegotiation of administration costs which would have a positive
cash flow and profitability impact on the company’s margins.
Commercial
market:
Bringing
our products to the commercial market requires working through relationships
with employee benefit consultants, brokers and agents. Our management has
existing established relationships that will be the initial concentration of
marketing efforts while the intent is to market these products nationally.
The
sales cycle for the commercial market has historically been from 6 to 12 months
with new product introductions. Initial focus for these relationships will
be in
Connecticut, New York, New Jersey, Pennsylvania, Nebraska, Oklahoma and
Mississippi. As a result of contracts with Cendant and its franchisees our
cards
will be offered nationwide in these venues.
Pricing
for these commercial sales will be negotiated during the sales process. The
price, costs and margins for each sale may vary due to benefit selection,
service levels required and fulfillment desires of the client. During financial
negotiations, we will coordinate cost with Alliance to ensure that the customer,
the company and vendors are clear on the end product, service and
price.
Hearing
Aid Industry
Although
we continue to believe and are reinforced by nationwide statistics that hearing
loss is one of the most prevalent chronic health conditions in the United
States, and that its incidence is on the rise. Hearing loss occurs when there
is
damage to the auditory system, possibly caused by heredity, aging, noise
exposure, illness, trauma, and/or some medications. Some hearing loss is
temporary and/or can be corrected with medical or surgical treatment. Other
types of hearing loss can be effectively managed with hearing devices. Although
hearing loss traditionally has been considered an “old person’s” condition, in
several reports, the Better Hearing Institute reported that hearing loss is
becoming increasingly common among the “Baby Boomer” 40 to 65 year old segment
of the population. This is widely believed to be the result of extreme noise
exposure, possibly because of a history of excessive exposure to extremely
high
decibel rock-and-roll concerts and the widespread use of “walkman” type radios
(which produce a concentrated level of noise in extremely close proximity to
the
ear). The degree of hearing loss is often directly related to the amount of
exposure and the intensity of loud noise. However, damaging noise does not
necessarily have to result from extreme situations. Even cumulative exposure
to
everyday noises, such as the sounds of daily traffic, construction work, or
a
noisy office can contribute to hearing loss.
Hearing
loss can have serious implications, leading to communication disorders,
isolation, depression, cognitive dysfunction, and overall decline in quality
of
life. While hearing loss has historically been considered an effect of aging,
recently some government agencies, health care organizations and insurance
companies have begun increasing their scope of services and coverage’s to
include early interventions for children up to the age of 12. While a great
many
people suffering from hearing loss can be helped with the use of hearing aids,
a
survey by the National Council on the Aging (NCOA) indicated that older adults
with hearing impairments, who do not wear hearing aids, are more likely to
report sadness and depression, worry and anxiety, paranoia, diminished social
activity, and greater insecurity than those who wear aids. We believe that
the
products and technologies currently available are broad and varied and in most
instances can afford to the hearing impaired individual the amplification
necessary to afford them the ability to have improved hearing and enjoy a full
and normal lifestyle. In addition, we believe that these people could also
benefit from the use of other assisted listening devices, such as telephone
or
television amplifiers (see “Products”, below).
The
Future of the Industry
While
we
recognize that in the past and still today, many members of the public have
been
reluctant to use hearing aids, we believe that this industry can be expected
to
experience substantial and continuing growth during the coming decades.
Management recognizes our ability to take advantage of these increases and
that
we must have required additional capital and infrastructure to be successful.
As
a result of the increase in the early intervention area of audiology, many
health care organizations, managed care organizations and health care insurance
companies (including Medicaid) have begun to reimburse the costs of implementing
early intervention testing procedures in their reimbursement schedules. We
are
currently expanding our marketing efforts in the early intervention segment
of
our business, mainly through the efforts of John H. Treglia, our Chairman and
CEO.
Our
Sales
and Dispensing Offices
We
are
currently operating two hearing aid sales and audiological testing facilities.
These are retail sales and dispensing offices, which are located in medical
arts
buildings, independent office space in a professional type office building,
and,
in one case, on-site at a medical outpatient center. One of our retail offices
is located in Yonkers, New York and one is in Forty Fort,
Pennsylvania.
Our
Yonkers office and our Pennsylvania office are open and functioning on a full
time basis. Our Ludlow Street Yonkers office is staffed and supervised by a
full-time, licensed and certified audiologist and one full-time patient care
coordinator. Our Pennsylvania office operates on a full time basis and is
staffed by a state licensed hearing aid dispenser, as required by applicable
Pennsylvania law and at least one clerical employee.
Our
Yonkers New York sales and dispensing office is approximately 1,100 square
feet
in size. Our Yonkers office is fully equipped with:
•
|
soundproof
testing booths and state-of-the-art testing equipment that meets
or
exceeds all state standards; and
|
•
|
a
full range of diagnostic and auditory-vestibular tests that assist
referring physicians in the treatment of patients with hearing and
balance
disorders.
|
Existing
Contracts with Nursing Home Facilities
We
had
contracts with approximately forty two nursing homes for the establishment
of
on-site offices and our appointment as sole provider of audiological services
and products during the terms of the contracts. In the past we had aggressively
pursued contracts with new nursing home facilities (especially those that have
been made available to us pursuant to the needs of our association with Park
Avenue Medical Associates, PC as set forth herein). However, we curtailed these
efforts due to several issues. Both Medicare and Medicaid have greatly reduced
their benefits payments. The majority of nursing home residents are Medicare
and
Medicaid recipients. Management decided that utilizing capital to continue
to
services these residents was not a sound business decision. Therefore we have
cancelled all outside nursing home contracts resulting from the Park Avenue
Nursing Homes from the Park Avenue transaction set forth below.
Contract
with Park Avenue Health Care Management Inc.
On
February 15, 2002, we executed an agreement with Park Avenue Health Care
Management Inc. and its affiliate, Park Avenue Medical Associates, P.C.
(referred to herein, collectively, as “Park Avenue”), which closed on February
28, 2002. Pursuant to this agreement, Park Avenue contributed its entire
audiology business in consideration for the issuance of 1,200,000 of our shares
to Park Avenue. Park Avenue is a health care management organization which
services nursing homes, hospitals, assisted living facilities, adult day care
centers, adult homes, and senior outpatient clinics. Park Avenue directly
employs medical professional personnel, including physicians in both general
and
specialty practices and other health care professionals such as podiatrists,
audiologists, and optometrists. Due to deteriorating margins, and that we were
not able to achieve our planned cash flow goals, all operations in Park Avenue
locations were discontinued in February 2006.
Our
Services
We
provide all of our patients at our retail, nursing home, and out-patient clinic
sales and dispensing offices with comprehensive hearing care services consisting
of the following:
•
|
an
interview with one of our audiologists or patient care coordinators
respecting the hearing problems and all factors which may contribute
to or
cause such problems;
|
•
|
an
internal and external examination of the patient’s ear performed by one of
our audiologists;
|
•
|
an
initial hearing screening to establish a permanent base-line hearing
acuity and to determine whether the patient has a hearing
problem;
|
•
|
if
the initial screening indicates that there is a hearing problem,
the
audiologist will then perform additional testing and do a complete
audiological evaluation, including
|
•
|
air
conduction;
|
|
•
|
bone
conduction;
|
|
•
|
speech
recognition thresholds;
|
|
•
|
most
comfortable hearing level;
|
|
•
|
site
of lesion tests, if required; tymponometry;
|
|
•
|
acoustic
reflex testing; and acoustic reflex decay.
|
|
|
|
|
|
The
patient is then counseled with respect to the results of the audiological
testing and evaluation, the nature and extent of any hearing defects found,
the
possible effects of such hearing aids on the patient’s lifestyle, and the
options for treatment with a hearing aid; and if it is determined that a hearing
aid would be of benefit to the patient, an appropriate aid will be prescribed
and fitted; the fitting process will include taking impressions of the affected
ear or ears.
All
hearing aids that we prescribe are custom made for the individual patient.
Delivery is usually made within one week to ten days. When the patient receives
the hearing aid, the audiologist explains the properties and capabilities of
the
hearing aid, and demonstrates proper insertion, removal, maintenance techniques,
and the operation of all the features of the hearing aid. The patient is then
re-tested wearing the hearing aid to enable the audiologist to determine whether
the hearing aid is performing to prescribed standards and to evaluate the
benefit to the patient. After one week, the patient care coordinator will
contact the patient by telephone to discuss any problems or questions and to
schedule a follow-up appointment if the patient or the patient care coordinator
feels it is needed.
We
provide follow-up services including, where necessary, additional personal
contacts with the patient and/or the patient’s family, for the purpose of
monitoring and guiding the patient’s progress in successfully utilizing the
hearing aid and making all adjustments required insuring a successful outcome.
We also have a family hearing counseling program to help the patient and his
or
her family understand the proper use of their hearing products and the nature
of
their disability. These services are provided on an as needed basis as
determined by the licensed audiologists.
Early
Intervention Services
While
hearing loss has historically been considered an effect of aging, recently
health care professionals as well as some government agencies, healthcare
organizations and insurance companies have begun to increase their scope of
services and coverage’s to include early interventions for infants and children
up to the age of 16. The reason for the rise in early intervention is due to
the
fact that many organizations now believe that pediatric hearing impairment
may
be the cause, or part of the reason, for such disorders as Attention Deficit
Disorder, Dyslexia, disciplinary problems, educational underachievement and
dysfunctional behavior with a family setting, especially with siblings.
Unfortunately, many of these problems have been deemed to be caused by alcohol
and drug abuse by the child’s mother or other prenatal problems which were not
previously brought to light. We currently have referral contracts with and
provide audiological services to the following agencies:
•
|
First
Step Services, Inc.
|
|
•
|
Los
Ninos Community Services
|
|
•
|
Speech
and Communications Professionals
|
•
|
Project
Rainbow
|
|
•
|
Secundino
Services, Inc
|
|
•
|
Early
Achievers Services, Inc.*
|
|
•
|
Paxxon
Healthcare Services, LLC
|
|
|
|
|
|
*
We have negotiated to utilize space in the offices of Early Achievers, Inc.,
an
early intervention agency in White Plains, New York where we have installed
a
fully equipped audiological facility including sound proof booth. We
have
agreed to provide audiological early intervention services at a reduced rate
of
compensation in exchange for the use of the space as well as their continuing
to
refer all of their early intervention patients to our company.
Our
Products
All
hearing aids that we prescribe are custom made for the individual patient.
We
have selected a variety of major worldwide manufacturers’ products, to make
available through our offices, in order to provide the best possible hearing
aid
products for our patients. These include the latest digital technology available
from Magnatone, Siemens, Phonak, Sonotome, Lori/Unitron, United Hearing Systems,
and others. We are also able to make available, by special order, a large
selection of other hearing enhancement devices including telephone and
television amplifiers, telecaptioners and decoders, pocket talkers, specially
adapted telephones, alarm clocks, doorbells and fire alarms. The majority of
our
sales of hearing aids are through Medicaid patients for which we are reimbursed
only for the cost of the product and an examination and dispensing
fee.
Customers
To
date,
we continue to expand our patient referral base by securing our appointment
as
the potential sole provider of hearing aids and audiological services to
out-patient facilities, and adult group homes with which we have contractual
arrangements. We have also established relationships and have signed contacts
with other types of health care organizations, such as HMO’s and PPO’s. Our
affiliations with these types of health care organizations and facilities have
grown to the extent that our current capital structure has allowed.
Existing
Contracts with Health Care Providers and Third-Party
Payers
To
date
we have entered into contracts for the provision of audiological services with
an excess of sixty health care provider organizations, as well as third-party
payers such as Medicare and New York State Medicaid. We expect these additional
contracts to continue to grow as we progress. We believe that we currently
have
sufficient staff and facilities which are geographically accessible for all
participants in organizations which we have contracted with. In general, our
agreements with health insurance or managed care organizations provide for
services to be offered on three different bases, including:
1.
|
fee
for service basis based on a contractual rate which we offer to
provider’s members (all paid for by the patient);
and
|
2.
|
an
encounter basis where we are paid a fixed fee by the insurance or
managed
care organization for each hearing aid sold (with the balance paid
to us
by the individual member);
|
3.
|
a
special Medicare/Medicaid encounter basis where we are paid a fixed
fee by
Medicare and/or Medicaid for particular audiological services, at
a price
pre- established by Medicare or Medicaid (other than the “deductible”
amount, which is paid either by the patient or other third-party
payers).
|
Nursing
Homes
Approximately
fourteen nursing homes, assisted living facilities and adult daycare centers
currently provide out-patient referrals and transportation of their residents
to
our Ludlow Street office. We also provide very limited on-site testing and
evaluations within these nursing homes for residents who are disabled or infirm.
Existing
Referral Arrangements with Out-Patient Facilities
We
have
established relationships for referrals with four local out-patient facilities.
We had believed that patient referrals from these sources would continue to
grow
based upon the positive feedback we receive from these out-patient facilities,
but we have been unable to realize these goals.
Area
Hospitals
We
have
established relationships with five area hospitals that have been referring
patients to our Ludlow Street office. The hospitals with which we have
established patient referral relationships are:
1.
|
Saint
Josephs Medical Center South Yonkers, NY
|
2.
|
Yonkers
General Hospital South Yonkers, NY
|
|
3.
|
Montefiore
Medical Center Northeast Bronx, NY
|
|
4.
|
Westchester
Medical Center White Plains, NY
|
|
5.
|
Saint
Johns Medical Center
|
|
|
|
|
|
|
Physician
Referrals
Referrals
from physicians are generally based upon personal contacts and established
patient and physician satisfaction. We endeavor to maintain our relationships
with referring physicians by using a timely comprehensive medical reporting
system which provides each referring physician with a full audiological report
on each of their patients that visit our offices.
Payments
for Services
Our
customer base includes self-pay patients, patients whose costs are covered
by
Medicare or Medicaid, patients whose costs are covered by private health care
organizations; and patients whose costs are covered as union benefits). Treating
Medicare and Medicaid patients involves payment lag issues which are currently
problematic for us because of our current capital constraints. Current Medicare
and Medicaid payments for audiological services and hearing aids can take as
long as 60 to 120 days after approved services are provided and hearing aids
are
dispensed. An additional recent disadvantage to servicing Medicare and Medicaid
patients resulted from the cut in reimbursement rates from both agencies. In
order to assist us with the cash flow lag, we have been successful in obtaining
from some of our suppliers an extension of their normal payment term. We are
hopeful that if the current domestic economic conditions improve in the near
future, we will be able to put bank financing arrangements into place which
will
provide us with a credit line for working capital.
Sales
and Marketing
Recognizing
that there is still a vast untapped market of hearing impaired individuals,
we
intend to continue to attempt to expand our marketing efforts to include, on
a
more highly concentrated basis self-pay patient who had previously not been
our
principal customer base. These self pay customers should allow us to market
high
end hearing aids which would provide higher profit margins. Marketing to these
organizations and entities has consisted and for the near foreseeable future
solely of personal contacts by our CEO, John H. Treglia, with all of the types
of entities and organizations listed above.
Proposed
and Existing Advertising and Marketing Program
We
intend
to continue to try to bring our company and our services and products to the
attention of managed care providers, which can promote our products and services
to the hearing impaired, and to their participating members. We also intend
to
increase our marketing efforts to the self-pay, (uninsured patient) market
when
sufficient operating capital is made available. Our marketing plan contemplates
implementing an aggressive advertising and marketing program focused on both
of
these markets, highlighting the quality of our services and products, as well
as
competitive pricing. At present, all marketing to health care organizations
is
done by our CEO, John Treglia. Our marketing and advertising efforts have
been continually hindered by our capital constraints which have adversely
affected our originally projected higher gross profit percentages.
Business
Strategy - Audiological Services
Our
original business plan recognized that increasing the number of our sales
offices would make our services conveniently accessible to a greater number
of
participating members of health care organizations and other entities with
which
we have relationships or may establish relationships. Our original plan was
intended to couple such an increase in offices with an expansion of our patient
referral base. We expected this two-pronged approach to enable us to
substantially increase the volume and profitability of our business by further
concentrations on the private pay population. Although we intend to maintain
the
audiological services currently offered, our original expansion plans
for
this
segment of our business have been curtailed in order to focus our efforts and
capital on our Medicare discount Card operations.
Product
and Professional Liability
In
the
ordinary course of our business, we may be subject to product and professional
liability claims alleging the failure of, or adverse effects claimed to have
been caused by, products sold or services which we have provided. We maintain
insurance at a level which we believe to be adequate. Each of our licensed
audiologists is also required by state law to carry appropriate malpractice
liability insurance. All of our audiologists have furnished us, as well as
all
nursing homes, assisted living, adult day care, senior care, HMO’s, PPO’s and
other managed care organizations with whom we have contractual or other
relationships with copies of their insurance coverage certificates. As apart
of
this process we also keep records of all license and insurance anniversary
and/or effective dates to attempt to insure compliance. We believe that they
are
all in compliance with applicable federal and state requirements. Also included
as a part of compliance with the credentialing requirements, copies of all
educational degrees, certificates and licensing are appropriately maintained.
While we believe that it would be highly unlikely that a successful claim would
be in excess of the limits of our insurance policies, if such an event should
occur, it could conceivably adversely affect our business. Moreover, because
we
distribute products manufactured by others, we believe we will have recourse
against the manufacturer in the event of a product liability claim. It should
be
noted however that we could be unsuccessful in a recourse claim against a
manufacturer or, that even if we were successful, such manufacturer might not
have adequate insurance or other resources to make good on our
claim.
ITEM
2. PROPERTIES
Corporate
Headquarters
Our
corporate headquarters is located in Suite 602, The Ludlow Street Medical
Building, located at 45 Ludlow Street, Yonkers, New York. This office consists
of 650 square feet to accommodate additional sales and administrative personnel
hired by us pursuant to the acquisition of Comprehensive Network Solutions,
Inc.
We
have
occupied these premises pursuant to a five year lease with Diamond Properties,
Inc. which expired in February 2006. With the additional space, our lease calls
for monthly rental payments of $2,300 fully inclusive of all utilities, taxes,
and other charges. The building in which these offices are located is of a
newly
renovated, seven story building which houses the private offices of
approximately twenty physicians, dentists, and other medical professionals,
with
adequate, free, or off street parking available. It is located off of a main
street and is around the corner from Saint Joseph’s Medical Center, a major area
health care facility. We are currently leasing on a month-to-month basis and
are
currently renegotiating the terms of a new lease, which we believe will take
effect in the 3rd
quarter
of this year, as the property was sold to a new owner.
Ludlow
Street Sales and hearing Aid Dispensing Office
We
have a
retail sales and dispensing office located on the first floor lobby of the
Ludlow Street Medical Building in a retail space adjacent to the elevators.
We
occupy this space pursuant to a five-year lease with Diamond Properties Inc,
which expired in February 2006. The lease called for monthly rental payments
of
$1,087, fully inclusive of all utilities, taxes and other charges. We are
currently leasing on a month-to-month basis and are currently renegotiating
the
terms of a new lease, which we believe will take effect in the 3rd
quarter
of this year, as the property was sold to a new owner.
This
facility comprises approximately 800 square feet and has a glass enclosed,
visible waiting and reception area and a private fully equipped testing and
dispensing office. This office is fully equipped as an audiological and hearing
aid dispensing facility; equipment includes: (i) a full spectrum hearing suite,
consisting of a wheel chair accessible sound-proof testing booth, of
approximately 10 feet x 12 feet, designed to accommodate the needs of pediatric
patients as well as handicapped adults; (ii) an electronic audiometer; (iii)
an
electronic tympanometer; (iv) a computerized hearing aid programmer; and (iv)
other required peripheral testing, fitting and repair equipment. This equipment
was purchased, used, from Saint Joseph’s Hospital, which has discontinued its
audiological services department. The equipment purchased from Saint Joseph’s
included, in addition to the equipment listed above, a second full spectrum
hearing suite, which we are presently keeping in storage. All of the equipment
which we purchased from Saint Joseph’s, and which we are currently using, is
modern and has been totally refurbished and
recalibrated.
Saint Joseph’s original cost for this equipment was approximately $54,000 and
its replacement cost would be approximately $78,000. We were able to purchase,
relocate, refurbish and recalibrate the equipment for a total cost of $19,000.
This equipment enables us to fully service all patients whom we see at this
facility, including the nursing home patients who are brought to us on an
out-patient basis as well as pediatric patients.
Early
Achievers, Inc. Office, White Plains, New York
We
have
negotiated to utilize space in the offices of Early Achievers, Inc., an early
intervention agency in White Plains, New York. We have agreed to provide
audiological early intervention services at a reduced rate of compensation
in
exchange for the use of the space as well as their continuing to refer all
of
their early intervention patients to our company. Included in the space is
utilization of the reception area, waiting room, and private office which
includes a fully equipped audiological facility with is equipped with sound
proof booth, and audiological testing equipment.
Pennsylvania
Forty-Fort Office
We
currently lease an 800 square foot, street level office at 142 Wells Street,
Forty-Fort, Pennsylvania. This facility is located in the main business district
of Forty-Fort and the space is utilized for administrative, sales, dispensing,
and telemarketing activities. The facility is divided among offices, waiting
rooms, a sound deadened testing area, a dispensing area, and small telemarketing
area. This facility is also used as a coordination center for our Pennsylvania
licensed hearing aid fitters, who test and dispense hearing aids on an in-home
basis, the most common method of dispensing hearing aid products in rural
areas.
ITEM
3. LEGAL PROCEEDINGS
We
are
unaware of any pending or threatened legal proceedings to which we are a party
or of which any of our assets is the subject. No director, officer, or
affiliate, or any associate of any of them, is a party to or has a material
interest in any proceeding adverse to us.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During
the year ended February 28, 2006, we did not submit any matters to a vote of
our
shareholders.
PART
II
ITEM
5.
|
MARKET
FOR THE REGISTRANT’S COMMON STOCK,
RELATED
SECURITY HOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
We
are
currently traded in the over-the-counter market and quoted on the OTC Electronic
Bulletin Board maintained by the National Association of Securities Dealers,
Inc. (the “OTC Bulletin Board”) under the symbol “CMHS”. The OTC market
quotations reflect inter-dealer prices without retail markup, markdown, or
other
fees or commissions, and may not necessarily represent actual
transactions.
Period
|
|
Bid
Prices
Common
Stock
|
|
|
|
Low
|
|
High
|
|
Fiscal
Year Ended February 28, 2005
|
|
|
|
|
|
|
|
|
|
|
|
May
31, 2004
|
|
$
|
0.70
|
|
$
|
1.50
|
|
August
31, 2004
|
|
|
0.63
|
|
|
0.95
|
|
November
30, 2004
|
|
|
0.35
|
|
|
0.95
|
|
February
28, 2005
|
|
$
|
0.25
|
|
$
|
0.84
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended February 28, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
31, 2005
|
|
$
|
0.45
|
|
$
|
1.16
|
|
August
31, 2005
|
|
|
0.28
|
|
|
0.65
|
|
November
30, 2005
|
|
|
0.29
|
|
|
0.79
|
|
February
28, 2006
|
|
$
|
0.20
|
|
$
|
0.49
|
|
We
have
never paid any cash dividends on our common stock, and have no present intention
of doing so in the foreseeable future.
ITEM
6.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following is management’s discussion and analysis of significant factors which
have affected our financial position and operations during the fiscal years
ended February 28, 2006 and February 28, 2005. This discussion also includes
events which occurred subsequent to the end of the fiscal year ended February
28, 2006, and contains both historical and forward- looking statements. When
used in this discussion, the words “expect(s)”, “feel(s)”, “believe(s)”, “will”,
“may”, “anticipate(s)” “intend(s)” and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties, which could cause actual results to differ materially
from those projected. Factors that might cause or contribute to such differences
include, but are not limited to, those discussed in “Risk Factors”. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which
speak only as of the date hereof. Readers are also urged to carefully review
and
consider the various disclosures elsewhere in this Report which discuss factors
which affect the Company’s business, including the discussion at the end of this
Management’s Discussion and Analysis. This discussion should be read in
conjunction with the Company’s Consolidated Financial Statements, respective
notes and Selected Consolidated Financial Data included elsewhere in this
Report.
The
Company
Directly,
and indirectly through our subsidiaries, Accutone Inc. and Interstate Hearing
Aid Service Inc., we are in the business of audiological services. Both
subsidiaries changed the focus of their marketing 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 management decided to
identify additional business opportunities for substantial growth in various
portions of the medical industry. Based
on
marketing research, management redirected its 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. Based on 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 has positioned us to take
full advantage of the opportunity to become a major player providing access
to
discounted health care provider networks and services (see subsequent
events).
Currently,
our net sales refer to transaction fees generated from our prescription
discount cards as well as the sales of dental vision cards and Gold Cards.
A
major portion of our net sales were 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 have represented
reimbursement 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 recognized
a
shorter time of reimbursement from 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, will continue to take 60 to 90 days
to
be realized.
Management
had anticipated a growth in revenue resulting from the prior acquisition of
the
audiology practice of Park Avenue. This has not come to fruition. We believe
that this was caused in part by our inability to attract additional audiologists
on a timely basis and insufficient working capital. Also the decreases in
reimbursement rates from both Medicare and Medicaid impacted the amounts of
revenue received. To counteract these reductions, management began new
marketing efforts with the nursing homes currently contracted with us as a
result of the agreement with Park Avenue as well as additional facilities who
we
believed could avail themselves of our audiological services. The contract
and
its addendum called for the nursing home to pay us directly at hourly rates
for
the testing of their residents. To date, we have received positive feedback
to
the new contract. However, we can provide no assurances that these new contracts
will be profitable in the future. In addition to the revenue we currently
generate from our audiological services, management believes that revenue will
increase in future periods as a result of increased distribution and marketing
of our medical discount cards as set forth herein.
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 the 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. 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 sales, revenue or profitability we
anticipated, we recently made the decision to divest 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 its 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
now
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. 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. 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 substantial discounts in 16
areas of health care services including physician visits, hospital stays,
pharmacy, dental, vision, patient advocacy and alternative medicine among
others. The company offers third-party organizations self-branded or
private-label healthcare discount savings programs through its 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. Alliance HealthCard, Inc. is based in Norcross, GA
and
its website is www.alliancehealthcare.com.
In
February 2005, Comprehensive Alliance Group, Inc., the marketing arrangement
with 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 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.
A
recent U.S. Census bureau survey reported that approximately 44.3 million
Americans do not have health insurance coverage.
The
Comprehensive/Alliance association brings to FICIS its packaging of health
care
discount arrangements through premier preferred provider networks. As a result
of Alliance HealthCard’s combined successful 6 years experience in packaging
discount programs, FICIS has chosen to integrate these capabilities into their
offering of health benefit services to the Cendant Group of companies as well
as
other FICIS clients via its contract with Comprehensive/Alliance. A preliminary
offering of discount card products took place during February 2005 at the
Cendant Real Estate Services conference that included all of the Cendant
franchise real estate agencies including Cendant Mobility, Cendant Mortgage,
Cendant Settlement Services, Coldwell Banker Commercial, ERA, NRT and Century
21
agencies. The above agencies represent over 500,000 franchisees, sales
associates and employees.
Management
expected these venues to begin to generate revenue by the quarter ending August
30, 2005. Although some revenue have already been generated as a result of
this
relationship, the full extent of the benefit of these organizations having
our
discount cards have yet to meet our anticipated revenue stream. This was a
result of the cards not being printed and distributed by FICIS as originally
intended. 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 mail 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
initially realize expanded revenue from these cards by the end of the current
fiscal year.
Prescription
Discount Cards
We
will
derive revenue from the distribution and utilization of our prescription
discount card as well as those private labeled for the 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 85% of the prescription drugs utilized.
Management believes that between 10% 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. This utilization estimate is based on the demographics on the
areas where we are focusing our marketing and distribution efforts. 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.
Although
we do not sell insured plans the discounts realized by its 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%.
Our
expectations are that the joint venture agreement with Alliance HealthCard,
Inc.
combined with the accelerated marketing of the medical health care discount
cards will add to both the Company’s revenue and profitability. It should be
noted that the expenses related to the sales and marketing of these discount
cards have utilized and will continue to utilize a major portion of any
additional working capital realized to date. We cannot guarantee that our
discount cards will achieve the required sales volume to generate anticipate
profitability.
Municipalities
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 approximately eight 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
have not finalized contracts with these 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 following counties and municipalities in
Pennsylvania and New York:
On
October 5, 2005, we signed a contract with A-1 Printing of Brooklyn, NY. A-1
Printing, one of the largest privately owned producers of prepaid telephone
cards and prints approximately 100 million such cards per year. The agreement
authorizes A-1Printing to attach our discount prescription card -- as a free
gift -- to approximately 10 million prepaid telephone cards distributed
throughout the United States. There will be no charge or cost to us for printing
and distribution and the contract calls for revenue sharing between us and
A-1.
On
November 15, 2005, we signed a contract with Follieri Group LLC (www.thefollierigroup.com)
which
is a consultant for the Catholic Church in North America. This contract will
allow us to distribute customized private labeled prescription discount cards,
through The Follieri Foundation, to the approximately 67+ million parishioners
of the many archdioceses throughout the United States. Through this
relationship, we anticipate a potential distribution of in excess of 5 million
cards to parishioners over the next 12 months.
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 employments agreement no longer justified the potential
benefits to us, when and if, CNS commences generating projected
revenue. 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
continuing escalating expenses, management determined that it could not
adequately fund these operations, Although this transaction will negatively
impact our balance sheet to the extent of the original purchase as well as
in
excess of $300,000 loaned to cover ongoing expenses, we still firmly believe
that removing an additional burden of approximately $15,000 to $18,000 a month
from our cash flow would benefit us in the long run. 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
Our
discussion of our financial condition and results of operations is an analysis
of the consolidated financial statements, which have been prepared in conformity
with accounting principles generally accepted in the United States of America
(“GAAP”), consistently applied. Although our significant accounting policies are
described in Note 1 of the notes to consolidated financial statement, the
following discussion is intended to describe those accounting policies and
estimates most critical to the preparation of our consolidated financial
statements. The preparation of these consolidated financial statements requires
our management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, expenses, and related disclosure
of
contingent assets and liabilities. On an ongoing basis, we evaluate our
estimates. We base our estimates on historical experience and on various other
factors that we believe to be reasonable, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates.
We
believe the following critical accounting policy affect the more significant
judgments and estimates used in the preparation of our consolidated financial
statements:
•
|
We
have issued convertible debentures with embedded derivatives and
warrants,
which estimates and opinions that may change the nature of the accounting
treatment based on FAS 133, EITF 98-5 and EITF 00-19 among
others.
|
Results
of Operations
TWELVE
MONTHS ENDED FEBRUARY 28, 2006 COMPARED TO TWELVE MONTHS ENDED FEBRUARY 28,
2005
Sales
for
the fiscal year ended 2006 and 2005 were $522,000 and $459,000, respectively.
The increase was due to increased revenue for audiological services from
$412,000 in fiscal 2005 to $464,000 in fiscal 2006, mainly occurring in the
State of Pennsylvania. The revenue from discount card sales was $57,000 for
the
year ended February 28, 2006 as compared to $47,000 for the year ended February
28, 2005.
Cost
of
sales was $473,000 and $392,000, in the years ended February 28, 2006 and 2005,
respectively. The cost of sales for medical discount cards was $73,000 in fiscal
2006 as compared to $15,000 t fiscal 2005, the large increase consisted of
printing of new discount cards for which very limited revenue had been achieved,
during the fiscal year ended February 28, 2006. Management believes that future
revenue will be achieved for the cards printed with minimal future costs.
The
gross
profit for the Company decreased from 14.5% in 2005 to 9.3% in 2006 primarily
as
a result of additional printing costs incurred in 2006 for discount cards of
approximately $50,000 for which no revenue had been achieved. This cost created
a negative gross profit in 2006 for the discount cards as compared to a 68.9%
gross profit in the prior year. The gross profit on audiological sales was
13.9%
in 2006 as compared to 8.3% in fiscal year 2005. The increase in profitability
on audiological sales is attributed to lower direct cost of products, while
direct labor and commissions maintained approximately the same percentage of
revenue.
Operating
expenses
Selling,
general and administrative costs were $578,000 and $546,000, respectively.
This
increase was due for the most part to increased marketing and promotional
expenses for our medical discount card programs.
Professional
fees were very high, $1.5 million, as compared to $451,000 the previous year,
due the non-cash expense for issuing warrants in connection to consulting
agreements. As a result of the termination of the audiological service business
at the Park Avenue sites, the remaining goodwill and intangible assets were
impaired for an amount of $525,000.
We
incurred a loss on the sale of the CNS business of $265,000.
Other
expenses
We
incurred loss on derivative liabilities of $725,000 during the fiscal year
ended
2006 related to the issuance of unregistered warrants and for convertible
debentures which were issued in June, August and November of 2005. In the
fiscal
year ended February 28, 2006, we determined that there were not enough
authorized shares to fulfill all commitments to issue shares for warrants
and
convertible debt already issued, therefore, the convertible debentures have
been
recorded as liabilities in accordance with the requirements of EITF 00-19.
During the fiscal year ended 2006, we also recorded interest expense for
amortization of debt discount of $145,000 and other interest expense, net,
of
$43,000. In fiscal 2005, no expense for amortization of debt was incurred,
only
interest expense, net, of $8,000.
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. The
audiology portion of the company, utilizing the current sales level should
generate sufficient working capital to finance its current operations, but
not
enough to expand its scope of business activities. However, current liabilities
exceed our current assets, and as such, there is no assurance that the company
will be able to continue to conduct business without further financing. There
exists also the possibility that some of the warrant holders decide to exercise
its warrants and this way substantial amount of financing could be
achieved.
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. Some of these funds will have to be obtained from
sources other than the anticipated cash flows from the sale of our cards. 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.
Management
is optimistic that we are able to raise a minimum of $500,000 through the sales
of our securities; 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;
|
•
|
to
cover the costs of production and distribution of our anticipated
additional 5,000,000-750,000,000 cards to be sold and or distributed
in
the next 12-18 months;
|
•
|
to
hire additional marketing, administrative and service personnel;
and
|
•
|
to
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 were in default as of
January, as we did not make the required interest payments 90 days after
issuance. The lender cannot accelerate the due date on the debt.
On
August
19, 2005, we entered into a consulting agreement and a financing agreement
with
a 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 $0.25,
as
amended,
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. In
addition, under the consulting agreement, Comprehensive
Associates, LLC received
warrants to purchase 5 million shares at prices ranging from $0.35 to $0.70
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. In November, 2005, we raised
$145,000
in additional
financing through the
issuance
of convertible debt and a
warrant
with an exercise price of $0.25
to
another party,.
Under
the agreements with Comprehensive Associates, LLC, the exercise price per
share
was changed to $0.25 for all convertible debentures
and
warrants. We
did
not make the required payments of interest which were due quarterly. 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
debentures are due and payable on demand, although the lender has not issued
a
demand for payment of the debentures.
On
September 20, 2005, we entered into a term sheet with Westor Capital Croup,
Inc.
Pursuant to the term sheet Westor Capital Group has agreed to raise a minimum
of
$500,000 and a maximum of $1,500,000 for us, by selling units consisting
of 5%
Convertible 18 Month Notes, convertible at $.30 per share. In addition, for
each
share converted, the investors would receive one warrant with a three-year
term
and an exercise price of $.70 per share. The shares underlying both the
convertible notes and the warrants shall have registration rights. The agreement
would be terminated if Westor did not raise the minimum investment called
for in
the agreement by November 4, 2005. 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.,
Due to
the default, the loan is, due and payable on demand although the lender has
not
issued a demand for payment.
Although
the capital markets have a perceived improvement, we are cautiously optimistic
of our abilities to achieve our goals of raising the capital we need to expand.
Along these lines we are actively pursuing potential businesses alliances with
privately held businesses in like and or compatible industries. We believe
that
the addition of both sales volume growth and profitability will greatly assist
us in raising additional capital.
As
of
February 28, 2006, our liquidity and capital resources included cash and cash
equivalents of $46,000 compared to $17,000 a year earlier. The $29,000 increase
in total cash and cash equivalents from February 28, 2005 to February 28, 2006,
was due to the issue of debentures, partially offset by cash used by operating
activities.
Cash
used
in operating activities totaled $690,000 in fiscal 2006 due to increased losses.
This was partially offset by reduction of accounts receivable and increased
accounts payable and accrued expenses. The cash used in the year was $42,000
lower than the previous year.
Cash
used
by investing activities totaled $2,000 in fiscal 2006 for capital expenditures,
as compared to $16,000 in the prior year.
Net
cash
provided by financing activities in fiscal 2006 totaled $721,000, mainly from
an
issuance of debentures of $630,000 and to loan from a related party of $75,000.
The cash provided by financing activities was $212,000 higher than the previous
year, which consisted mainly of issuances of shares.
We
have
total liabilities of $2.0
million
and assets of only $129,000. Without new financing, we will be forced to
liquidate our
businesses. Management is currently working diligently on raising new
financing.
We
have a
line of credit of $30,000 with a non-financial entity. The interest charged
is
prime rate plus 2 percent and the loan agreement expires in August 2006, and
there exist provisions for its renewal.
The
following table provides a summary of the amounts due for our contractual
obligations by fiscal year:
|
|
Total
|
|
2007
|
|
2008
to 2009
|
|
2010
to 2011
|
|
2012
and beyond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
debentures
|
|
$
|
630,000
|
|
$
|
380,000
|
|
$
|
-
|
|
$
|
250,000
|
|
$
|
-
|
|
Debt
discount
|
|
|
(385,817
|
)
|
|
(250,245
|
)
|
|
|
|
|
(135,572
|
)
|
|
|
|
Line
of
credit
|
|
|
30,000
|
|
|
30,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Debt
to related party
|
|
|
96,000
|
|
|
96,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
370,183
|
|
$
|
255,755
|
|
$
|
-
|
|
$
|
114,428
|
|
$
|
-
|
|
Off-Balance
Sheet Transactions
We
have
not guaranteed any other person’s or company’s debt. We have not entered into
any currency or interest options, swaps or future contracts, nor do we have
any
off balance sheet debts or transactions.
Related
Party Transactions
We
have
borrowed a total of $96,000
from
our CEO, Mr. John Treglia. The loan has no due date, no collateral and is
not interest bearing.
New
Accounting Standards
On
December 15, 2004, , the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) the FASB issued Statement
No. 154 (“SFAS No. 154”), Accounting
Changes and Error Corrections - A Replacement of APB Opinion
No. 20
and FASB Statement No. 3.
SFAS
No. 154 changes the requirements for the accounting and reporting of a
change in accounting principle and correction of errors. Under previous
guidance, changes in accounting principle were recognized as a cumulative effect
in the net income of the period of the change. The new statement requires
retrospective application of changes in accounting principle and correction
of
errors, limited to the direct effects of the change, to prior periods’ financial
statements, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. SFAS No. 154 is effective
for accounting changes and correction of errors made in fiscal years beginning
after December 15, 2005. In the event that we have an accounting change or
an error correction, SFAS No. 154 could have a material impact on our
consolidated financial statements.
In
February 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 155, Accounting
for Certain Hybrid Financial Instruments - an amendment of FASB Statements
No. 133
and 140,
which
simplifies accounting for certain hybrid financial instruments by permitting
fair value remeasurement for any hybrid instrument that contains an embedded
derivative that otherwise would require bifurcation and eliminates a restriction
on the passive derivative instruments that a qualifying special-purpose entity
may hold. SFAS No. 155 is effective for all financial instruments acquired,
issued or subject to a remeasurement (new basis) event occurring after the
beginning of an entity’s first fiscal year that begins after September 15,
2006. The adoption of SFAS No. 155 will have no impact on our results of
operations or our financial position.
In
March
2006, the FASB issued SFAS No. 156, Accounting
for Servicing of Financial Assets - an amendment of FASB Statement
No. 140,
which
establishes, among other things, the accounting for all separately recognized
servicing assets and servicing liabilities by requiring that all separately
recognized servicing assets and servicing liabilities be initially measured
at
fair value, if practicable. SFAS No. 156 is effective as of the beginning
of an entity’s first fiscal year that begins after September 15, 2006. The
adoption of SFAS No. 156 will have no impact on our results of operations
or our financial position.
ITEM
7.
FINANCIAL STATEMENTS
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
February
28, 2006
TABLE
OF
CONTENTS
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
24
|
|
|
Consolidated
Balance Sheet
|
25
|
|
|
Consolidated
Statements of Operations
|
26
|
|
|
Consolidated
Statements of Shareholders’ Equity (Deficiency)
|
27
|
|
|
Consolidated
Statements of Cash Flows
|
28
|
|
|
Notes
to Consolidated Financial Statements
|
29
- 35
|
|
|
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
board of directors and shareholders of
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
We
have
audited the accompanying balance sheet of Comprehensive Healthcare Solutions,
Inc. and Subsidiaries (f/k/a Nantucket Industries, Inc. and Subsidiaries) as
of
February 28, 2006 and the related statements of operations, changes in
shareholders’ deficiency, and cash flows for the years ended February 28, 2006
and 2005. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these 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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 audit provides 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 Comprehensive Healthcare
Solutions, Inc. and Subsidiaries (f/k/a Nantucket Industries, Inc. and
Subsidiaries) as of February 28, 2006 and the results of its operations and
its
cash flows for the years then ended 2006 and 2005 in conformity with accounting
principles generally accepted in the United States.
The
accompanying financial statements referred to above have been prepared assuming
that the Company will continue as a going concern. As more fully described
in
Note 1, the Company needs to seek new sources or methods of financing or revenue
to pursue its business strategy, raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans as to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As
discussed in Note 12, in September, 2006, the Company concluded that it was
necessary to restate its financial results for the fiscal year ended February
28, 2006 to reflect corrections to accounting for: (1) the warrants issued
in
connection with issuance of convertible debt; (2) conventional convertible
debt
issued, (3) the beneficial conversion features related to certain debt
instruments and (4) classification of its debt.
JEWETT,
SCHWARTZ & ASSOCIATES
Hollywood,
Florida
June
12,
2006
except
Note 12, which is dated as of September ___, 2006
MUST
HAVE
NEW OPINION!!!
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
|
|
RESTATED
CONSOLIDATED BALANCE SHEET
|
|
February
28, 2006
|
|
|
|
(As
restated)
|
|
ASSETS
|
|
Current
assets
|
|
|
|
Cash
and cash equivalents
|
|
$
|
46,157
|
|
Accounts
receivable, net
|
|
|
23,475
|
|
Other
current assets
|
|
|
25,000
|
|
|
|
|
|
|
Total
current assets
|
|
|
94,632
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
34,810
|
|
|
|
|
|
|
Total
assets
|
|
$
|
129,442
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
315,771
|
|
Revolving
line of credit
|
|
|
30,000
|
|
Due
to related party
|
|
|
95,826
|
|
Convertible
debentures, short term portion
|
|
|
129,755
|
|
Derivative
liabilities
|
|
|
1,275,551
|
|
Total
current liabilities
|
|
|
1,846,903
|
|
|
|
|
|
|
Convertible
debentures, long term
|
|
|
114,428
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,961,331
|
|
|
|
|
|
|
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;
15,365,598 shares issued and outstanding
|
|
|
1,536,560
|
|
Additional
paid-in capital
|
|
|
2,215,498
|
|
Accumulated
deficit
|
|
|
(5,583,947
|
)
|
Total
stockholders’ deficit
|
|
|
(1,831,889
|
)
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
129,442
|
|
See
accompanying notes to consolidated financial statements.
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
|
|
RESTATED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
For
the years ended February 28,
|
|
|
|
2006
|
|
2005
|
|
|
|
(As
restated)
|
|
(As
restated)
|
|
Net
sales
|
|
$
|
521,856
|
|
$
|
458,936
|
|
Cost
of sales
|
|
|
473,353
|
|
|
392,303
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
48,503
|
|
|
66,633
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
577,588
|
|
|
545,628
|
|
Professional
fees
|
|
|
1,518,257
|
|
|
450,944
|
|
Impairment
of assets
|
|
|
525,000
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
39,382
|
|
|
48,635
|
|
Loss
on sale of business
|
|
|
265,313
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(2,877,037
|
)
|
|
(978,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
Loss
on derivative liabilities
|
|
|
(725,233
|
)
|
|
-
|
|
Interest
expense, amortization of debt discount
|
|
|
(144,819
|
)
|
|
-
|
|
Interest
expense other, net
|
|
|
(43,199
|
)
|
|
(7,619
|
)
|
|
|
|
|
|
|
|
|
Total
other expense
|
|
|
(913,251
|
)
|
|
(7,619
|
)
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(3,790,288
|
)
|
|
(986,193
|
)
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,790,288
|
)
|
$
|
(986,193
|
)
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.26
|
)
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
14,489,338
|
|
|
13,107,869
|
|
See
accompanying notes to consolidated financial statements.
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
|
|
RESTATED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
Additional
|
|
Deferred
|
|
Accumulated
|
|
|
|
|
|
($0.01
par value)
|
|
paid-in
capital
|
|
Stock-Based
|
|
deficit
|
|
Total
|
|
|
|
Shares
|
|
Amount
|
|
(As
restated)
|
|
Consulting
|
|
(As
restated)
|
|
(As
restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at February 29, 2004
|
|
|
11,667,309
|
|
$
|
1,166,730
|
|
$
|
689,780
|
|
|
($288,750
|
)
|
|
($807,466
|
)
|
$
|
760,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
placement sales
|
|
|
981,600
|
|
|
98,160
|
|
|
392,640
|
|
|
|
|
|
|
|
|
490,800
|
|
Consultant
agreement
|
|
|
250,000
|
|
|
25,000
|
|
|
100,000
|
|
|
(125,000
|
)
|
|
|
|
|
0
|
|
Acquisition
of CNS
|
|
|
405,050
|
|
|
40,505
|
|
|
364,545
|
|
|
(130,050
|
)
|
|
|
|
|
275,000
|
|
Expense
of deferred - stock based consulting
|
|
|
|
|
|
|
|
|
|
|
|
122,260
|
|
|
|
|
|
122,260
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(986,193
|
)
|
|
(986,193
|
)
|
Balance
at February 28, 2005
|
|
|
13,303,959
|
|
|
1,330,395
|
|
|
1,546,965
|
|
|
(421,540
|
)
|
|
(1,793,659
|
)
|
|
662,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares
|
|
|
100,000
|
|
|
10,000
|
|
|
15,000
|
|
|
|
|
|
|
|
|
25,000
|
|
Previously
recorded subscription receivable
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
(25,000
|
)
|
Shares
issued for services
|
|
|
1,841,639
|
|
|
184,165
|
|
|
634,133
|
|
|
|
|
|
|
|
|
818,298
|
|
Shares
issued for executive compensation
|
|
|
120,000
|
|
|
12,000
|
|
|
44,400
|
|
|
|
|
|
|
|
|
56,400
|
|
Expense
of deferred - stock based consulting
|
|
|
|
|
|
|
|
421,540
|
|
|
|
|
|
421,540
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,790,288
|
)
|
|
(3,790,288
|
)
|
Balance
at February 28, 2006
|
|
|
15,365,598
|
|
$
|
1,536,560
|
|
$
|
2,215,498
|
|
$
|
-
|
|
$
|
(5,583,947
|
)
|
$
|
(1,831,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
|
|
RESTATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
For
the years ended February 28,
|
|
|
|
2006
|
|
2005
|
|
Cash
Flows From Operating Activities
|
|
(As
restated)
|
|
(As
restated)
|
|
Net
loss
|
|
$
|
(3,790,288
|
)
|
$
|
(986,193
|
)
|
Adjustments
to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
by
operating activities:
|
|
|
|
|
|
|
|
Provision
for doubtful accounts
|
|
|
(25,000
|
)
|
|
48,539
|
|
Depreciation
and amortization
|
|
|
39,382
|
|
|
48,635
|
|
Stock
based compensation recorded as liability
|
|
|
19,683
|
|
|
-
|
|
Impairment
of assets
|
|
|
525,000
|
|
|
-
|
|
Loss
on sale of business
|
|
|
265,313
|
|
|
-
|
|
Loss
on derivative liabilities
|
|
|
725,233
|
|
|
-
|
|
Amortization
of debt discount
|
|
|
144,819
|
|
|
-
|
|
Expense
for shares issued for services rendered
|
|
|
1,296,238
|
|
|
122,260
|
|
Changes
in current assets and liabilities
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
25,413
|
|
|
28,027
|
|
Other
current assets
|
|
|
11,067
|
|
|
5,870
|
|
Accounts
payable and accrued expenses
|
|
|
72,847
|
|
|
84,716
|
|
Net
Cash Used by Operating Activities
|
|
|
(690,293
|
)
|
|
(648,146
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(1,550
|
)
|
|
(15,931
|
)
|
Net
Cash Used in Investing Activities
|
|
|
(1,550
|
)
|
|
(15,931
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
25,000
|
|
|
490,800
|
|
Repayment
of loans
|
|
|
(9,459
|
)
|
|
(2,519
|
)
|
Proceeds
from convertible debentures
|
|
|
630,000
|
|
|
-
|
|
Proceeds
from loans from related party
|
|
|
75,326
|
|
|
20,500
|
|
Net
Cash Provided by Financing Activities
|
|
|
720,867
|
|
|
508,781
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
29,024
|
|
|
(155,296
|
)
|
Cash
and cash equivalents, beginning of year
|
|
|
17,133
|
|
|
172,429
|
|
Cash
and cash equivalents, end of year
|
|
$
|
46,157
|
|
$
|
17,133
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
-
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2,052
|
|
$
|
7,619
|
|
Taxes
|
|
$
|
-
|
|
$
|
-
|
|
Non-cash
Investing and Financing Activities:
|
|
|
|
|
|
|
|
Common
stock issued for acquisition of business
|
|
$
|
-
|
|
$
|
275,000
|
|
Derivative
liabilities
recorded
|
|
$
|
259,531
|
|
$
|
-
|
|
Common
stock issued for services rendered
|
|
$
|
874,700
|
|
$
|
255,050
|
|
See
accompanying notes to consolidated financial statements.
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED FEBRUARY 28, 2006
NOTE
1-
ORGANIZATION
The
Company
Comprehensive
Healthcare Solutions, Inc. and Subsidiaries directly and indirectly through
its
subsidiaries, Accutone, Inc. and Interstate Hearing Aid Services, Inc., is
in
the business of providing audiological services. Comprehensive Healthcare
Solutions, Inc. and Subsidiaries is involved directly and indirectly with the
sales and marketing of discount medical services cards through its subsidiary,
Nantucket Industries, Inc. changed its name to Comprehensive Healthcare
Solutions, Inc. in July 2004.
Going
concern
The
Company’s independent accountants are including a “going concern” paragraph in
their accountants’ report accompanying these consolidated financial statements
that cautions the users of the Company’s financial statements that these
statements do not include any adjustments that might result from the outcome
of
this uncertainty. Furthermore, the “going concern” paragraph states that the
Company’s ability to continue is also dependent on its ability to find new
sources or methods of financing or revenue to pursue its business strategy.
The
Company has commenced planned principal operations and has generated revenues
from customers and has secured limited funding insufficient to meet its current
working capital needs. Management believes that, despite the extent of the
financial requirements and funding uncertainties going forward, it has a
business plan that, can be successful if funded and executed within the next
twelve months. Management continues to actively seek various sources and methods
of short and long-term financing and support; however, there can be no
assurances that some or all of the necessary financing can be obtained.
Management continues to explore alternatives that include seeking strategic
investors, lenders and/or technology partners and pursuing other transactions
that, if consummated, might ultimately result in the dilution of the interest
of
the current shareholders. Because of the nature and extent of the uncertainties,
many of which are outside the control of the Company, there can be no assurances
that the Company will be successful in its planned principal operations or
secure the necessary financing. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classifications of liabilities that
might be necessary should the Company not be able to continue as a going
concern.
NOTE
2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of Comprehensive
Healthcare Solutions, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Cash
and Cash Equivalents
Cash
and
cash equivalents include cash, time deposits and highly liquid debt instruments
with an original maturity of three months or less.
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts
Receivable
The
Company performs periodic credit evaluations of its customers and maintains
an
allowance for potential credit losses based on historical experience and other
information available to management. As of February 28, 2006 the allowance
for
doubtful accounts was $46,039 and the (benefit) and expense for doubtful
accounts was ($25,000) and $48,539, in 2006 and 2005, respectively.
Property
and Equipment
Property,
fixtures, and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of furniture, fixtures, and equipment is calculated
using the straight-line method over the estimated useful life of the asset
generally ranging from three to seven years. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the related lease
term, commencing the month after the asset is placed in service.
Goodwill
and Other Intangible Assets
In
accordance with SFAS 142, the Company no longer amortizes goodwill and certain
other intangible assets over their useful lives. Instead, goodwill and other
intangible assets are tested for impairment annually. The impairment test
consists of two steps. In the first step, the Company determines the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units. If the
fair value of the reporting unit is greater than its carrying value, the test
is
completed and intangible assets assigned to the reporting unit is not impaired.
To the extent a reporting unit’s carrying amount exceeds its fair value, an
indication exists that the reporting unit’s goodwill may be impaired, and the
Company must perform the second step of the impairment test. In the second
step,
the Company must compare the implied fair value of the reporting unit’s
intangible assets, determined by allocating the reporting unit’s fair value to
all of its assets (recognized and unrecognized) and liabilities in a manner
similar to a purchase price allocation in accordance with SFAS No.141, to its
carrying amount. The Company will recognize an intangible assets impairment
charge if the carrying amount of the intangible assets assigned to the reporting
unit is greater than the implied fair value of the intangible assets. In fiscal
2006, the Company recognized $525,000 of impairment loss. In 2006, the Company
discontinued services to nursing homes under its Park Avenue Agreement. The
Company determined that the expected future cash flow would not be achieved,
due
to deteriorating margins as a result of the reduction in Medicare and Medicaid
reimbursement rates for the services provided. No impairment loss was recorded
in fiscal year 2005.
Fair
Value of Financial Instruments
Based
on
borrowing rates currently available to the Company for debt with similar terms
and maturities, the fair value of the company’s long-term debt approximate the
carrying value.
Income
Taxes
The
Company accounts for income taxes according to Statement of Financial Accounting
Standard No. 109 “Accounting for Income Taxes” which requires an asset and
liability approach to financial accounting for income taxes. Deferred income
tax
assets and liabilities are computed annually for the difference between the
financial statement and tax bases of assets and liabilities that will result
in
taxable or deductible amounts in the future, based on enacted tax laws and
rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
is
the tax payable or refundable for the period, plus or minus the change during
the period in deferred tax assets and liabilities.
Impairment
of Long-Lived Assets
In
accordance with SFAS 144, long-lived assets, such as property, plant, and
equipment, and purchased intangibles, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
asset
may
not be recoverable. Goodwill and other intangible assets are tested for
impairment annually. Recoverability of assets to be held and used is measured
by
a comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of
an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds
the
fair value of the asset.
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.
Sales
return policy
The
Company provides to all patients purchasing hearing aids a specific return
period, a minimum of 45 days, if the patient is dissatisfied with the product.
The Company does not provide an allowance in accrued expenses for returns since
actual returns for this fiscal year were less than 2%. All the manufacturers
that supply the Company accept returns back for full credit within these return
periods.
Advertising
Costs
Costs
for
newspaper and other media advertising are expensed as incurred and were $24,146
and $21,936 for the years ended February 28, 2006 and 2005
respectively.
Segment
Information
In
1997,
the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. The method of determining
what information to report is based on the way that management organizes the
operating segments within the Company for making operational decisions and
assessments of financial performance. The Company operates under one reportable
retail segment. Accordingly, segment information is not applicable.
Reporting
Comprehensive Income
Comprehensive
income approximates net income for all periods presented.
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings
(Loss) Per Common Share
Basic
earning (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares outstanding during the period. Diluted earning
per share is computed assuming the exercise of stock options, warrants and
convertible debentures, if any, under the treasury stock method and the related
income tax effects if not anti-dilutive. For loss periods, common share
equivalents are excluded from the calculation, as their effect would be
anti-dilutive.
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration
of risk
Currently
approximately 40% of the reorganized Company’s business is based on contracts
with The New York State Medical Assistance Program (Medicaid) and Empire
Medicare Service (Medicare).
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 the Company’s structured borrowings, are separately
valued and accounted for on the Company’s 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.
The
pricing model the Company uses for determining fair values of the Company’s
derivatives is the Black Scholes Pricing Model. 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, the Company uses volatility rates for
a
time period similar to the length of the underlying convertible instrument
based
upon the closing stock price of the Company’s common.
However, we do not use
stock
price
information prior to February
2002 when the Company emerged from bankruptcy. The Company determined that
share
prices prior to this period do not reflect the ongoing business valuation
of the
Company’s current operations. The Company uses 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. The
Company uses 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 when a derivative
is
valued at fair value. The volatility factor used in Black Scholes has a
significant effect on the resulting valuation of the derivative liabilities
on
the Company’s balance sheet. The initial volatility for the calculation of the
embedded and freestanding derivatives ranged from 115%
to
190%,
this
volatility-rate will likely change in the future. The Company’s stock price will
also change in the future. To the extent that the Company’s stock price
increases or decreases, the Company’s derivative liabilities
will
also increase or decrease, absent any change in volatility rates.
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
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 the
Company’s warrants to purchase common stock are accounted for as liabilities.
The fair value of these warrants and
conversion options is
shown on
the Company’s balance sheet and the unrealized changes in the values of these
derivatives are shown in the Company’s consolidated statement of operations as
“Loss
on
derivative liabilities.”
We
have
penalty provisions in the registration agreements 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 the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange after being so listed or included for
quotation, or if the common stock ceases to be traded on the Over-the-Counter
Bulletin Board (the “OTCBB”) or any equivalent replacement exchange on the OTC
Bulletin Board, NASDAQ National Market, NASDAQ SmallCap or New York Stock
Exchange. The EITF, 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.
The
Company considers the liquidated damages provision in our various security
instruments to be combined with our registration rights and conversion
derivatives, and 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.
Recent
Accounting Pronouncements
In
March 2005, the FASB issued Interpretation No. 47, Accounting
for Conditional Asset Retirement Obligations, an interpretation of FASB
Statement No. 143
(“FIN 47”). FIN 47 requires the recognition of a liability for the
fair value of a legally-required conditional asset retirement obligation when
incurred, if the liability’s fair value can be reasonably estimated. FIN 47
also clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. FIN 47 is
effective for fiscal years ending after December 15, 2005. The Company’s
adoption of FIN 47 did not have an impact on its financial
statements.
Reclassification
Certain
prior year amounts have been reclassified in order to conform to the current
year’s presentation.
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3-
NUMBER OF SHARES OUTSTANDING
The
following table sets forth the computation of basic and diluted share
data:
|
|
|
2006
|
|
2005
|
|
|
|
(As
restated)
|
|
(As
restated)
|
|
Weighted
average number shares of outstanding - basic
|
|
|
14,489,338
|
|
|
13,107,869
|
|
Effect
of dilutive securities: Convertible Debentures and
warrants
|
|
|
-
|
|
|
-
|
|
Weighted
average number of shares outstanding - diluted
|
|
|
14,489,338
|
|
|
13,107,869
|
|
|
|
|
|
|
|
|
|
Not
included weighted average dilutive securities above (anti-dilutive)
|
|
|
744,444
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
warrants and other instruments convertible to common stock
|
|
|
7,631,985
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Shares
outstanding:
|
|
|
|
|
|
|
|
Beginning
outstanding shares
|
|
|
13,303,959
|
|
|
11,667,309
|
|
Issuance
of shares
|
|
|
2,061,639
|
|
|
1,636,650
|
|
|
|
|
|
|
|
|
|
Ending
outstanding shares
|
|
|
15,365,598
|
|
|
13,303,959
|
|
NOTE
4-
PROPERTY AND EQUIPMENT:
Property
and equipment as of February 28, 2006, is as follows:
Leasehold
improvements
|
|
|
25,000
|
|
Machinery
and equipment
|
|
|
127,259
|
|
Furniture
and fixtures
|
|
|
6,200
|
|
|
|
|
158,459
|
|
Less
accumulated depreciation
|
|
|
(123,649
|
)
|
|
|
|
34,810
|
|
NOTE
5 -
LINE OF CREDIT
The
Company has a revolving line of credit with Park Avenue for up to $30,000.
The
interest rate on any amount of the line utilized is at prime plus 2%. The
agreement expires on August 1, 2006 with a provision for a renewal of this
agreement.
NOTE
6 -
INCOME TAXES
Deferred
income taxes reflect the net effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amount used for income tax purposes. Deferred tax assets and liabilities
are
measured using enacted tax rates. Significant components of the Company’s
deferred taxes at February 28, 2006 and 2005 are as follows:
|
|
2006
|
|
2005
|
|
Deferred
tax assets
|
|
|
|
|
|
Net
operating loss carry forward
|
|
$
|
2,925,388
|
|
$
|
637,068
|
|
Deferred
tax liabilities
|
|
|
-
|
|
|
-
|
|
Net
deferred tax asset
|
|
|
2,925,388
|
|
|
637,068
|
|
Valuation
allowance
|
|
|
(2,925,388
|
)
|
|
(637,068
|
)
|
Net
deferred taxes
|
|
$
|
-
|
|
$
|
-
|
|
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company has fully reserved all remaining deferred tax assets, which it cannot
presently utilize.
For
tax
purposes at February 28, 2006, the Company’s net operating loss carry forward
was $2,295,388, which, if unused, will expire from 2017 to 2022. Certain tax
regulations relating to the change in ownership may limit the Company’s ability
to utilize its net operating loss carry forward if the ownership change, as
computed under each regulation, exceeds 50%. There was no income tax provision
(benefit) for the fiscal years 2006 and 2005.
The
following is a reconciliation of the normal expected statutory federal income
tax rate to the effective rate reported in the financial
statements.
|
|
2006
|
|
2005
|
|
Computed
“expected” provision for:
|
|
|
|
|
|
Federal
income taxes
|
|
|
(35.0)
|
%
|
|
(35.0)
|
%
|
Valuation
allowance
|
|
|
35.0
|
|
|
35.0
|
|
|
|
|
|
|
|
|
|
Actual
provision for income taxes
|
|
|
-0-
|
%
|
|
-0-
|
%
|
NOTE
7-
CONVERTIBLE DEBENTURES AND WARRANTS
In
June,
August and November of 2006, the Company sold convertible debentures and issued
warrants to various entities. The debt and accrued interest is convertible
to
shares.
Debentures
|
|
Interest
|
|
Interest
|
|
Right
to
|
|
|
|
Conversion
|
|
Number
|
|
Issue
date
|
|
Amount
|
|
rate
|
|
payable
|
|
convert
|
|
Due
date
|
|
price
|
|
of
shares
|
|
06/01/05
|
|
$
|
40,000
|
|
|
6
|
%
|
|
quarterly
|
|
|
5/31/2006
|
|
|
06/01/10
|
|
$
|
0.50
|
|
|
80,000
|
|
06/01/05
|
|
$
|
40,000
|
|
|
6
|
%
|
|
quarterly
|
|
|
5/31/2007
|
|
|
06/01/10
|
|
$
|
0.75
|
|
|
53,333
|
|
06/01/05
|
|
$
|
40,000
|
|
|
6
|
%
|
|
quarterly
|
|
|
5/31/2008
|
|
|
06/01/10
|
|
$
|
0.75
|
|
|
53,333
|
|
06/01/05
|
|
$
|
40,000
|
|
|
6
|
%
|
|
quarterly
|
|
|
5/31/2009
|
|
|
06/01/10
|
|
$
|
1.00
|
|
|
40,000
|
|
06/01/05
|
|
$
|
40,000
|
|
|
6
|
%
|
|
quarterly
|
|
|
5/31/2010
|
|
|
06/01/10
|
|
$
|
1.00
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/01/05
|
|
$
|
10,000
|
|
|
6
|
%
|
|
quarterly
|
|
|
5/31/2006
|
|
|
06/01/10
|
|
$
|
0.50
|
|
|
20,000
|
|
08/01/05
|
|
$
|
10,000
|
|
|
6
|
%
|
|
quarterly
|
|
|
5/31/2007
|
|
|
06/01/10
|
|
$
|
0.75
|
|
|
13,333
|
|
08/01/05
|
|
$
|
10,000
|
|
|
6
|
%
|
|
quarterly
|
|
|
5/31/2008
|
|
|
06/01/10
|
|
$
|
0.75
|
|
|
13,333
|
|
08/01/05
|
|
$
|
10,000
|
|
|
6
|
%
|
|
quarterly
|
|
|
5/31/2009
|
|
|
06/01/10
|
|
$
|
1.00
|
|
|
10,000
|
|
08/01/05
|
|
$
|
10,000
|
|
|
6
|
%
|
|
quarterly
|
|
|
5/31/2010
|
|
|
06/01/10
|
|
$
|
1.00
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/19/05
|
|
$
|
35,000
|
|
|
6
|
%
|
|
Maturity
|
|
|
08/19/05
|
|
|
01/30/06
|
|
$
|
0.25
|
|
|
140,000
|
|
08/19/05
|
|
$
|
200,000
|
|
|
6
|
%
|
|
Maturity
|
|
|
08/19/05
|
|
|
12/31/06
|
|
$
|
0.25
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/28/05
|
|
$
|
25,000
|
|
|
5
|
%
|
|
quarterly
|
|
|
11/28/05
|
|
|
05/29/07
|
|
$
|
0.25
|
|
|
100,000
|
|
11/28/05
|
|
$
|
20,000
|
|
|
5
|
%
|
|
quarterly
|
|
|
11/28/05
|
|
|
05/29/07
|
|
$
|
0.25
|
|
|
80,000
|
|
11/28/05
|
|
$
|
100,000
|
|
|
5
|
%
|
|
quarterly
|
|
|
11/28/05
|
|
|
05/29/07
|
|
$
|
0.25
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
630,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,853,333
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/28/05
|
|
|
|
|
|
|
|
|
|
|
|
11/28/05
|
|
|
11/27/08
|
|
$
|
0.25
|
|
|
58,000
|
|
11/28/05
|
|
|
|
|
|
|
|
|
|
|
|
11/28/05
|
|
|
11/27/08
|
|
$
|
0.40
|
|
|
193,332
|
|
11/28/05
|
|
|
|
|
|
|
|
|
|
|
|
11/28/05
|
|
|
11/27/08
|
|
$
|
0.80
|
|
|
193,332
|
|
11/28/05
|
|
|
|
|
|
|
|
|
|
|
|
11/28/05
|
|
|
11/27/08
|
|
$
|
1.20
|
|
|
193,332
|
|
08/19/05
|
|
|
|
|
|
|
|
|
|
|
|
08/19/05
|
|
|
08/19/10
|
|
$
|
0.25
|
|
|
5,000,000
|
|
02/27/06
|
|
|
|
|
|
|
|
|
|
|
|
02/27/06
|
|
|
02/27/08
|
|
$
|
0.25
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
|
|
|
|
|
|
|
|
7,591,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
interest convertible to shares
|
|
|
|
|
|
|
|
|
|
|
40,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt instruments convertible to shares
|
|
|
|
|
|
|
|
|
|
|
7,631,985
|
|
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company can before the maturity date, at its option, elect to pay the
convertible debentures in cash, in such case, a redemption premium of 10-25%
is
payable.
In
August
2005, the Company committed to issue more shares from warrants and convertible
debt, than its authorized number of shares. Therefore, in accordance to EITF
00-19, the Company has treated all conversion options and warrants as
liabilities. The Company calculated the fair value of the warrants and the
embedded conversion options upon issuance. The fair value was calculated
using
Black Scholes model with risk-free interest ranging from 4.0% to 4.8%;
volatility ranging from 115% to 190%; and a life equal to the term of the
debentures or warrants. The detachable warrants can be net-cash redeemed
if the
underlying shares are not registered; therefore, the instruments were recorded
as a derivative liability. Subsequent to issuance, the liability was re-measured
on February 28, 2006. The recorded debenture discount of $531,000 is being
amortized over the term of the debts. In fiscal 2006 interest expense of
$145,000 was recognized for such amortization.
NOTE
8-
STOCKHOLDERS’ EQUITY
Private
Placements
On
February 27, 2006, the Company closed on private placements for 100,000 shares
of common stock for an aggregate sale price of $25,000. The offer and sale
was
made to an “accredited investor” as defined in Rule 501(a) of Regulation D and
the Company relied on Regulation D and Section 4(2) of the Securities act of
1933 to issue the securities without registration.
NOTE
9 -
COMMITMENTS, CONTINGENCIES
Major
Suppliers
Although
there are a limited number of manufactures of hearing aids, management shifted
its purchasing to include three to five manufacturers who provide similar
hearing aids on comparable terms. In the event of a disruption of supply from
any one manufacture the Company could obtain comparable products from other
manufacturers. Few manufacturers offer dramatic product differentiation. The
Company has not experienced any significant disruptions in supply in the
past.
Lease
obligation
The
Company is currently leasing its existing office facility on a month-to-month
basis. The total monthly rent expense is currently $3,669.
NOTE
10 -
RELATED PARTY TRANSACTIONS
The
Company’s CEO, Mr. John Treglia, advanced $85,326 to the Company during
fiscal 2006; the total debt to the CEO is $95,326. This loan is unsecured,
non-interest bearing with no terms for repayment.
NOTE
11 -
SALE OF BUSINESS
On
November 29, 2005 the Company entered into a settlement and release agreement
with David and Pamela Streilein (collectively referred to as the “Settlement
Parties”), whereas the settlement Parties shall receive all outstanding shares
of the Company’s subsidiary Comprehensive Network Solutions, Inc. (“CNS”) as
settlement for any amounts owed under their employment agreements with the
Company. In addition to the shares, the Company assumes liabilities of
approximately $20,000 and agrees to pay the Settlement Parties a total of
$12,000 for unpaid salaries and expenses not reimbursed. The Company recognized
a loss on the transaction of approximately $264,000. CNS incurred losses of
$116,000 in 2006, prior to the divestment of the company.
NOTE
12 - 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 fiscal year ended February 28, 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
for
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 allocated the proceeds between the relative fair value of the
warrants and the debt. After further review, the Company determined that
the
instruments should be recorded at the fair value of the 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 and had
recorded a liability for the beneficial conversion feature. After further
review, the Company has determined that there
is
no beneficial conversion feature, as
the
conversion price of the debenture was above market price at issuance
and the
embedded conversion option is being recorded at its fair value. The Company
also
determined that upon
the
Company 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 reclassified certain convertible debentures from long term to short
term, since certain debentures were in default and immediately due and
payable.
The
Company reclassified its depreciation and amortization for fiscal year
2005 to
operating expense
and
reclassified certain cash flow items to properly report the investment
and
professional fee transactions.
The
Company,
in its
review of the 2005 financial statements detected an inadvertent calculation
error in the weighted average shares outstanding and the related
loss
per
share, which has
been
corrected in
the
restated financial statements.
The
accompanying financial statements for the year ended December 31, 2005
have been
restated to reflect
the
changes described above.
Balance
Sheet Impact
The
following table sets forth the effects of the restatement adjustments on the
Company’s consolidated balance sheet as of February 28, 2006:
|
|
February
28, 2006
|
|
ASSETS
|
|
|
|
|
|
As
originally
reported
|
|
Adjustment
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
46,157
|
|
$
|
-
|
|
$
|
46,157
|
|
Accounts
receivable, net
|
|
|
23,475
|
|
|
|
|
|
23,475
|
|
Other
current assets
|
|
|
25,000
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
94,632
|
|
|
|
|
|
94,632
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
34,810
|
|
|
|
|
|
34,810
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
129,442
|
|
$
|
-
|
|
$
|
129,442
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
315,771
|
|
$
|
-
|
|
$
|
315,771
|
|
Revolving
line of credit
|
|
|
30,000
|
|
|
|
|
|
30,000
|
|
Due
to related party
|
|
|
95,826
|
|
|
|
|
|
95,826
|
|
Convertible
debentures, short term
|
|
|
-
|
|
|
129,755
|
|
|
129,755
|
|
Derivative
liability
|
|
|
259,531
|
|
|
1,016,020
|
|
|
1,275,551
|
|
Total
current liabilities
|
|
|
701,128
|
|
|
1,145,775
|
|
|
1,846,903
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
debentures, long term
|
|
|
630,000
|
|
|
(515,572
|
)
|
|
114,428
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,331,128
|
|
|
630,203
|
|
|
1,961,331
|
|
|
|
|
|
|
|
|
|
|
|
|
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;
15,365,598 shares issued and outstanding
|
|
|
1,536,560
|
|
|
|
|
|
1,536,560
|
|
Additional
paid-in capital
|
|
|
2,251,642
|
|
|
(36,144
|
)
|
|
2,215,498
|
|
Accumulated
deficit
|
|
|
(4,989,888
|
)
|
|
(594,059
|
)
|
|
(5,583,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' deficit
|
|
|
(1,201,686
|
)
|
|
(630,203
|
)
|
|
(1,831,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
129,442
|
|
$
|
-
|
|
$
|
129,442
|
|
|
|
|
|
|
|
|
|
|
|
|
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
years ended
February
28, 2006 and 2005, respectively:
|
|
For
the year ended February 28, 2006
|
|
|
|
As
previously reported on Form 10-KSB/A
|
|
Adjustment
|
|
As
Restated
|
|
Net
sales
|
|
$
|
521,856
|
|
$
|
-
|
|
$
|
521,856
|
|
Cost
of sales
|
|
|
473,353
|
|
|
|
|
|
473,353
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
48,503
|
|
|
|
|
|
48,503
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
577,588
|
|
|
|
|
|
577,588
|
|
Professional
fees
|
|
|
1,535,016
|
|
|
(16,759
|
)
|
|
1,518,257
|
|
Impairment
of assets
|
|
|
525,000
|
|
|
|
|
|
525,000
|
|
Depreciation
and amortization
|
|
|
39,382
|
|
|
|
|
|
39,382
|
|
Loss
on sale of business
|
|
|
265,313
|
|
|
|
|
|
265,313
|
|
Loss
from operations
|
|
|
(2,893,796
|
)
|
|
(16,759
|
)
|
|
(2,877,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on derivative liabilities
|
|
|
61,539
|
|
|
(786,772
|
)
|
|
(725,233
|
)
|
Interest
expense, amortization of debt discount
|
|
|
-
|
|
|
(144,819
|
)
|
|
(144,819
|
)
|
Interest
expense, net
|
|
|
(363,972
|
)
|
|
320,773
|
|
|
(43,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expense
|
|
|
(302,433
|
)
|
|
(610,818
|
)
|
|
(913,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(3,196,229
|
)
|
|
595,059
|
|
|
(3,790,288
|
)
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,196,229
|
)
|
$
|
(594,059
|
)
|
$
|
(3,790,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.22
|
)
|
$
|
(0.04
|
)
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
14,489,338
|
|
|
-
|
|
|
14,489,338
|
|
|
|
|
|
|
|
For
the year ended February 28, 2005
|
|
|
|
As
previously reported on Form 10-KSB
|
|
Adjustment
|
|
As
Restated
|
|
Net
sales
|
|
$
|
458,936
|
|
$
|
-
|
|
$
|
458,936
|
|
Cost
of sales
|
|
|
392,303
|
|
|
|
|
|
392,303
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
66,633
|
|
|
|
|
|
66,633
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
545,628
|
|
|
|
|
|
545,628
|
|
Professional
fees
|
|
|
450,944
|
|
|
|
|
|
450,944
|
|
Depreciation
and amortization
|
|
|
-
|
|
|
48,635
|
|
|
48,635
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(929,939
|
)
|
|
(48,635
|
)
|
|
(978,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
7,619
|
|
|
|
|
|
7,619
|
|
Depreciation
and amortization
|
|
|
48,635
|
|
|
(48,635
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expense
|
|
|
56,254
|
|
|
-
|
|
|
7,619
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(986,193
|
)
|
|
-
|
|
|
(986,193
|
)
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(986,193
|
)
|
$
|
-
|
|
$
|
(986,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.07
|
)
|
$
|
(0.01
|
)
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
12,769,887
|
|
|
337,982
|
|
|
13,107,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Impact
The
following tables set forth the effects of the restatement adjustments on the
Company’s consolidated cash flows as of February 28, 2006 and 2005,
respectively:
|
|
For
the year ended February 28, 2006
|
|
|
|
As
previously reported on form 10-KSB/A
|
|
Adjustment
|
|
As
restated
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,196,229
|
)
|
$
|
(594,059
|
)
|
$
|
(3,790,288
|
)
|
Adjustments
to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
|
|
by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Provision
for doubtful accounts
|
|
|
(25,000
|
)
|
|
|
|
|
(25,000
|
)
|
Depreciation
and amortization
|
|
|
39,382
|
|
|
|
|
|
39,382
|
|
Stock
based compensation recorded as liability
|
|
|
|
|
|
19,683
|
|
|
19,683
|
|
Impairment
of assets
|
|
|
525,000
|
|
|
|
|
|
525,000
|
|
Loss
on sale of business
|
|
|
264,190
|
|
|
1,123
|
|
|
265,313
|
|
Gain
on derivative liabilities
|
|
|
(61,539
|
)
|
|
786,772
|
|
|
725,233
|
|
Amortization
of debt discount
|
|
|
|
|
|
144,819
|
|
|
144,819
|
|
Expense
for warrants issued in connection with debentures and sale of
shares
|
|
|
336,528
|
|
|
(336,528
|
)
|
|
-
|
|
Expense
for shares issued for services rendered
|
|
|
1,316,925
|
|
|
(20,687
|
)
|
|
1,296,238
|
|
Changes
in current assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
25,413
|
|
|
|
|
|
25,413
|
|
Other
current assets
|
|
|
11,067
|
|
|
|
|
|
11,067
|
|
Accounts
payable and accrued expenses
|
|
|
73,970
|
|
|
(1,123
|
)
|
|
72,847
|
|
Net
Cash Used by Operating Activities
|
|
|
(690,293
|
)
|
|
-
|
|
|
(690,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(1,550
|
)
|
|
|
|
|
(1,550
|
)
|
Net
Cash Used in Investing Activities
|
|
|
(1,550
|
)
|
|
-
|
|
|
(1,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
25,000
|
|
|
|
|
|
25,000
|
|
Repayment
of loans
|
|
|
(9,459
|
)
|
|
|
|
|
(9,459
|
)
|
Proceeds
from convertible debentures
|
|
|
630,000
|
|
|
|
|
|
630,000
|
|
Proceeds
from loans from related party
|
|
|
75,326
|
|
|
|
|
|
75,326
|
|
Net
Cash Provided by Financing Activities
|
|
|
720,867
|
|
|
-
|
|
|
720,867
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
29,024
|
|
|
-
|
|
|
29,024
|
|
Cash
and cash equivalents, beginning of year
|
|
|
17,133
|
|
|
-
|
|
|
17,133
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
46,157
|
|
$
|
-
|
|
|
46,157
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
2,052
|
|
|
|
|
|
2,052
|
|
Taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Derivative
liability recorded
|
|
|
259,531
|
|
|
1,016,020
|
|
|
1,275,551
|
|
Debt
discount recorded
|
|
|
|
|
|
530,636
|
|
|
530,636
|
|
Common
stock issued for services rendered
|
|
|
874,700
|
|
|
-
|
|
|
874,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended February 28, 2005
|
|
|
|
As
previously reported on form 10-KSB
|
|
Adjustment
|
|
As
restated
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(986,193
|
)
|
$
|
-
|
|
$
|
(986,193
|
)
|
Adjustments
to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
|
|
by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Provision
for doubtful accounts
|
|
|
48,539
|
|
|
|
|
|
48,539
|
|
Depreciation
and amortization
|
|
|
48,635
|
|
|
|
|
|
48,635
|
|
Common
stock issued for services to be rendered
|
|
|
(124,723
|
)
|
|
124,723
|
|
|
-
|
|
Expense
for shares and warrants issued for services rendered
|
|
|
|
|
|
122,260
|
|
|
122,260
|
|
Changes
in current assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
28,027
|
|
|
|
|
|
28,027
|
|
Other
current assets
|
|
|
(2,197
|
)
|
|
8,067
|
|
|
5,870
|
|
Accounts
payable and accrued expenses
|
|
|
84,172
|
|
|
544
|
|
|
84,716
|
|
Net
Cash Used by Operating Activities
|
|
|
(903,740
|
)
|
|
255,594
|
|
|
(648,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(15,931
|
)
|
|
-
|
|
|
(15,931
|
)
|
Purchases
of goodwill and intangible assets
|
|
|
(276,975
|
)
|
|
276,975
|
|
|
-
|
|
Net
Cash Used in Investing Activities
|
|
|
(292,906
|
)
|
|
276,975
|
|
|
(15,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
1,020,850
|
|
|
(530,050
|
)
|
|
490,800
|
|
Repayment
of loans
|
|
|
-
|
|
|
(2,519
|
)
|
|
(2,519
|
)
|
Proceeds
from convertible debentures
|
|
|
-
|
|
|
|
|
|
-
|
|
Proceeds
from loans from related party
|
|
|
20,500
|
|
|
|
|
|
20,500
|
|
Net
Cash Provided by Financing Activities
|
|
|
1,041,350
|
|
|
(532,569
|
)
|
|
508,781
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(155,296
|
)
|
|
-
|
|
|
(155,296
|
)
|
Cash
and cash equivalents,
beginning of year
|
|
|
172,429
|
|
|
-
|
|
|
172,429
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
|
17,133
|
|
|
0
|
|
|
17,133
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
7,619
|
|
|
-
|
|
|
7,619
|
|
Taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Non-cash
Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for acquisition of business
|
|
|
|
|
|
275,000
|
|
|
275,000
|
|
Common
stock issued for services rendered
|
|
|
|
|
|
255,050
|
|
|
255,050
|
|
Common
stock issued for services to be rendered
|
|
|
124,723
|
|
|
(124,723
|
)
|
|
0
|
|
Changes
in Stockholders’ Equity
The
following table sets forth the effects of the restatement adjustments on the
Company’s consolidated changes in Stockholders’ Equity as of February 28, 2006
and 2005, respectively:
RESTATED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIT)
|
|
|
|
Common
stock
|
|
Additional
|
|
Deferred
|
|
|
|
|
|
|
|
($0.01
par value)
|
|
paid-in
|
|
Stock-Based
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Consulting
|
|
deficit
|
|
Total
|
|
As
previously reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at February 29, 2004
|
|
|
11,667,309
|
|
$
|
1,166,730
|
|
$
|
13,534,031
|
|
$
|
(296,817
|
)
|
$
|
(13,651,717
|
)
|
$
|
752,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
placement sales
|
|
|
981,600
|
|
|
98,160
|
|
|
392,640
|
|
|
|
|
|
|
|
|
490,800
|
|
Consultant
agreement
|
|
|
250,000
|
|
|
25,000
|
|
|
100,000
|
|
|
|
|
|
|
|
|
125,000
|
|
Acquisition
of CNS
|
|
|
405,050
|
|
|
40,505
|
|
|
364,545
|
|
|
|
|
|
|
|
|
405,050
|
|
Expense
of deferred - stock based consulting
|
|
|
|
|
|
|
|
|
|
|
|
(124,723
|
)
|
|
|
|
|
(124,723
|
)
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(986,193
|
)
|
|
(986,193
|
)
|
Balance
at February 28, 2005
|
|
|
13,303,959
|
|
|
1,330,395
|
|
|
1,546,965
|
|
|
(421,540
|
)
|
|
(1,793,659
|
)
|
|
662,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares
|
|
|
100,000
|
|
|
10,000
|
|
|
15,000
|
|
|
|
|
|
|
|
|
25,000
|
|
Warrants
issued in connection to issue of shares
|
|
|
|
|
15,458
|
|
|
|
|
|
|
|
|
15,458
|
|
Previously
recorded subscription receivable
|
|
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
(25,000
|
)
|
Beneficial
conversion feature of debt instruments
|
|
|
|
|
20,686
|
|
|
|
|
|
|
|
|
20,686
|
|
Shares
issued for services
|
|
|
1,841,639
|
|
|
184,165
|
|
|
634,133
|
|
|
|
|
|
|
|
|
818,298
|
|
Shares
issued for executive compensation
|
|
|
120,000
|
|
|
12,000
|
|
|
44,400
|
|
|
|
|
|
|
|
|
56,400
|
|
Expense
of deferred - stock based consulting
|
|
|
|
|
|
|
|
|
|
|
|
421,540
|
|
|
|
|
|
421,540
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,196,229
|
)
|
|
(3,196,229
|
)
|
Balance
at February 28, 2006
|
|
|
15,365,598
|
|
$
|
1,536,560
|
|
$
|
2,857,159
|
|
$
|
-
|
|
$
|
(5,585,392
|
)
|
$
|
(1,191,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
as compared to previously reported 2005 form 10-KSB and 2006 form
10-KSB/A
|
|
|
|
Balance
at February 29, 2004
|
|
|
-
|
|
$
|
-
|
|
$
|
(12,844,251
|
)
|
$
|
8,067
|
|
$
|
12,844,251
|
|
$
|
8,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correction
of balances
|
|
|
|
|
|
|
|
|
12,844,251
|
|
|
|
|
|
(12,844,251
|
)
|
|
-
|
|
Consultant
agreement
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(125,000
|
)
|
|
-
|
|
|
(125,000
|
)
|
Acquisition
of CNS
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(130,050
|
)
|
|
-
|
|
|
(130,050
|
)
|
Expense
of deferred - stock based consulting
|
|
|
|
|
|
-
|
|
|
-
|
|
|
246,983
|
|
|
-
|
|
|
246,983
|
|
Balance
at February 28, 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued in connection to issue of shares
|
|
-
|
|
|
(15,458
|
)
|
|
-
|
|
|
-
|
|
|
(15,458
|
)
|
Beneficial
conversion feature of debt instruments
|
|
-
|
|
|
(20,686
|
)
|
|
-
|
|
|
-
|
|
|
(20,686
|
)
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(594,059
|
)
|
|
(594,059
|
)
|
Balance
at February 28, 2006
|
|
|
-
|
|
$
|
-
|
|
$
|
(36,144
|
)
|
$
|
-
|
|
$
|
(594,059
|
)
|
$
|
(630,203
|
)
|
RESTATED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIT)
|
|
|
|
Common
stock
|
|
Additional
|
|
Deferred
|
|
Accumulated
|
|
Total
|
|
|
|
($0.01
par value)
|
|
paid-in
Capital
|
|
Stock-Based
|
|
deficit
|
|
|
|
|
|
Shares
|
|
Amount
|
|
(As
restated)
|
|
Consulting
|
|
(As
restated)
|
|
(As
restated)
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at February 29, 2004
|
|
|
11,667,309
|
|
$
|
1,166,730
|
|
$
|
689,780
|
|
$
|
(288,750
|
)
|
$
|
(807,466
|
)
|
$
|
760,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
placement sales
|
|
|
981,600
|
|
|
98,160
|
|
|
392,640
|
|
|
|
|
|
|
|
|
490,800
|
|
Consultant
agreement
|
|
|
250,000
|
|
|
25,000
|
|
|
100,000
|
|
|
(125,000
|
)
|
|
|
|
|
-
|
|
Acquisition
of CNS
|
|
|
405,050
|
|
|
40,505
|
|
|
364,545
|
|
|
(130,050
|
)
|
|
|
|
|
275,000
|
|
Expense
of deferred - stock based consulting
|
|
|
|
|
|
|
|
|
|
|
|
122,260
|
|
|
|
|
|
122,260
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(986,193
|
)
|
|
(986,193
|
)
|
Balance
at February 28, 2005
|
|
|
13,303,959
|
|
|
1,330,395
|
|
|
1,546,965
|
|
|
(421,540
|
)
|
|
(1,793,659
|
)
|
|
662,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares
|
|
|
100,000
|
|
|
10,000
|
|
|
15,000
|
|
|
|
|
|
|
|
|
25,000
|
|
Previously
recorded subscription receivable
|
|
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
(25,000
|
)
|
Shares
issued for services
|
|
|
1,841,639
|
|
|
184,165
|
|
|
634,133
|
|
|
|
|
|
|
|
|
818,298
|
|
Shares
issued for executive compensation
|
|
|
120,000
|
|
|
12,000
|
|
|
44,400
|
|
|
|
|
|
|
|
|
56,400
|
|
Expense
of deferred - stock based consulting
|
|
|
|
|
|
|
|
|
|
|
|
421,540
|
|
|
|
|
|
421,540
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,790,288
|
)
|
|
(3,790,288
|
)
|
Balance
at February 28, 2006
|
|
|
15,365,598
|
|
$
|
1,536,560
|
|
$
|
2,215,498
|
|
$
|
-
|
|
$
|
(5,583,947
|
)
|
$
|
1,831,889
|
)
|
ITEM
8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Our
accountant is Jewett Schwartz & Associates, CPA. We do not presently intend
to change accountants. At no time have there been any disagreements with such
accountants regarding any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
ITEM
8A.
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 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
not made any changes to our internal controls or procedures during
the
fourth quarter of 2006. We have identified 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.
Critical
Accounting Policies
Our
financial statements and related public financial information are based on
the
application of accounting principles generally accepted in the United States
(“GAAP”). GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on
the
assets, liabilities, revenue and expense amounts reported. These estimates
can
also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition.
We
believe our use if estimates and underlying accounting assumptions adhere to
GAAP and are consistently and conservatively applied. We base our estimates
on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our financial
statements.
Our
significant accounting policies are summarized in Note 1 of our financial
statements. While all these significant accounting policies impact our financial
condition and results of operations, our views certain of these policies as
critical. Policies determined to be critical are those policies that have the
most significant impact on our financial statements and require management
to
use a greater degree of judgment and estimates. Actual results may differ from
those estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments
or
estimate methodologies would cause effect on our consolidated results of
operations, financial position or liquidity for the periods presented in this
report.
16
PART
III
ITEM
9.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors,
Executive Officers and Significant Employees
The
following sets forth, as of June 13, 2006, the names and ages of our directors,
executive officers, and other significant employees; the date when each director
was appointed; and all positions and offices held by each. Each director will
hold office until the next annual meeting of shareholders and until his or
her
successor has been elected and qualified:
Name
|
Age
|
Positions
Held
|
Date
Appointed Director
|
|
|
|
|
John
H. Treglia
|
63
|
Director,
President, and, CEO and CFO
|
January
18, 2000
|
Dr. Frank
Castanaro
|
54
|
Secretary
and Director
|
February
17, 2000
|
Set
forth
below is information regarding the principal occupations of each current
director during the past five years or more. None of the directors or principal
executive officers holds the position of director in any other public
company.
John
H.
Treglia is a graduate of Iona College, from which he received a BBA in
Accounting in 1964. Since January 18, 2000, he has served as our president,
secretary, and a director, devoting such time to our business and affairs as
is
required for the performance of his duties. From 1964 until 1971,
Mr. Treglia was employed as an accountant by Ernst & Ernst. Thereafter,
he founded and operated several businesses in various areas. From 1994 through
1998, Mr. Treglia served as a consultant to several companies which were in
Chapter 11. These included J.R.B. Contracting, Inc., Laguardia Contracting,
and
Melli-Borrelli Associates. In 1996, Mr. Treglia founded Accutone Inc., a
company engaged in the business of manufacturing and distributing hearing aids.
He has served as our CEO since such time.
Dr. Frank
Castanaro received a Bachelor of Science degree from the University of Scranton
in 1974. In 1978, he graduated from Georgetown University School of Dentistry
and has been in private practice as a dentist since such time.
Dr. Castanaro was appointed as our director on February 17, 2000.
Dr. Castanaro has assisted two large ophthalmology practices to introduce
and expand their activities in Laser therapy, including, but not limited to,
Lasik procedures. Dr. Castanaro presently practices dentistry in
partnership with Dr.’s Joseph C. Fontana and John B. Fontana in Peekskill, New
York, and has a solo practice in Yonkers, New York. Dr. Castanaro is a
member of the American Dental Association, the Dental Society of the State
of
New York, the Ninth District Dental Society, and the Peekskill-Yorktown Dental
Society.
Code
of
Ethics.
The
company has adopted a Code of Ethics applicable to its Chief Executive Officer
and Chief Financial Officer.
ITEM
10.
EXECUTIVE COMPENSATION
SUMMARY
COMPENSATION TABLE
The
Summary Compensation Table shows compensation information for each of the fiscal
years ended February 28, 2006, February 28, 2005 and February 28, 2004 for
all
persons who served as our chief executive officer. No other executive officers
received compensation in excess of $100,000 during the fiscal year ended
February 28, 2006.
ANNUAL
COMPENSATION
Name
and Principal Position
|
Year
|
Salary
|
Other
Compensation
|
|
|
|
|
John
H. Treglia ,
|
2006
|
$29,800
|
120,000
shares
|
Chief
Executive
|
2005
|
$32,000
|
357,142
shares
|
Officer,
Secretary and Director
|
2004
|
-0-
|
357,142
shares
|
|
|
|
|
Dr. Frank
Castanaro
|
2006
|
-0-
|
0
|
Secretary
and Director
|
2005
|
-0-
|
0
|
|
2004
|
-0-
|
0
|
Pursuant
to his employment agreement, John H. Treglia is to receive a total of $150,000
per year. For the fiscal year end February 28, 2006, Mr. Treglia received
$29,800 in salary plus 120,000 shares. Mr. Treglia agreed to waive his
rights to the balance owed to him under his employment agreement.
ITEM
11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security
Ownership of Certain Beneficial Owners
The
following table sets forth information as of June 13, 2006, with respect to
the
persons known to us to be the beneficial owners of more than 5% of our common
stock, $.10 par value. We know of no person, other than those listed in the
Management’s Shareholdings Table, below, who owns more than 5% of our common
stock. The following table sets forth information as of June 13, 2006, with
respect to the beneficial ownership of our common stock, $.10 par value, of
each
of our executive officers and directors and all executive officers and directors
as a group:
PRINCIPAL
SHAREHOLDERS TABLE
Title
Of Class Owner
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial
Class
|
Percent
of Class
|
|
|
|
|
Common
|
Carlyn
A. Barr(1)
13-44
Henrietta Court
Fair
Lawn, NJ 07410
|
2,837,026
|
18.46%
|
|
|
|
|
Common
|
Park
Avenue Health Care Management
One
North Lexington Avenue
White
Plains, New York 10601
|
1,200,000
|
7.81%
|
|
|
|
|
Common
|
Dr. Frank
J. Castanaro
71
Bradford Boulevard
Yonkers,
NY 10710
|
733,000
|
4.77%
|
(1)
|
Carlyn
A. Barr is the wife of John H. Treglia. John Treglia has disavowed
any
interest in the shares of common stock owned by Ms. Barr.
|
Security
Ownership of Management
The
following table sets forth information as of June 13, 2006, with respect to
the
shareholdings of the Company’s executive officers and directors.
Title
Of Class Owner
|
Name
and Address of Beneficial
Owner
|
Amount
and Nature of Beneficial
Class (1)
|
Percent
of Class
|
|
|
|
|
Common
|
John
H. Treglia
13-44
Henrietta Court
Fair
Lawn, NJ 07410
|
0
|
0
|
|
|
|
|
Common
|
Dr. Frank
J. Castanaro
71
Bradford Boulevard
Yonkers,
NY 10710
|
733,000
|
4.77%
|
|
|
|
|
Common
|
All
directors and
officers
as a group
(2
persons)
|
733,000
|
4.77%
|
|
|
|
|
Pursuant
to the rules of the Securities and Exchange Commission, shares of our common
stock, which an individual or member of a group has a right to acquire within
60
days pursuant to the exercise of options or warrants, are deemed to be
outstanding for the purpose of computing the ownership of such individual or
group, but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table. Accordingly, where
applicable, each individual or group member’s rights to acquire shares pursuant
to the exercise of options or warrants are noted below.
Medical
and Professional Advisory Board
Due
to
the change in direction of the business, the Company’s Medical and Professional
Advisory Board has been dissolved.
ITEM
12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The
following is a description of any transactions during the fiscal year ended
February 28, 2006 or any presently proposed transactions, to which we were,
or
are, to be a party, in which the amount involved in such transaction (or series
of transactions) was $60,000 or more and which any of the following persons
had
or is to have a direct or indirect material interest: (ii) any of our directors
or executive officers; (ii) any person who owns or has the right to acquire
5%
or more of our issued and outstanding common stock; and (iii) any member of
the
immediate family of any such persons. Current management is not aware of any
requirements, which may have been in effect prior to January 2000, with respect
to the approval of related transactions by independent directors. Because of
its
current limited management resources, the company does not presently have any
requirement respecting the necessity for independent directors to approve
transactions with related parties. All transactions are approved by the vote
of
the majority, or the unanimous written consent, of the full board of directors.
All member so the board of directors all members of the board of directors,
individually and/or collectively, could have possible conflicts of interest
with
respect to transactions with related parties.
Employment
Agreement with John H. Treglia
On
April
3, 2000, we entered into an employment agreement with John H. Treglia, our
President and CEO. The agreement provides for an annual salary in the amount
of
$150,000 and a term of three years. On April 3, 2003 we entered into an
amendment to such employment agreement extending the terms of the agreement
for
an additional five years based on the same terms and conditions.
Mr. Treglia has agreed to waive the right to be paid in cash until, in the
opinion of the board of directors; we have sufficient financial resources to
make such payments. In lieu of cash salary payments, Mr. Treglia may accept
shares of common stock at, or at a discount from the market price. His agreement
provides for the possibility of both increases in salary and the payment of
bonuses at the sole discretion
of
the
board of directors, participation in any pension plan, profit-sharing plan,
life
insurance, hospitalization of surgical program or insurance program adopted
by
us (to the extent that the employee is eligible to do so under the provisions
of
such plan or program), reimbursement of business related expenses, for the
non-disclosure of information which we deem to be confidential to it, for
non-competition with us for the two-year period following termination of
employment with us and for various other terms and conditions of employment.
We
do not intend to provide any of our employees with medical, hospital or life
insurance benefits until our board of directors determines that we have
sufficient financial resources to do so.
ITEM
13. EXHIBITS
EXHIBIT
|
DESCRIPTION
|
|
|
31.1
|
Chief
Executive Officer’s and Chief Financial Officer’s certification pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Chief
Executive Officer’s and Chief Financial Officer’s certification pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the
Sarbanes-Oxley Act of
2002
|
WE
HAVE
TO FILE MATERIAL AGREEMENTS
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit
Fees
For
the
Company’s fiscal year ended February 28, 2006, we were billed approximately
$17,500 for professional services rendered for the audit of our financial
statements. We also were billed approximately $18,500 for the review of
financial statements included in our periodic and other reports filed with
the
Securities and Exchange Commission for our year ended February 28,
2005.
Tax
Fees
For
the
Company’s fiscal year ended February 28, 2006, we were billed $0 for
professional services rendered for tax compliance, tax advice, and tax
planning.
All
Other
Fees
The
Company paid an additional $63,5000 for other fees related to services rendered
by our principal accountant during the fiscal year ended February 28,
2006.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act
of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized, in the City of Yonkers, State of
New
York.
COMPREHENSIVE
HEALTHCARE SOLUTIONS, INC.
|
November
2, 2006
|
By
/s/
John H. Treglia
|
|
|
John
H. Treglia, President and CEO
|
|
|
|
By:
/s/ Frank Castanaro
|
|
Dr. Frank
Castanaro, Secretary
|
November
2, 2006
|
By
/s/
John H. Treglia
|
|
|
John
H. Treglia, Director
|
|
|
|
By:
/s/ Frank Castanaro
|
|
Dr. Frank
Castanaro, Director
|
EXHIBIT
SCHEDULE
10.1
|
Larry
A. Brand Convertible note
|
10.2
|
Comprehensive
Associates LLC Convertible note
|
10.3
|
Comprehensive
Associates LLC Subscription agreement
|
10.4
|
Comprehensive
Associates LLC Registration agreement
|
10.5
|
Comprehensive
Associates LLC Warrant 1
|
10.6
|
Comprehensive
Associates LLC Warrant 2
|
10.7
|
Comprehensive
Associates LLC Warrant 3
|
10.8
|
Comprehensive
Associates LLC Warrant 4
|
10.9
|
Comprehensive
Associates LLC Warrant 5
|
10.10
|
Comprehensive
Associates LLC Consulting agreement
|
10.11
|
Nite
Capital, LP Convertible note
|
10.12
|
Nite
Capital, LP Warrant A
|
10.13
|
Nite
Capital, LP Warrant B
|
10.14
|
Nite
Capital, LP Warrant C
|
10.15
|
Nite
Capital, LP Subscription agreement
|
10.16
|
Nite
Capital, LP Registration agreement
|
10.17
|
Allan
Roberts convertible note
|
CERTIFICATIONS
31.1
|
Chief
Executive Officer’s and Chief Financial Officer’s certification pursuant
to Section 302 of the Sarbanes-Oxley Act of
2002
|
32.1
|
Chief
Executive Officer’s and Chief Financial Officer’s certification pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the
Sarbanes-Oxley Act of 2002
|