Net
Operating Expenses
.
Operating expenses for the three
months ended June 30, 2009, were $926,036 compared to the three months ended
June 30, 2008, which were $1,226,975. This decrease of $300,939 was the result
of a decrease of $287,996 in corporate expenses related to reduced legal,
accounting, and consulting costs. Medical spa expenses decreased $65,406 as a
result of a decrease in administrative staffing as well as the transition of several
full-time service provider positions to part-time. These decreases were offset
by an increase of $52,463 in medical clinic operating expenses related to
increased service revenues.
Corporate
expenses decreased $287,996, primarily due to a decrease of $177,982 in
accounting, legal, and consulting fees associated with our registration
statement filed with the SEC. The majority of the accounting and legal expense
for the SEC registration was recognized during the first and second quarters of
2008. Corporate consulting costs also decreased $107,565 based on 2008
consulting agreements for a total of $108,965 related to the medical spa and an
exploration of expansion possibilities. We incurred only $1,400 in consulting
costs for the three months ended June 30, 2009.
Medical
spa expenses decreased as a result of a reduction in administrative staffing as
well as the transition of several full-time service provider positions to
part-time status. Staffing costs for the medical spa decreased $44,914 from
$113,594 for the three months ended June 30, 2009 compared to $68,680 for the
three months ended June 30, 2008. Expenses related to spa products decreased
$20,507 in response to lower sales of several product lines.
Medical
clinic operating expenses increased to support higher service revenues. Medical
provider labor costs increased $114,733 as a result of adding a full-time
physician in March 2009 as well as a full-time physician’s assistant in July
2008, and several part time physician’s assistants and advance nurse
practitioners throughout the fourth quarter of 2008 and first quarter of 2009.
This increase was partially offset by a $10,440 reduction in marketing costs,
$10,000 reduction in physician recruitment costs, as well as $10,709 reduction
in administrative staffing.
Operating
Income (Loss).
Operating income for the three months
ended June 30, 2009 was $14,085 compared to an operating loss of $447,315 for
the three months ended June 30, 2008. This increase of $461,400 was primarily
the result of the combined impact of increased revenue and decreased operating
expenses discussed above.
Net
Interest Expense
.
Our net interest expense for the three
months ended June 30, 2009 was $63,933 compared to $66,644 for the three months
ended June 30, 2008.
Net
Loss Applicable to Common Stock.
Net loss for the
three months ended June 30, 2009 was $49,848 compared to a net loss of $513,959
for the three months ended June 30, 2008. This decrease of $464,111 is primarily
the result of the items discussed above.
Six
months ended June 30, 2009 compared to the six months ended June 30, 2008
Net
Revenues
.
We had net revenues for the six months ended
June 30, 2009, of $1,870,457 compared to the six months ended June 30, 2008,
which was $1,631,206. This increase of $239,251 is primarily the result of the
increase in medical service revenues of $242,319 due to continued increases in
medical client visits. Medical client visits increased from 13,876 for the six months
ended June 30, 2008, to 16,550 for the six months ended June 30, 2009, an
increase of 19%. The increase in medical clinic visits is attributed to
continued success in attracting new medical clients and keeping established
clients. Established client visits were 13,195 for the six months ended June
30, 2009 compared to 10,429 for the six months ended June 30, 2008, an increase
of 27%. New client visits accounted for 3,355 visits for the six months ended
June 30, 2009, compared to 3,447 visits for the six months ended June 30, 2008,
a decrease of 3%.
Net
Operating Expenses
.
Operating expenses for the six months
ended June 30, 2009 were $1,902,952 compared to the six months ended June 30,
2008, which were $1,973,444. This decrease of $70,492 was the result of an
increase of $184,976 in medical clinic operating expenses related to increased
service revenues and staffing costs to improve client service. Medical spa
operating expenses decreased $86,031 due to decreases in administrative
staffing as well as the transition of several full-time service provider
positions to part-time status. Decreased corporate expenses accounted for the
remaining $169,437 decrease, due to reduced costs from our registration
statement filed with the SEC and a reduction in various consulting costs.
Medical
clinic operating expenses increased to support higher service revenues and
staffing costs to improve client service. Physician compensation increased
$110,049 and medical staff payroll increased $39,277 for the six months ended
June 30, 2009, compared to the six months ended June 30, 2008. Supplies expense
($30,169) and laboratory service expenses ($20,998) also increased in response
to our higher medical clinic revenue during the same reporting period.
16
Medical
spa expenses decreased as a result of a reduction in administrative staffing as
well as the transition of several full-time service provider positions to
part-time status. Staffing costs for the medical spa decreased $45,553 from
$136,198 for the six months ended June 30, 2009, compared to $181,751 for the
six months ended June 30, 2008. Expenses related to spa products decreased
$32,058 in response to lower sales of several product lines.
Corporate
expenses decreased $169,437, primarily due to a decrease of $72,026 in
accounting, legal, and consulting fees associated with our registration
statement filed with the SEC. The majority of the accounting and legal expense
for the SEC registration was recognized during the six months ended June 30,
2008. Corporate consulting costs also decreased $107,565 based on 2008
consulting agreements for a total of $108,965 related to the medical spa and an
exploration of expansion possibilities. We incurred only $1,400 in consulting
costs for the six months ended June 30, 2009.
Operating
Loss.
The operating losses for the six months ended June
30, 2009 and 2008 were $32,495 and $342,238, respectively. This decrease of
$309,743 was primarily the result of the combined impact of increased revenue
and decreased operating expenses discussed above.
Net
Interest Expense
.
Our net interest expense for the six
months ended June 30, 2009 was $117,857 compared to $136,221 for the six months
ended June 30, 2008. This decrease of $18,364 was primarily the result of
reduced amortization of the debt discount recorded for the subordinated
convertible debentures. The decrease in amortization of debt discount was
$31,201, from $17,093 for the six months ended June 30, 2009 compared to
$48,294 for the six months ended June 30, 2008. We also saw reduced interest
expense due to a decrease in our Small Business Administration loan in April
2008. The bank holding our Small Business Administration loan released the
restriction on a $250,000 certificate of deposit, which we used to reduce the
principal of the loan. This reduced the monthly debt service of the note,
thereby reducing interest expense. These decreases were partially offset by
increased interest expense recognized on a note payable to a related party. The
funds were utilized primarily to pay for expenses related to our SEC
registration statement.
Net
Loss Applicable to Common Stock.
Net loss for the
six months ended June 30, 2009 was $150,352 compared to $478,459 for the six
months ended June 30, 2008. This decrease of $328,107 is primarily the result
of the items discussed above.
Liquidity
and Capital Resources
As
of June 30, 2009, we had a working capital deficit of $1,767,000, resulting
from current liabilities of $2,119,980. For the six months ended June 30, 2009,
net cash flow used in operating activities totaled $97,681. Cash used in
investing activities totaled $5,294. Cash provided by financing activities
totaled $59,511; including $84,004 in debt reductions, which were offset by
$143,515 in borrowings from stockholders.
Our
days in medical accounts receivables were 31 days and 39 days as of June 30,
2009 and December 31, 2008, respectively. All medical spa services and product
sales are paid at the point of service by credit cards, debit cards, checks or
cash. Accounts receivable related to medical spa services are not material and
are not included in this analysis. Medical clinic services provided by
Northwest Arkansas Primary Care Physicians are generally submitted for billing
to third-party insurance companies or Medicare within 48 hours of the time of
service. We have engaged a professional medical billing company to submit the
claims to insurers. Most claims are submitted electronically to the insurance companies
and Medicare. These claims become accounts receivable at the time they are
submitted to the insurance company. The aging of accounts receivable begins at
the date of the billing submission. Insurance companies then review the
electronic billing and either ask for more/corrected information, deny the
particular service or part of a service or pay it (electronically to a bank
lock box) or by check mailed. In addition, each insurance company adjusts the
billing amount for each specific service to the “insurance allowable rate” as
specified in that insurance company’s contract with Northwest Arkansas Primary
Care Physicians. The insurance company will also identify any portions of the
billing that are to be paid by the insured client (client responsible). These
reviews and adjustments are communicated along with payments to us in an
Explanation of Benefits.
We
calculate days sales outstanding using average daily sales over the previous
three months to arrive at an average daily charge amount. Medical clinic
accounts receivable as of the end of the period is divided by the average daily
charge amount to arrive at days sales outstanding. Below is a calculation of
the days sales outstanding as reported above:
17
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Three Months
|
|
|
|
|
Ended
|
|
Ended
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Medical Clinic Revenue (1)
|
|
$
|
1,177,537
|
|
$
|
1,174,388
|
|
|
Expense recorded for Contractual adjustment/Bad
Debt Allowance
|
|
|
(407,100
|
)
|
|
(408,955
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Medical Clinic Revenue
|
|
$
|
770,437
|
|
$
|
765,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of Days in period (2)
|
|
|
91
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily Charge (3) = (1) / (2)
|
|
$
|
12,940
|
|
$
|
12,765
|
|
|
|
|
|
|
|
|
|
|
|
Medical Clinic Accounts Receivable (4)
|
|
$
|
405,497
|
|
$
|
497,303
|
|
|
Other Accounts Receivable
|
|
$
|
19,035
|
|
$
|
31,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
424,532
|
|
$
|
528,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days in medical accounts receivable = (4) /
(3)
|
|
|
31
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
We
make every effort to collect any anticipated “client responsible” portions of a
service bill (such as a co-pay or deductible) at the time of service. Payments
by the insurance companies are posted to each client’s account at the time it
is received. Client payments are also posted as received. Accounts receivable
are then reduced by the amounts of insurance contractual adjustments, insurance
payments and client payments. At the time any amounts are determined to be owed
by the client; printed bills are sent to the responsible party of the client.
During all of these collection processes from the time of the initial billing
date to the insurance companies, the accounts are individually and collectively
aged. Due to the complexities of medical insurance policies, employer specific
policies, and coverage qualifications, some appeals and interactions with
insurance companies can result in three to six months of claim reconciliation.
If the client does not respond after three mailed billings, then the account is
turned over to a collection company that pursues collection from the client.
When an account is turned over for collection, it is removed from the accounts
receivable and maintained in a bad debt recovery account and reserved at its
estimated realizable value. If the collection company fails in locating the
client or in collecting the account due, then the balance of the account is
written off against the allowance. Any amounts due under $5.00 are immediately
written off due to the cost of collection exceeding the expected collection
recovery.
We
expect significant capital expenditures during the next 12 months, contingent
upon raising capital. These anticipated expenditures are for opening an
additional office, property and equipment, overhead and working capital
purposes. We have sufficient funds to conduct our operations for a few months,
but not for 12 months or more. We anticipate that we will need an additional
$1,500,000 to fund our anticipated operations for the next 12 months, depending
on revenues from operations. We have no contracts or commitments for additional
funds and there
can be no assurance that financing will be available in amounts or on terms
acceptable to us, if at all.
By
adjusting our operations and development to the level of capitalization, we
believe we have sufficient capital resources to meet projected cash flow
deficits for the remainder of 2009. However, if during that period or
thereafter, we are not successful in generating sufficient liquidity from
operations or in raising sufficient capital resources, on terms acceptable to
us, this could have a material adverse effect on our business, results of
operations, liquidity and financial condition.
We
presently do not have any available credit, bank financing or other external
sources of liquidity. Due to our brief history and historical operating losses,
our operations have not been a source of liquidity. We will need to obtain
additional capital in order to expand operations and become profitable. In
order to obtain capital, we may need to sell additional shares of our common
stock or borrow funds from private lenders. There can be no assurance that we
will be successful in obtaining additional funding.
To
the extent that we raise additional capital through the sale of equity or
convertible debt securities, the issuance of such securities may result in
dilution to existing stockholders. If additional funds are raised through the
issuance of debt securities, these securities may have rights, preferences and
privileges senior to holders of common stock and the terms of such debt could
impose restrictions on our operations. Regardless of whether our cash assets
prove to be inadequate to meet our operational needs, we may seek to compensate
providers of services by issuance of stock in lieu of cash, which may also result
in dilution to existing shareholders. Even if we are able to raise the funds
required, it is possible that we could incur unexpected costs and expenses,
fail to collect significant amounts owed to us, or experience unexpected cash
requirements that would force us to seek alternative financing.
18
Whereas
we have been successful in the past in raising capital, no assurance can be
given that these sources of financing will continue to be available to us
and/or that demand for our equity/debt instruments will be sufficient to meet
our capital needs, or that financing will be available on terms favorable to
us. If funding is insufficient at any time in the future, we may not be able to
take advantage of business opportunities or respond to competitive pressures,
or may be required to reduce the scope of our planned service development and
marketing efforts, any of which could have a negative impact on our business
and operating results. In addition, insufficient funding may have a material
adverse effect on our financial condition, which could require us to:
|
|
|
|
|
|
•
|
curtail operations significantly;
|
|
|
|
|
|
|
•
|
sell significant assets;
|
|
|
|
|
|
|
•
|
seek arrangements with strategic partners or other
parties that may require us to relinquish significant rights to products,
technologies or markets; or
|
|
|
|
|
|
|
•
|
explore other strategic alternatives including a
merger or sale of our company.
|
Critical Accounting Policies
Accounts
Receivable
Accounts
receivable principally represent receivables from customers and third-party
payors for medical services provided by clinic physicians, less an allowance
for contractual adjustments and doubtful accounts. We utilize a third party
billing organization that estimates the collectability of receivables based on
industry standards and our collection history. We recorded contractual
adjustments and bad debt expense of approximately $802,000 and $682,000 for the
six months ended June 30, 2009 and 2008, respectively. We recorded contractual
adjustments and bad debt expense of approximately $407,000 and $314,000 for the
three months ended June 30, 2009 and 2008, respectively. Our revenues and
receivables are reported at their estimated net realizable amounts and are
subject to audit and adjustment. Provisions for estimated third-party payor
settlements are provided in the period the related services are rendered and
are adjusted in the period of settlement. Actual settlements could have an
adverse material effect on our financial position and operations.
Our
accounts receivable include amounts that are pending approval from third party
payors. Claims for insured clients are first filed with insurance, at which
time the net realizable amount is unknown. The insurance company processes the
claim and calculates the payment made to us. The following factors are among
those considered by the insurance company: adjustments based on contracted
amounts for specific procedures, outstanding deductible for the client, and
co-insurance percentages. Our billing system does not separately track claims
that are pending approval. Our billing system also does not track claims that
are denied by a third party payor and ultimately paid by the client. Thus, the
amount of claims classified as insurance receivables that are reclassified to
self-pay is not quantifiable. We calculate allowances for contractual
adjustments and bad debts based on total accounts receivable outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009
|
|
|
|
|
|
|
|
|
|
60
days or less
|
|
61 –
120 days
|
|
Greater
than 120 days
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare/Medicaid
|
|
$
|
19,513
|
|
$
|
3,699
|
|
$
|
4,157
|
|
$
|
27,369
|
|
|
Third party insurance (1)
|
|
|
168,269
|
|
|
25,796
|
|
|
33,287
|
|
|
227,353
|
|
|
Self pay (2)
|
|
|
19,809
|
|
|
21,523
|
|
|
109,444
|
|
|
150,776
|
|
|
Other
|
|
|
8,208
|
|
|
405
|
|
|
10,423
|
|
|
19,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accounts
Receivable
|
|
$
|
215,799
|
|
$
|
51,423
|
|
$
|
157,311
|
|
$
|
424,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
60
days or less
|
|
61 –
120 days
|
|
Greater
than 120 days
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare/Medicaid
|
|
$
|
19,173
|
|
$
|
1,966
|
|
$
|
2,691
|
|
$
|
23,830
|
|
|
Third party insurance (1)
|
|
|
224,900
|
|
|
40,113
|
|
|
48,859
|
|
|
313,872
|
|
|
Self pay (2)
|
|
|
31,883
|
|
|
28,891
|
|
|
98,827
|
|
|
159,601
|
|
|
Other
|
|
|
15,873
|
|
|
5,173
|
|
|
10,362
|
|
|
31,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accounts
Receivable
|
|
$
|
291,829
|
|
$
|
76,143
|
|
$
|
160,739
|
|
$
|
528,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Third party insurance represents claims made to
insurance companies not classified as Medicare, Medicaid, or other
government-backed program.
|
|
|
|
|
(2)
|
Self pay receivables are defined as all amounts due
from individuals. The amounts can include amounts due from uninsured clients
and co-payments or deductibles.
|
Revenue
Recognition
We
recognize revenue in accordance with Securities and Exchange Commission (SEC)
Staff Accounting Bulletin No. 104,
Revenue Recognition in Financial Statements
(SAB 104). Under SAB 104, revenue is recognized when the title and risk of loss
have passed to the customer, there is persuasive evidence of an arrangement,
delivery has occurred or services have been rendered, the sales price is
determinable and collectability is reasonably assured.
Our
net revenue is comprised of net clinic revenue and revenue derived from the
sales of spa services and related products. Net clinic revenue is recognized at
the time of service and is recorded at established rates reduced by provisions
for doubtful accounts and contractual adjustments. Contractual adjustments
arise as a result of the terms of certain reimbursement and managed care
contracts. Such adjustments represent the difference between charges at
established rates and estimated recoverable amounts and are recognized in the
period the services are rendered. Any differences between estimated contractual
adjustments and actual final settlements under reimbursement contracts are
recognized in the year they are determined.
Spa
revenues are recognized at the time of sale, as this is when the services have
been provided or, in the case of product revenues, delivery has occurred, and the
spa receives the customer’s payment. Revenues from pre-paid purchases are also
recorded when the customer takes possession of the merchandise or receives the
service. Pre-paid purchases are defined as either gift cards or series sales.
Series sales are the purchase of a series of services to be received over a
period of time. Pre-paid purchases are recorded as a liability (deferred
revenue) until they are redeemed. Gift cards expire two years from the date of
the customer’s purchase. Series sales do not carry an expiration date.
Earnings
Per Share
We
calculate and disclose earnings per share (EPS) in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128,
Earnings
Per Share
(SFAS 128). SFAS 128 requires dual presentation of Basic
and Diluted EPS on the face of the statements of operations and requires a
reconciliation of the numerator and denominator of the Basic EPS computation to
the numerator and denominator of the Diluted EPS computation. Basic EPS
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in our earnings.
In
computing Diluted EPS, only potential common shares that are dilutive — those
that reduce earnings per share or increase loss per share — are included.
Exercise of options and warrants or conversion of convertible securities is not
assumed if the result would be antidilutive, such as when a loss from
continuing operations is reported. The “control number” for determining whether
including potential common shares in the Diluted EPS computation would be
antidilutive is income from continuing operations. As a result, if there is a
loss from continuing operations, Diluted EPS would be computed in the same
manner as Basic EPS, even if an entity has net income after adjusting for
discontinued operations, an extraordinary item or the cumulative effect of an
accounting change. We incurred a loss from continuing operations for the three
and six month periods ended June 30, 2009 and 2008. Therefore, basic EPS and
diluted EPS are computed in the same manner for that period. Anti dilutive
and/or non-exercisable warrants and convertible preferred stock and convertible
subordinated debentures represent approximately 17,700,000 and 15,200,000
common shares at June 30, 2009 and 2008, respectively, which may become
dilutive in future calculations of EPS.
Share-Based
Payment
In
December 2004, the Financial Accounting Standards Board issued SFAS No. 123R,
Share-Based
Payment
(SFAS 123R).
SFAS 123R is a revision of SFAS 123,
Accounting for Stock-Based Compensation
,
and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees
,
and its related implementation guidance. Under paragraph 7 of SFAS 123R, if the
fair value of goods or services received in a share-based payment transaction
with nonemployees is more reliably measurable than the fair value of the equity
instruments issued, the fair value of the goods or services received shall be
used to measure the transaction. In contrast, if the fair value of the equity
instruments issued in a share-based payment transaction with nonemployees is
more reliably measurable than the fair value of the consideration received, the
transaction shall be measured
19
based on the fair value of the equity instruments
issued. We utilized the fair value of the equity instruments issued to
nonemployees to value the shares issued. We recognize the fair value of
stock-based compensation awards in general corporate expense in the
consolidated statements of operations on a straight-line basis over the vesting
period.
In
January 2009, we entered into a one year agreement with a consulting company
for public and investor relations services. Pursuant to the original agreement,
we agreed to pay the consultant $6,000 per month ($72,000 per year) and issue
348,600 shares of common stock. As of June 30, 2009, we had not issued the
shares. Subsequent to June 30, 2009, we exercised the termination clause in the
contract and the consultant agreed to reduce the number of shares of stock to
261,450. The shares have been valued at $0.08888 and $23,238 has been recorded
as an accrued liability on our balance sheet and as general corporate expense
on our income statement for the issuance of the shares.
In
April 2009, we agreed to issue 1,250,000 shares of common stock to a related
party and stockholder as part of the issuance of a $443,123 subordinated
convertible debenture. The shares have been valued at $0.08888 per share and
the cost has been recorded as deferred debt financing costs and will be
amortized over the life of the associated debenture.
Recent Accounting Pronouncements
In
March 2008, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 161,
Disclosures
about Derivative Instruments and Hedging Activities — an amendment of FASB
Statement No. 133
(SFAS 161). SFAS 161 requires enhanced
disclosures about an entity’s derivative and hedging activities, including
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of and gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. SFAS 161 is effective for fiscal years and
interim periods beginning after November 15, 2008. We adopted SFAS 161 as
of January 1, 2009. The adoption of SFAS 161 did not have a material effect on
our financial statements and related disclosures.
In
April 2009, the Financial Accounting Standards Board issued FASB Staff Position
No. FAS 107-1 and APB 28-1,
Interim
Disclosure about Fair Value of Financial Instruments
(FSP 107-1).
FSP 107-1 amends FASB Statement No. 107,
Disclosures
about Fair Value of Financial Instruments
, to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. FSP 107-1
also amends APB Opinion No. 28,
Interim
Financial Reporting
, to require those disclosures in summarized
financial information at interim reporting periods. FSP 107-1 is effective for
interim reporting periods ending after June 15, 2009. We adopted FSP 107-1 as
of April 1, 2009. The disclosures related to FSP 107-1 are included in Note 11.
In
May 2009, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 165,
Subsequent Events
(SFAS 165). SFAS 165 establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. SFAS 165 became effective for interim or annual
reporting periods ending after June 15, 2009. We adopted SFAS 165 as of April
1, 2009. The disclosures required by SFAS 165 are included in Note 12.
In
June 2009, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 167,
Amendments to FASB Interpretation
No. 46(R)
(SFAS 167). This Statement amends Interpretation
46(R) to require an entity to perform a qualitative analysis to determine
whether the entity’s variable interest or interests give it a controlling
financial interest in a variable interest entity (VIE). This analysis
identifies the primary beneficiary of a VIE as the entity that has both the
power to direct the activities that most significantly impact the VIE’s
economic performance and the obligation to absorb losses or the right to
receive benefits of the VIE. SFAS 167 amends Interpretation 46(R) to replace
the quantitative-based risks and rewards approach previously required for
determining the primary beneficiary of a VIE. SFAS 167 is effective as of the
beginning of an entity’s first annual reporting period that begins after
November 15, 2009 and for interim periods within that first annual
reporting period. Earlier application is prohibited. We will assess the
application of this Statement on our Consolidated Financial Statements.
In
June 2009, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 168,
The FASB Accounting Standards Codification
TM
and the
Hierarchy of Generally Accepted Accounting Principles – a
replacement of FASB Statement No. 162
(SFAS 168). SFAS 168
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States. SFAS 168 is effective for
interim and annual periods ending after September 15, 2009. We do not expect
the adoption of SFAS 168 to have a material effect on our financial statements
and related disclosures.
20
ITEM 3 –
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
required under Regulation S-K for “smaller reporting companies.”
ITEM 4T
- CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a – 15(e) and 15d – 15(e) under the Securities
Exchange Act of 1934 as of June 30, 2009. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures must reflect the fact that
there are resource constraints and that management is required to apply its
judgment in evaluating the benefits of possible controls and procedures
relative to their costs.
Based
on our evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are designed at a
reasonable assurance level and are effective to provide reasonable assurance
that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting.
We regularly
review our system of internal control over financial reporting and make changes
to our processes and systems to improve controls and increase efficiency, while
ensuring that we maintain an effective internal control environment. Changes
may include such activities as implementing new, more efficient systems,
consolidating activities, and migrating processes.
There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-Q that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
21
PART II - OTHER INFORMATION
Item 1. Legal
Proceedings.
From time to time, we may become involved in various
lawsuits and legal proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result
in these or other matters may arise from time to time that may harm our
business. We are currently not aware of any such legal proceedings or claims
that we believe will have, individually or in the aggregate, a material adverse
affect on our business, financial condition or operating results.
Item 1A. Risk Factors.
Not
required under Regulation S-K for “smaller reporting companies.”
Item 2. Unregistered Sales of Equity
Securities and
Use of Proceeds.
Between
April 2009 and June 2009, we issued 2,981,250 shares of our common stock to
four investors upon the conversion of 11,925 shares of preferred stock.
Between
May 2009 and June 2009, we issued 1,062,556
shares of our common stock to three
investors upon the conversion of $100,000 of convertible subordinated
debentures.
Effective
April 1, 2009, we issued a $443,123 subordinated convertible debenture to
Regent Private Capital, LLC, which is owned by Lawrence Field, one of our
Directors. The debenture was issued for the retirement of $443,123 that Regent
had loaned to us from time to time. The debenture accrues interest at the rate
of 10% per annum, is due on April 1, 2012 and is convertible into shares of our
common stock at a conversion price of $0.08888 per share.
In
June 2009, we issued 1,250,000 shares of common stock to Regent Private
Capital, LLC in connection with the issuance of the subordinated convertible
debenture.
Item 3. Defaults Upon Senior
Securities.
None.
Item 4. Submission of Matters to a
Vote of Security
Holders.
None.
Item 5. Other
Information.
None.
Item 6. Exhibits
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10.01
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Letter Agreement, dated as
of May 11, 2009, by and between WellQuest Medical & Wellness Corporation
and Regent Private Capital, LLC.
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10.02
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Form of Subordinated
Convertible Debenture, issued as of April 1, 2009, issued to Regent Private
Capital, LLC.
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31.01
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Certification of Chief
Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.02
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Certification of Chief
Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.01
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Certifications of Chief
Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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22
SIGNATURES
In accordance with requirements of the Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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WELLQUEST MEDICAL & WELLNESS
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CORPORATION
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Date: August 14, 2009
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By:
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/s/ STEVE SWIFT
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Steve Swift
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Chief Executive Officer (Principal Executive
Officer)
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Date: August 14, 2009
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By:
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/s/ GREG PRIMM
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Greg Primm
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Chief Financial Officer (Principal Financial Officer
and Principal Accounting Officer)
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23
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