UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
| x | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2004
| ¨ | Transition report under Section 13 or 15(d) of the Exchange Act |
Commission file number: 33-55254-36
E Med Future, Inc.
(Exact name of small business issuer as specified in its charter)
| Nevada | 87-0485314 | |
| (State of incorporation) | (I.R.S. Employer Identification No.) | |
| 794 Morrison Road, Suite 911, Columbus, OH 43230 | ||
| (Address of principal executive offices) | ||
| 877-855-1319 | www.NeedleZap.com | |
| (Issuer’s telephone number) | (Issuer’s website) | |
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 28,883,415 shares of common stock, $0.001 par value per share, as of November 1, 2004
Transitional Small Business Disclosure Format (check one): Yes ¨ No x
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| Item 2. |
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| Item 3. |
Controls and Procedures | 7 | ||||
| 8 | ||||||
| Item 1. |
Legal Proceedings | 8 | ||||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 8 | ||||
| Item 3. |
Defaults Upon Senior Securities | 8 | ||||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 8 | ||||
| Item 5. |
Other Information | 8 | ||||
| Item 6. |
Exhibits | 8 | ||||
| 9 | ||||||
| F-1 | ||||||
PART I — FINANCIAL INFORMATION
Our September 30, 2004 unaudited consolidated financial statements follow this quarterly report beginning on page F-1.
Item 2. Management’s Discussion and Analysis
Headquartered in Columbus, Ohio, E Med Future, Inc. manufactures and markets products designed to reduce accidental hypodermic needlestick injuries. Our primary product, NeedleZap®, completely disintegrates the sharp portion of the needle. According to the American Nursing Association, there are an estimated one million accidental needlesticks reported in the United States in the healthcare industry alone. We believe the applications for the product are far reaching, and include healthcare professionals, law enforcement and correctional personnel, veterinarians, military, clinical researchers, hospitality, and sanitation workers. NeedleZap is designed to work within the parameters of recent OSHA needlestick mandates which require employers to take advantage of new technologies to prevent needlesticks in the workplace.
Our primary product is NeedleZap®, a revolutionary safety device intended to help reduce accidental needlestick injuries by disintegrating the sharp portion of a hypodermic needle. When a hypodermic needle is inserted into the unit, the patented electrode system disintegrates the needle in approximately two seconds at 2200° F.
In July 2003, we announced the beginning of clinical testing and market evaluation of the first extensions to the NeedleZap product line which include a dental parking station and butterfly needle burner. Both products are currently in development and we are presently in the process of obtaining patent protection for these new products. We anticipate that both products will involve supplements to our existing FDA pre market approval; therefore, introduction and timing of these products into the marketplace will be contingent on FDA approval.
The dental parking station is intended to provide a safer, temporary resting place for a hypodermic syringe. During a procedure, dentists often reuse a hypodermic needle on the same patient when additional anesthesia is required. Since the needle is not destroyed immediately after the initial use, dentists often recap the needle or leave the needle exposed, increasing the risk of an accidental needlestick injury. The NeedleZap unit sits directly on the dental parking station enabling the dentist to recap, or disintegrate, the hypodermic needle easily with one hand at the end of the procedure, and significantly reducing the risk of a needlestick injury.
The butterfly needle burner is intended to accommodate needles not secured to a hypodermic syringe. Butterfly needles are used primarily for IV’s and kidney dialysis. Since the original NeedleZap unit was intended to disintegrate hypodermic needles held by a syringe, the butterfly needle burner necessitated design modifications, including a change to the housing and repositioning of the electrode system.
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To further expand our product offerings, we have entered into a strategic alliance agreement with UTEK Corporation (AMEX:UTK), an innovative technology transfer company dedicated to building bridges between university developed technologies and commercial organizations. UTEK will identify and evaluate new technologies developed by universities and government laboratories that would be synergistic with our existing product line for our possible acquisition.
On December 30, 2003, we acquired Medical Safety Technologies, Inc. from UTEK. Medical Safety Technologies, or MSTI, holds the worldwide exclusive license to a patented invention, known as the Safe Receptacle for Sharps, that is designed to aid in the safe transport of sterile and used sharp medical instruments. This Emory University invention was developed to help reduce the possibility of needlestick injuries by maintaining medical instruments in an angled, accessible position while encasing their sharp edges. We are enthusiastic about adding the Safe Receptacle for Sharps device to our product line and believe that it is a complimentary technology to our NeedleZap® product. By expanding our future product line, we hope to bring added value to the sales and distribution channel we are building.
In September, we announced that we had entered into a license and distribution agreement with ITDevelopment Solutions, Inc. (“IDS”) granting IDS the exclusive right to manufacture, distribute and sell our NeedleZap unit in Pakistan and the United Arab Emirates. IDS has completed construction of a new high-tech manufacturing facility in Pakistan that will reduce the production cost of the NeedleZap by 58%. IDS bears all of the costs of the new facility as part of the arrangement. We believe that the Pakistani facility will also allow us to produce additional products currently under development for the diabetes patient at greatly reduced cost and time frames. IDS has also added our product line to its significant distribution affiliates in Asia and the Gulf region.
In connection with the IDS arrangement, we entered into a consulting agreement with IDS’ president, Patrick Downs, in which Mr. Downs agreed to perform consulting services as an independent contractor for us. Pursuant to the terms of agreement, we engaged Mr. Downs to render advice and assistance with respect to development of Pakistani manufacturing facility. The agreement provides for the issuance to Mr. Downs of two million shares of our common stock as full compensation for Mr. Downs’ services.
In April, we entered into a distribution and marketing agreement with TransGlobal Medical Sales & Services, LLC of Orlando, Florida. TransGlobal was to serve as an international distribution arm for our products and was required to purchase and pay for 10,000 NeedleZap units within 90 days of the execution of the agreement. When we had not received payment for the units nearly two and one half months past the due date, we notified TransGlobal on October 19, 2004 of the material breach and that we are terminating our agreement. TransGlobal has until November 19, 2004 to cure their breach of our agreement. Please see Note 4 to our attached financial statements at page F-5 for more information about the TransGlobal transaction. Although we believe that we have met our obligations under the TransGlobal agreement, our termination of the agreement may lead to future litigation.
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On November 1, Donald Sullivan joined our management team as CFO. Mr. Sullivan has been a certified public accountant for more than 35 years and a licensed nursing home administrator in the state of Ohio for more than 30 years. He worked for more than 20 years with Castle Nursing Homes, Inc., a nursing home chain consisting of six nursing homes with 525 licensed beds. At Castle, Mr. Sullivan served in a number of capacities, including president, secretary-treasurer and chief financial officer. Most recently, he was vice president and chief financial officer of Capital Furniture Works, Inc. He also has more than 10 years of experience as a partner in various CPA firms. We believe that Mr. Sullivan is an excellent addition to the E Med management team because of his varied experience in both the accounting and healthcare/medical fields.
On November 19, we will host a conference/luncheon for the ambassadors of twenty African nations in Washington, D.C. The purpose of the conference is to showcase NeedleZap, obtain key contact information and explore available funding for medical devices in these countries.
Additionally, we have received a purchase order from Actual Medical Supplies of the Russian Federation for 10,000 NeedleZap units. The requested shipping date is December 15, and we are currently negotiating a licensing and distribution agreement with Actual Medical Supplies for the Russian Federation territory.
Although the United States market has proven to be slow to accept our technology, there are an estimated one million accidental needlesticks reported in the U.S. in the healthcare industry alone. We strongly believe the applications for our products are far reaching. NeedleZap® is designed to work within the parameters of recent OSHA needlestick mandates which require employers to take advantage of new technologies to prevent needlesticks in the workplace. We also believe there is a potential global market in developed as well as developing countries. For example, NeedleZap could be a component in the fight against AIDS in many African countries where the disease is endemic, and the NeedleZap is currently used in 22 hospitals in Uganda and 50 hospitals in Ghana.
We incurred net losses in 2002 and 2003 while we obtained FDA approval for our NeedleZap product, applied for patent protection and entered into distribution relationships. And, of course, we cannot guaranty that sales will increase or that we will be able to attain profitability.
The Company was formed under the laws of the State of Nevada on March 14, 1990, but until last year we were a shell company with no significant operations other than seeking to identify an existing business to acquire. Trading in our stock was dependant on our acquisition of an operating business. On April 4, 2003, we participated in a merger in which we acquired E Med Future, Inc., our operating subsidiary. In connection with the transaction, we issued 19,850,000 unregistered shares of our common stock (95% of our outstanding shares) to the former stockholders of E Med Future.
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Pursuant to the terms of the merger agreement, we changed our corporate name from “Micro-Economics, Inc.” to “E Med Future, Inc.” In addition, our original directors resigned and were replaced by Robert J. Ochsendorf, D. Dane Donohue and Juan J. Perez. Messrs. Ochsendorf and Donohue now serve as our CEO and executive vice president, respectively. Our shares began trading on the Over-the-Counter Bulletin Board under the symbol “EMDF.OB” on April 17, 2003. For additional information about the merger, please see the Current Report on Form 8-K dated April 4, 2003 that we filed with the SEC on April 11, 2003.
In December 2001, we filed a pre-market approval application, or PMA, with The Center for Devices and Radiological Health (CDRH) of the Food and Drug Administration (FDA) for NeedleZap. On the basis of counsel’s advice, we determined that NeedleZap was not regulated by the CDRH as a medical device in veterinarian or law enforcement applications. Therefore, we opted to market NeedleZap in the United States to veterinarians and law enforcement professionals. Revenues generated from these sales would offset the costly and lengthy FDA approval process and provide funding for promotion, tooling, parts and the overall operations.
In July 2002, we received an approvable letter from the FDA stating that NeedleZap met all the requirements for the safety and effectiveness data testing for a Class III medical device. The approvable letter was subject to an FDA inspection that found the manufacturing facilities, methods and controls in compliance with the applicable requirements of FDA quality system regulation. During the manufacturing inspectional phase in August 2002, the FDA requested that we suspend all sales to veterinarian and law enforcement markets until the product was fully approved. We voluntarily complied with the FDA’s request and suspended all sales in U.S. markets.
On March 14, 2003, the FDA issued a final approval order letter for NeedleZap. Final labeling was submitted and approved on March 19, 2003, clearing the way to market NeedleZap in the United States in healthcare facilities and treatment settings.
We are a development stage company. Because we did not have full approval to market and sell our products until March 2003, we do not believe a detailed comparison of results from 2004 to 2003 to be informative. For addition information regarding the history of our business, please see “Our History“ above.
Third Quarter of 2004 Compared to 2003
We had net sales of $322,190 in the quarter ended September 30, 2004, compared with $96,094 for the same period in 2003, an increase of $226,096 or 235.2%. This increase is primarily attributable to our obtaining new distributors for our products in 2004.
Operating costs and expenses increased $136,959, or 250.2%, to $283,142 in the third quarter of 2004 from $146,183 in 2003. As a percentage of net sales, cost of goods sold increased to 58.4% in 2004 from 56.6% in 2003 due to additional expenses in 2004 associated with maintaining FDA compliance for our products.
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Other expenses increased to $16,007 in 2004 from $0 in 2003, due to an increase in interest expense resulting from higher balances outstanding on our interest bearing debt in 2004.
In the third quarter of 2004, we had net income of $73,130, compared to a loss of $50,089 in 2003 as a result of higher net sales which exceeded the expenses incurred.
First Nine Months of 2004 Compared to 2003
We had net sales of $891,090 in the nine months ended September 30, 2004, compared with $343,623 for the same period in 2003, an increase of $547,467 or 159.3%. This increase is primarily attributable to increased sales generated by two new distributors selling our products in the second and third quarters of 2004.
Operating costs and expenses decreased $26,572, or 2.7%, to $925,995 in the first nine months of 2004 from $952,052 in 2003. 2003 was impacted by $600,000 in stock based compensation expenses as a result of our issuance of four million shares in April 2003 as compensation for consulting services previously rendered. This effect was partially offset by increased selling, general and administrative expense in 2004 due to higher distributor training and promotional costs. As a percentage of net sales, cost of goods sold increased to 63.9% in 2004 from 35.6% in 2003 due to additional expenses in 2004 associated with maintaining FDA compliance for our products.
Other expenses increased to $37,487 in 2004 from $0 in 2003, due to an increase in interest expense resulting from higher balances outstanding on our interest bearing debt in 2004.
In the first nine months of 2004, our net loss decreased to $72,392 from a net loss of $608,429 in 2003 as a result of increased sales combined with only a slight increase in expenses.
Financial Condition and Liquidity
We had available cash of $2,978 on September 30, 2004, compared to $2,911 at the same point in 2003. Cash used in operations increased 105.3% to $302,302 in the first three quarters of 2004 from $147,269 in 2003, primarily caused by increased accounting and legal fees in 2004 associated with complying with Securities and Exchange Commission requirements applicable to us after we became a public company in April 2003. The cost of ongoing FDA compliance also increased in 2004 compared to 2003.
On November 12, 2002, we entered into a credit facility with KeyBank (NA). The facility provides us with a working capital line-of-credit of up to $150,000 and currently bears interest at 4.5%. The credit facility is secured by all of E Med’s assets and must be paid back in full on demand. We presently have drawn $141,098 on the facility.
5
In 2003, our director of research purchased an existing $215,585 loan and advanced additional funds bringing total funds advanced to $320,585. In the first half of 2004, we repaid a portion of this loan, reducing the outstanding balance to $266,484 at June 30, 2004. We repaid this loan in full as of June 30 by the issuance of 749,415 unregistered shares of our common stock to the note holder.
On April 1, 2004, we entered into a loan agreement with a private investor in the amount of $750,000. The convertible promissory note bears interest at 7.5% payable quarterly with the principal due in five years and is secured by all of our assets. The note is convertible at the holder’s option into 1.5 million shares of our unregistered common stock, subject to adjustment for dilutive issuances. Proceeds from the loan will be used for inventory and operating expenses. In connection with the loan, we also agreed to pay the lender a $3.00 royalty on each of the next 1.0 million NeedleZap units sold and $2.00 on each of the following 1.0 million units, with maximum total royalty payments of $5.0 million. For additional information regarding the loan, please see Note 3 of our attached financial statements at page F-5.
Our primary need for capital is to fund operations and the development of new products. Historically, our capital requirements have been met by a combination of loans from stockholders, our line of credit with Key Bank, and funds from operations. Now that our distributors are in place, with an expanding global marketplace, we expect increased sales to meet most of our capital needs. In addition, we are developing new NeedleZap products to help generate additional revenues. However, sales may not be adequate to meet our cash needs, which would negatively impact our operations and development of new and ancillary products.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
Some of the statements that we make in this report, including statements about our confidence in E Med’s prospects and strategies and our expectations about E Med’s sales expansion, are forward-looking statements within the meaning of § 21E of the Securities Exchange Act. Some of these forward-looking statements can be identified by words like “believe,” “expect,” “will,” “should,” “intend,” “plan,” or similar terms; others can be determined by context. Statements contained in this report that are not historical facts are forward-looking statements. These statements are necessarily estimates reflecting our best judgment based upon current information, and involve a number of risks and uncertainties. Many factors could affect the accuracy of these forward-looking statements, causing our actual results to differ significantly from those we anticipate. While it is impossible to identify all applicable risks and uncertainties, they include:
| • | our ability to execute our business plan; |
| • | our ability to successfully market and sell our products; |
6
| • | our ability to gain and retain market share from our competitors, many of whom have greater financial and other resources than we do; |
| • | the introduction of competing products by other firms; |
| • | our ability to protect our patents, copyrights and other intellectual property rights; |
| • | pressure on pricing from our competitors or customers; |
| • | continued availability of components for our products and stability in the cost of these components; |
| • | our reliance on subcontractors to manufacture our products; |
| • | our financial resources are limited and we are dependant on increasing sales to generate cash for operations; and |
| • | our ability to continue to comply with rules and regulations governing our products. |
You should not place undue reliance on our forward-looking statements, which reflect our analysis only as of the date of this report. The risks and uncertainties listed above and elsewhere in this report and other documents that we file with the Securities and Exchange Commission, including our annual report on Form 10-KSB, quarterly reports on Form 10-QSB, and current reports on Form 8-K, must be carefully considered by any investor or potential investor in E Med.
We file annual, quarterly and special reports and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC’s web site at SEC.gov. You may also read and copy any document we file at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. To learn more about E Med you can also contact us directly at the address or phone number listed below or visit our website at NeedleZap.com.
E Med Future, Inc.
794 Morrison Road
Suite 911
Columbus, Ohio 43230
Phone: 877- 855-1319
Email: info@NeedleZap.com
Item 3. Controls and Procedures
Robert J. Ochsendorf, our President and Chief Executive Officer, and Donald Sullivan, our Chief Financial Officer, have reviewed E Med’s disclosure controls and procedures as of September 30, 2004. Based upon their review, they believe that our disclosure controls and procedures are effective in ensuring that material information related to E Med is communicated to them by others within the company responsible for reporting this information.
7
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On August 17, 2004, E Med held its 2004 annual meeting of stockholders to elect three directors to our board for a one year term expiring in 2005. The following summarizes the vote at the annual meeting.
| Director Candidate |
Votes For |
Votes Withheld | ||
| D. Dane Donohue |
14,846,638 | 10,100 | ||
| Robert J. Ochsendorf |
14,846,638 | 10,100 | ||
| Juan J. Perez |
14,846,638 | 10,100 |
Not applicable.
| 31.1 | CEO’s Rule 13a-14(a)/15d-14(a) Certification Pursuant to § 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | CFO’s Rule 13a-14(a)/15d-14(a) Certification Pursuant to § 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Rule 13a-14(b)/15d-14(b) Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 | |
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In accordance with the requirements of the Exchange Act, E Med Future, Inc. caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| E MED FUTURE, INC. | ||
| Date: November 12, 2004 |
/s/ Donald Sullivan | |
| By Donald Sullivan, Chief Financial Officer | ||
9
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2004
| ASSETS | ||||
| CURRENT ASSETS |
||||
| Cash |
$ | 2,978 | ||
| Accounts receivable, net of allowance for doubtful accounts of $84,303 |
841,872 | |||
| Inventory |
708,176 | |||
| Prepaid expenses |
8,475 | |||
| Prepaid consulting |
440,000 | |||
| Total Current Assets |
2,001,501 | |||
| PREPAID CONSULTING, net of current portion |
421,667 | |||
| EQUIPMENT, net of depreciation |
170,872 | |||
| PATENTS AND LICENSES |
||||
| Patents, net of amortization $52,462 |
331,934 | |||
| $2,925,974 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
| CURRENT LIABILITIES |
||||
| Notes payable to bank |
$ | 141,098 | ||
| Current portion of long-term debt |
1,828 | |||
| Accounts payable |
438,396 | |||
| Accounts payable to related party |
19,877 | |||
| Accrued expenses |
188,822 | |||
| Total Current Liabilities |
790,021 | |||
| LONG-TERM DEBT |
||||
| Notes payable to finance company |
2,868 | |||
| Convertible promissory note |
750,000 | |||
| Notes payable to related parties |
32,100 | |||
| STOCKHOLDERS’ EQUITY |
||||
| Common stock $0.001 par value, 50,000,000 shares authorized, 28,883,415 issued and outstanding at September 30, 2004 |
28,883 | |||
| Paid-in-capital |
2,643,367 | |||
| Deficit accumulated during development stage |
(1,321,265 | ) | ||
| 1,350,985 | ||||
| $ | 2,925,974 | |||
See accompanying notes to consolidated financial statements.
F-1
E MED FUTURE, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
For the Period to September
30, |
||||||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||||||
| NET SALES |
$ | 322,190 | $ | 96,094 | $ | 891,090 | $ | 343,623 | $ | 1,572,575 | ||||||||||
| COSTS AND EXPENSES- |
||||||||||||||||||||
| Cost of goods sold |
188,050 | 54,346 | 568,964 | 122,215 | 934,821 | |||||||||||||||
| Selling, general and administrative |
85,822 | 84,507 | 332,423 | 208,153 | 1,130,672 | |||||||||||||||
| Research and development |
550 | 550 | 9,433 | |||||||||||||||||
| Stock based compensation |
600,000 | 605,000 | ||||||||||||||||||
| Depreciation and amortization |
8,720 | 7,330 | 24,058 | 21,684 | 98,942 | |||||||||||||||
| Total Costs and Expenses |
283,142 | 146,183 | 925,995 | 952,052 | 2,778,868 | |||||||||||||||
| NET OPERATING INCOME (LOSS) |
39,048 | (50,089 | ) | (34,905 | ) | (608,429 | ) | (1,206,293 | ) | |||||||||||
| OTHER INCOME (EXPENSE) |
||||||||||||||||||||
| Interest and other income |
23 | |||||||||||||||||||
| Interest expense |
(16,007 | ) | (37,487 | ) | (45,800 | ) | ||||||||||||||
| Total Other Expenses |
(16,007 | ) | (37,487 | ) | (45,777 | ) | ||||||||||||||
| NET INCOME (LOSS) |
$ | 23,041 | $ | (50,089 | ) | $ | (72,392 | ) | $ | (608,429 | ) | $ | (1,252,070 | ) | ||||||
| NET LOSS PER COMMON SHARE (Basic and diluted) |
$ | $ | $ | $ | (.03 | ) | $ | (.34 | ) | |||||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
27,209,502 | 24,884,000 | 26,389,295 | 23,559,670 | 3,718,290 | |||||||||||||||
See accompanying notes to consolidated financial statements.
F-2
E MED FUTURE, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
| Nine Months Ended September 30, |
For the Period (Inception) to 2004 |
|||||||||||
| 2004 |
2003 |
|||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
| Net loss |
$ | (72,392 | ) | $ | (608,429 | ) | $ | (1,321,265 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
| Depreciation and amortization |
24,058 | 21,684 | 98,942 | |||||||||
| Stock based compensation |
600,000 | 605,000 | ||||||||||
| Research and development costs |
8,808 | |||||||||||
| Start-up costs |
19,177 | |||||||||||
| Amortization of prepaid expense |
32,358 | 8,925 | 48,933 | |||||||||
| Changes in operating assets and liabilities: |
||||||||||||
| Accounts receivable |
(742,310 | ) | (222,246 | ) | (841,872 | ) | ||||||
| Inventory |
179,092 | (156,337 | ) | 17,839 | ||||||||
| Prepaid expenses |
(8,474 | ) | 160 | (8,474 | ) | |||||||
| Accounts payable |
187,473 | 149,574 | 438,392 | |||||||||
| Accounts payable to related party |
(47,099 | ) | 19,878 | |||||||||
| Accrued expenses |
144,992 | 59,400 | 188,822 | |||||||||
| Net Cash Used in Operating Activities |
(302,302 | ) | (147,269 | ) | (725,820 | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
| Purchases of property and equipment |
(56,858 | ) | (6,703 | ) | (92,246 | ) | ||||||
| Net Cash Used in Investing Activities |
(56,858 | ) | (6,703 | ) | (92,246 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||
| Initial capitalization |
1,666 | 1,666 | ||||||||||
| Cash acquired in acquisition |
200,000 | |||||||||||
| Notes payable to bank |
65,000 | 141,098 | ||||||||||
| Notes payable to financing company |
4,696 | 4,696 | ||||||||||
| Notes payable to related party |
(22,001 | ) | 77,000 | 298,584 | ||||||||
| Convertible promissory note |
175,000 | 175,000 | ||||||||||
| Net Cash Provided by Financing Activities |
157,695 | 143,666 | 821,044 | |||||||||
| NET (DECREASE) INCREASE IN CASH |
(201,465 | ) | (10,306 | ) | 2,978 | |||||||
| CASH BEGINNING OF YEAR |
204,443 | 13,217 | ||||||||||
| CASH END OF YEAR |
$ | 2,978 | $ | 2,911 | $ | 2,978 | ||||||
See accompanying notes to consolidated financial statements.
F-3
E MED FUTURE, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)( CONTINUED)
| Nine Months Ended September 30, |
For the Period 2004 | ||||||||
| 2004 |
2003 |
||||||||
| Supplemental Schedule of Non-Cash Operating and Financing Activities |
|||||||||
| NeedleZap Partnership Contribution of Assets to Company |
|||||||||
| Inventory |
$ | 151,015 | |||||||
| Equipment |
133,912 | ||||||||
| Patent |
187,089 | ||||||||
| Issuance of convertible debentures to acquire inventory |
$ | 575,000 | 575,000 | ||||||
| Issuance of 34,000 shares at $0.90 per share for Strategic Allowance Agreement |
$ | 30,600 | 30,600 | ||||||
| Issuance of 1,250,000 shares valued at $0.3108 per share to acquire MSTI and allocation of purchase price to license |
188,500 | ||||||||
| Note payable related party converted into common stock |
266,484 | 266,484 | |||||||
| Issuance of 2,000,000 shares at $0.44 per share for consulting agreement |
880,000 | 880,000 | |||||||
| CASH PAID FOR: |
|||||||||
| Interest |
8,433 | 16,746 | |||||||
See accompanying notes to consolidated financial statements.
F-4
E MED FUTURE, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. Results for the three and nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the financial statements and footnotes thereto included in the E Med Future, Inc. annual report on Form 10-KSB for the year ended December 31, 2003.
NOTE 2 STOCKHOLDERS’ EQUITY
During the quarter ended June 30, 2004, the Director of Research, who had an outstanding loan to the Company, converted the loan to common stock. The loan balance at December 31, 2003 was $320,585. During the six months ended June 30, 2004, the loan accrued interest of $9,399 and the Company made payments against the principal and interest of $63,500. The net loan balance, including interest at June 30, 2004, was $266,484 and was converted to 749,415 shares of the Company’s common stock at an average price of $0.356 per share.
NOTE 3 CONVERTIBLE PROMISSORY NOTE
On May 19, 2004, the Company entered into a convertible promissory note with an individual to lend the Company up to $750,000 of which $90,000 was in cash for working capital and the balance to be advanced to suppliers for the purchase of inventory. The note bears interest at the rate of 7.5%, is payable quarterly and is secured by a UCC Financing Agreement covering all of the Company’s assets. The note, at the note holder’s option, can be converted into 1,500,000 shares of the Company’s common stock. Additionally, the Company is obligated to make royalty payments as follows: On the first one million (1,000,000) units produced and sold after March 18, 2004, a payment of $3.00 per unit; on the second one million (1,000,000) units produced and sold, a payment of $2.00 per unit. The maximum aggregate royalty payments will be $5,000,000. Upon the option of the note holder to convert the note to 1,500,000 shares of the Company’s common stock, the lender will own approximately 5.555% of the Company’s issued and outstanding shares. The Company has agreed that, throughout the loan period, the note holder’s ownership interest will not be diluted through the issuance of additional stock, warrants, options, convertible securities, preemption or other rights which may dilute the earning potential of the note holder’s shares.
NOTE 4 DISTRIBUTION AND MARKETING AGREEMENT
On April 30, 2004, the Company entered into a Distribution and Marketing Agreement with TransGlobal Medical Sales & Services, Inc. (hereafter referred to as “Distributor”). The agreement provides for the marketing and distribution of E Med products to all territories outside the United States with the exception of nations where there are already existing agreements. The agreement shall remain in effect so long as the Distributor is not in default with respect to the agreement. The agreement provides that upon execution, the Distributor will issue a purchase order to the Company for E Med products in the amount of 100,000 units for delivery within 12 months of the execution of the agreement. Additionally, the Distributor shall order with submission of the purchase order, a request for 10,000 units. Payment in the amount of $560,000 for these units is to be paid in full within 90 days of execution of the agreement. As at June 30, 2004, 7,000 units have been shipped, and sales and related receivables of $392,000 have been recorded in
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E-MED FUTURE, INC.
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 DISTRIBUTION AND MARKETING AGREEMENT (CONTINUED)
the financial statements. Payment was due on July 31, 2004. On October 19, 2004, TransGlobal was formally notified that they were in material breech of the agreement, specifically, payment was not made when due as required by the agreement. TransGlobal has until November 19, 2004 to cure their breech of the agreement to avoid termination. Management is of the opinion that the receivable balance will be collected. Additionally, TransGlobal is due approximately $100,000 in commissions which will be earned in the fourth quarter and applied to the receivable balance. The Company also holds a security interest in the products it shipped to TransGlobal.
NOTE 5 LICENSE AND DISTRIBUTION AGREEMENT
On September 16, 2004, the Company entered into a license and distribution agreement with ITDevelopment Solutions, Inc. (ITD), granting ITD the exclusive right to manufacture, distribute and sell the NeedleZap unit in Pakistan and the United Arab Emirates. IDT has completed construction of a new high-tech manufacturing facility in Pakistan that will reduce the production cost of NeedleZap by 58%. IDT bears all the costs of the new facility as part of the arrangements. In connection with the IDT arrangement, the Company entered into a two year consulting agreement with IDT president, Patrick Downs, in which Mr. Downs agreed to perform consulting service as an independent contractor. Pursuant to the term of the agreement, Mr. Downs will render advice and assistance with respect to the development of the Pakistan manufacturing facility. The agreement provides for the issuance to Mr. Downs of 2,000,000 shares of the Company’s common stock as compensation for his service. The shares have been valued at an average price of $0.44 per share or $880,000 as a prepaid consulting fee to be amortized over a two year period.
In connection with the license and manufacturing agreement, the Company is to receive 10,000 NeedleZap units without cost, $90,000 in cash within 8 weeks of the execution of the agreement and royalties for each unit sold.
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