promotional kick-off. 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 also indicated that it is in the best interest of its residents, the county, and the Company to accelerate the distribution of the cards. To date, the county has distributed its prescription discount cards utilizing a promotional Lucite holder and poster to approximately 235 locations. It is anticipated that this number will increase to 280 locations by the end of October, 2005.
On September 15, 2005, we signed a contract with Carbon County, Pennsylvania, to deliver approximately 75,000 prescription discount cards to the county’s residents. We fulfilled the contract through the delivery of our discount cards on October 13, 2005. The initial distribution of the cards began October 13 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 on October 17, 2005, and full distribution would be made by the end of October.
On September 29, 2005, we executed a contract with Schuylkill County, Pennsylvania to deliver 165,000 prescription discount cards to the county by the beginning of November. The county commissioner indicated to us that a distribution of the discount cards would take place in November 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 will 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.
We have given initial presentations on our prescription discount cards to the following eight municipalities:
The above municipalities have requested and received contracts and appropriate information regarding the prescription discount cards. Prior to the above municipalities, we have successfully entered into contracts with all municipalities with whom we have entered into negotiations. There can be no guarantees that this success rate will continue with the new municipalities. However, we are confident that we will be able to enter into definitive contracts with a significant number of the above municipalities.
We have begun to offer a new benefit to be included with the company’s prescription discount card. We have begun offering a nationwide vision plan, at no additional cost, to any municipality contracting with us to distribute our prescription discount card to their residents. We anticipate including the vision benefit on approximately one and a half million to two prescription discount cards by the end of 2005.
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, prints approximately 100 million such cards per year. The agreement authorizes A-1 Printing to attach our discount prescription card -- as a free gift -- to approximately 10 million prepaid telephone cards distributed throughout the United States. 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.
This nationwide vision plan is accepted at nationally known vision care retail outlets such as Sears, Pearle Vision, JC Penny and Target. The plan offers our card users discounts on a wide variety of vision and eye-care products, accessories and services, with no restrictions or limitations on eyewear or types of frames from which to choose. Discounts include an average of 50% on frames, 45% to 50% on lenses and 25% to 60% on lens options. Contact lenses are 20% off and disposables are 10% off retail prices. Sunglasses and other accessories are discounted 20% off the retail price. Lasik benefits include a free exam and a discount on the service provider’s lowest advertised price.
Financing
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, unions, fraternal organizations, religious organizations and other large employer groups; | | |
* | To cover the costs of production and distribution of our anticipated additional 1,500,000-2,500,000 cards to be sold and or distributed in the next 12-18 months | |
* | To hire additional marketing, administrative and service personnel; | |
* | To increase awareness of our medical discount cards at various trade shows; | | |
In order for us to implement our business plan, we will require financing in a minimum amount of $1,000,000 to $2,000,000 during the next twelve months. To date, although we have received some financing the amounts raised were sufficient to cover overhead and expenses but additional funds will be necessary for the expansion of our business operations. 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.
On August 12, 2005, the Company and Baruch Moskowitz agreed to deem that certain Stock Purchase Agreement between the Company and Mr. Moskowitz as null and void since the Agreement was not executed by Mr. Moskowitz and no consideration was paid pursuant to the terms of the Agreement. Mr. Moskowitz agreed to cancel and return to treasury the 1,800,000 shares of the Company’s common stock issued and held in escrow in accordance with the Agreement.
On August 19, 2005, we entered into a Consulting Agreement and a Financing Agreement with a private investment group pursuant to which the Company received $235,000 in consideration for the issuance of two separate convertible debentures which are convertible at $.35 per share (the “Debentures”). In addition, we entered into an agreement to issue warrants which could raise an additional $2,665,000 when the warrants are exercised. Simultaneous with the execution of the Term Sheet with Westor, the parties agreed that during the period ending October 21, 2005, we shall have the option to redeem and prepay the entire principal of the Debentures and that during this period the redemption price shall be one hundred ten percent (110%) of the principal amount redeemed. Such option has subsequently been extended to November 2, 2005. It was also agreed that we shall not be required to file a Registration Statement within the time period set forth in the Registration Rights Agreement.
In addition, in the event that the Debentures are redeemed, the Consulting Agreement between the parties shall be deemed null and void and in consideration for the cancellation of such Consulting Agreement, the funding group will be issued warrants for the purchase of an aggregate of five hundred thousand (500,000) shares of Common Stock of Comprehensive at $.30 per share. Of such amount, 100,000 shares shall have piggyback registration rights.
On September 20, 2005, the Company 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 the Company by selling units consisting of 5% Convertible 18 Month Notes which are convertible at $.30 per share. In addition, for each share converted, the investors will 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. If Westor does not raise the minimum investment called for in the Agreement by November 4, 2005, the Agreement is automatically terminated.
Results of Operations
SIX MONTHS ENDED AUGUST 31, 2005 COMPARED TO SIX MONTHS ENDED AUGUST 31, 2004
Sales for the second quarter of fiscal year ended 2005 and 2004 were $156,360 and $101,468, respectively. The increase was due to the number of patients seen during the period and sales of some higher priced hearing aids and hearing aid products. We have refocused our marketing efforts to the medical discount cards which have not yet generated significant revenues.
Cost of sales were $134,840 and $94,934, respectively. The increase was due to the higher costs of retaining audiological personnel as well as an increase in sales and related product costs.
Selling, General and Administrative Expenses
Selling, general and administrative costs were $289,106 and $245,699, respectively. This substantial increase was due for the most part to increased marketing and promotional fees for our medical discount card programs as well as our failure of CNS, our subsidiary, to generate revenues as anticipated. This lack of revenues was mostly caused by the reconfiguration of the products which were originally intended to be marketed in the Texas and Midwest marketplace.
It should be noted, however, that with the passage of legislation of Texas in May 2005 the future revenues to be generated by CNS should potentially increase dramatically. However, we are uncertain as the time, effort and expenditures the company will be required to make available to bring these revenues to fruition.
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 increasing sales and projected potential profitability should generate working capital to finance its current operations, but not enough to expand its scope of business activities.
We estimate that in order for us to achieve our marketing goals successfully for our Solution Card and its other related products in both New York and Texas we will require between $1,000,000 and $2,000,000. Some of these funds will have to be obtained from sources other than the anticipated cash flows from the sale of our cards in the quarter ended August 31, 2005. As noted above, under “Financing”, although we have received some financing, the amounts raised were sufficient to cover overhead and expenses but additional funds will be necessary for the expansion of our business operations.
We do not have any established bank credit lines or relationships in place at this time. However, we are optimistic that if we are able to raise a minimum of $750,000 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. However, we believe that, even if we are unable to raise the required outside financing we can curtail our growth to such a degree so as to maintain increased operations.
On August 19, 2005, we entered into a Consulting Agreement and a Financing Agreement with a private investment group pursuant to which the Company received $235,000 in consideration for the issuance of two separate convertible debentures which are convertible at $.35 per share (the “Debentures”). In addition, we entered into an agreement to issue warrants which could raise an additional $2,665,000 when the warrants are exercised. Simultaneous with the execution of the Term Sheet with Westor, the parties agreed that during the period ending October 21, 2005, we shall have the option to redeem and prepay the entire principal of the Debentures and that during this period the redemption price shall be one hundred ten percent (110%) of the principal amount redeemed. Such option has subsequently been extended to November 2, 2005. It was also agreed that we shall not be required to file a Registration Statement within the time period set forth in the Registration Rights Agreement.
In addition, in the event that the Debentures are redeemed, the Consulting Agreement between the parties shall be deemed null and void and in consideration for the cancellation of such Consulting Agreement, the funding group will be issued warrants for the purchase of an aggregate of five hundred thousand (500,000) shares of Common Stock of Comprehensive at $.30 per share. Of such amount, 100,000 shares shall have piggyback registration rights.
On September 20, 2005, the Company 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 the Company by selling units consisting of 5% Convertible 18 Month Notes which are convertible at $.30 per share. In addition, for each share converted, the investors will 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. If Westor does not raise the minimum investment called for in the Agreement by November 4, 2005, the Agreement is automatically terminated.
.
Although the capital markets have a perceived improvement, we are cautiously optimistic of our abilities to achieve these goals. 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 successfully raising additional capital.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in market prices and rates. Our short-term debt bears interest at fixed rates; therefore our results of operations would not be affected by interest rate changes.
Item 4. | Controls and Procedures |
Evaluation of disclosure controls and procedures
Our principal executive officer and principal financial officer evaluated our disclosure controls and procedures (as defined in rule 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) as of a date within 90 days before the filing of this annual report (the Evaluation Date). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, the disclosure controls and procedures in place were adequate 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 recorded, processed, summarized and reported on a timely basis in accordance with applicable rules and regulations. Although our principal executive officer and principal financial officer believes our existing disclosure controls and procedures are adequate to enable us to comply with our disclosure obligations, we intend to formalize and document the procedures already in place and establish a disclosure committee.
Changes in internal controls
We have not made any significant changes to our internal controls subsequent to the Evaluation Date. We have not identified any significant deficiencies or material weaknesses or other factors that could significantly affect these controls, and therefore, no corrective action was taken.
PART II - OTHER INFORMATION
Item 1. | Legal Proceedings: | None |
Item 2. | Changes in Securities: | None |
Item 3. | Defaults Upon Senior Securities: | Not Applicable |
Item 4. | Submission of Matters to a Vote of Security Holders: | None |
Item 5. | Other Information: | None |
Item 6. | Exhibits and Reports on Form 8-K: |
On August 23, 2005, the Company filed an 8K with the SEC based on the Company | |
entering into a Convertible Debenture for $235,000; and based on the Company | |
declaring the Stock Purchase Agreement with Bruce Moskowitz null and void. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
COMPREHENSIVE HEALTHCARE SOLUTIONS, INC. |
By: | /s/ John H. Treglia |
JOHN H. TREGLIA | |
Chief Executive Officer and | |
Chief Financial Officer | |
| | | | |
