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 February 2006. In order to accommodate the Foundation need we have ordered an initial printing of 300,000 Follieri Foundation private label prescription discount cards.
Effective December 15, 2006, 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 revenues 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 revenues. Although the prospects for CNS to reach significant revenues and profitability as a result of the State of Texas passing House Bill #7, which reformed workers compensation in Texas, by review of potential revenues 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 $15,00-$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.
We believe that our success will be largely dependent upon our ability to raise capital and then use such funds to:
In order for us to implement our business plan, we believe will require financing in a minimum amount of $750,000 to $1,500,000 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 19, 2005, we entered into a Consulting Agreement and a Financing Agreement with Comprehensive Associates, LLC, a private investment group, pursuant to which we received $235,000 in consideration for the issuance of two separate convertible debentures which are convertible at $.35 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.
On September 20, 2005, we entered into a term sheet with Westor Capital Croup, Inc. Pursuant to the term sheet, Westor Capital Group 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 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. The agreement would be terminated if Westor did not raise the minimum investment called for in the agreement by November 4, 2005.
Simultaneous with the execution of this Term Sheet, we signed a redemption agreement with Comprehensive Associates, LLC which provided us with our initial funding in August 2005. Pursuant to this agreement, both parties agreed that during the period ending October 21, 2005, we had the option to redeem and prepay the entire principal of the Debentures for one hundred ten percent (110%) of the principal amount redeemed. Such option was subsequently extended to November 2, 2005. It was also agreed that we would 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 would be deemed null and void and in consideration for the cancellation of such Consulting Agreement, the funding group would be issued warrants for the purchase of an aggregate of five hundred thousand (500,000) shares of our common stock at $.30 per share.
As of November 28, 2005, Westor had raised a total of $145,000 and therefore we agreed to provide Westor with an extension on the term sheet to allow Westor until December 15, 2005 to raise the balance of the funds. Pursuant to the extension the parties agrees that they would immediate close on the initial $145,000 subject to Westor’s placement agent fees and escrow fees so that we received a net total of $123,630.00 from the funding. It was further agreed that in the event that Westor raised the full $500,000 by no later than December 15, 2005, then all other terms and conditions set forth in the Term Sheet will be effective including the receipt of all commissions, fees and other expenses as set forth in the Term Sheet. We also agreed that if Westor raised the full $500,000 in a timely manner, then we would redeem the funding with Comprehensive Associates LLC subject to the terms set forth above and we agreed to file the SB-2 Registration Statement to register the shares in the funding transaction within forty-five (45) days from the initial closing or January 15, 2006. It was agreed that if Westor was unable to raise the full $500,000 by December 15, 2005, the terms set forth in the Term Sheet and Transaction Documents would remain in effect except we would be permitted to register the shares and warrants owed pursuant to the funding with Comprehensive Associates, LLC as part of the SB-2 Registration Statement and we would be permitted to undertake additional equity financings when the SB-2 Registration Statement is deemed effective by the SEC. This agreement was subsequently extended until December 31, 2005.
We did not receive the balance of the funds from Westor and the agreement was terminated. However, pursuant to the term sheet with Westor, we were required to file an SB-2 Registration Statement by January 15, 2006. We did not file the Registration Statement by January 15, 2006 and 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.
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.
Results of Operations
NINE MONTHS ENDED NOVEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED NOVEMBER 30, 2004
Sales for the third quarter of fiscal year ended 2005 and 2004 were $130,612 and $135,510, 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 $128,206 and $100,824, 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 $434,213 and $322,293, 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.
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.
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 in the quarter ended February 28, 2006. 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.
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 $217,294.52 net of legal expenses an other related fees, in consideration for the issuance of two separate convertible debentures of $35,000 and $200,00 which are convertible at $.35 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.
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 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. The agreement would be terminated if Westor did not raise the minimum investment called for in the agreement by November 4, 2005.
As of November 28, 2005, Westor had raised a total of $145,000 and therefore we agreed to provide Westor with an extension on the term sheet to allow Westor until December 15, 2005 to raise the balance of the funds. Pursuant to the extension the parties agrees that they would immediate close on the initial $145,000 subject to Westor’s placement agent fees and escrow fees. It was further agreed that in the event that Westor raised the full $500,000 by no later than December 15, 2005, then all other terms and conditions set forth in the Term Sheet will be effective including the receipt of all commissions, fees and other expenses as set forth in the Term Sheet. We also agreed that if Westor raised the full $500,000 in a timely manner, then we would redeem the funding with Comprehensive Associates LLC subject to the terms set forth above and we agreed to file the SB-2 Registration Statement to register the shares in the funding transaction within forty-five (45) days from the initial closing or January 15, 2006. It was agreed that if Westor was unable to raise the full $500,000 by December 15, 2005, the terms set forth in the Term Sheet and Transaction Documents would remain in effect except we would be permitted to register the shares and warrants owed pursuant to the funding with Comprehensive Associates, LLC as part of the SB-2 Registration Statement and we would be permitted to undertake additional equity financings when the SB-2 Registration Statement is deemed effective by the SEC.
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.
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: |
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 | |
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