UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the quarterly period ended October 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the transition period from to
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Commission File Number: 333-68942
CRITICAL CARE, INC.
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(Exact name of registrant as specified in its charter)
Nevada 88-0490720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6646 Indian School Road, N.E.,
Albuquerque, New Mexico 87110
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(Address, including zip code, of principal executive offices)
(505) 837-2020
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(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.
(1) Yes No X
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(2) Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
At March 20, 2006, the issuer had outstanding 11,616,043 shares of Common
Stock, no par value per share
CRITICAL CARE, INC.
FORM 10-QSB
October 31, 2005
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. ----
Unaudited Condensed Consolidated Balance Sheet 3
Unaudited Condensed Consolidated Statements of Operations 4
Unaudited Condensed Consolidated Statements of Stockholders'
Deficiency 5
Unaudited Condensed Consolidated Statements of Cash Flows 6
Unaudited Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Controls and Procedures 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults by the Company upon Its Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 19
2
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
CRITICAL CARE, INC. AND SUBSIDIARY
(FORMERLY LASIK AMERICA, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, July 31,
2005 2005
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ASSETS (Unaudited)
Current assets
Cash $ -- $ 10,351
Other current assets 4,697 4,696
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Total current assets 4,697 15,047
Property and equipment, at cost, net of accumulated depreciation
of $413,041 and $393,854, respectively 177,874 197,061
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$ 182,571 $ 212,108
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Bank overdraft $ 1,828 $ --
Accounts payable 150,583 154,251
Accrued director fees 262,200 196,200
Gross receipts and compensating use tax payable 297,128 284,102
Payroll taxes payable 222,857 265,525
Accrued penalties and interest on delinquent taxes 122,528 122,528
Other current liabilities 108,237 95,638
Current portion - notes payable 14,110 23,940
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Total current liabilities 1,179,471 1,142,184
Loans payable to officers 31,689 9,689
Long term debt, net of current portion 276,984 276,984
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Total liabilities 1,488,144 1,428,857
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Stockholders' deficiency
Preferred stock - $.001 par value, 100,000 shares authorized;
0 shares issued and outstanding -- --
Common stock - $.001 par value, 25,000,000 shares authorized;
11,616,043 shares and 9,616,043 shares issued and
outstanding, respectively 11,616 9,616
Additional paid in capital 14,292,522 14,134,522
Accumulated deficit (15,609,711) (15,360,887)
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Total stockholders' deficiency (1,305,573) (1,216,749)
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$ 182,571 $ 212,108
============ ============
See accompanying notes to condensed consolidated financial statements.
3
CRITICAL CARE, INC. AND SUBSIDIARY
(FORMERLY LASIK AMERICA, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months Ended October 31,
----------------------------
2005 2004
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Revenue $ 206,881 $ 218,651
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Costs and operating expenses
Operating costs 271,746 244,134
Noncash compensation 160,000 1,112,000
Depreciation 19,187 33,017
Interest 4,772 4,284
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Total costs and expenses 455,705 1,393,435
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Operating loss (248,824) (1,174,784)
Loss on investment due to abandonment -- (360,000)
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Net loss $ (248,824) $ (1,534,784)
============ ============
Basic and diluted net loss per share $ (0.02) $ (0.30)
============ ============
Shares used to compute basic and diluted
net loss per share 11,507,347 5,097,782
============ ============
See accompanying notes to condensed consolidated financial statements.
4
CRITICAL CARE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY - UNAUDITED
Retained
Common Stock Additional Earnings
--------------------------- Paid-in (Accumulated
shares amount Capital Deficit) Total
------------ ------------ ------------ ------------ ------------
Balance, July 31, 2005 9,616,043 $ 9,616 $ 14,134,522 $(15,360,887) $ (1,216,749)
Common stock issued for services 2,000,000 2,000 158,000 -- 160,000
Net loss for the period -- -- -- (248,824) (248,824)
------------ ------------ ------------ ------------ ------------
Balance October 31, 2005 11,616,043 $ 11,616 $ 14,292,522 $(15,609,711) $ (1,305,573)
============ ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
5
CRITICAL CARE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Three Months Ended October 31,
--------------------------
2005 2004
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Cash flows from operating activities
Net loss $ (248,824) $(1,534,784)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities
Depreciation 19,187 33,017
Non-cash compensation 160,000 1,112,000
Loss on investment due to abandonment -- 360,000
Changes in operating assets and liabilities:
Decrease in:
Other current assets -- (250)
Increase (decrease) in:
Accounts payable (3,669) 54,912
Gross receipts and compensating use tax payable 13,026 12,498
Accrued director fees 66,000 --
Payroll taxes payable (42,667) (836)
Other current liabilities 12,598 (2,226)
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Net cash (used in) provided by operating activities (24,349) 34,331
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Cash flows from investing activities
Purchase of medical equipment -- (12,570)
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Net cash used in investing activities -- (12,570)
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Cash flows from financing activities
Net increase (decrease) in bank overdraft 1,828 (16,461)
Loans repayments to officers -- (5,300)
Borrowing from officer 22,000 --
Repayment of notes payable (9,830) --
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Net cash provided by (used in) financing activities 13,998 (21,761)
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Net decrease in cash (10,351) --
Cash at beginning of period 10,351 --
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Cash at end of period $ -- $ --
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Supplemental disclosure of cash flow information
- ------------------------------------------------
Cash paid during the year for
Interest $ -- $ --
=========== ===========
Income taxes $ -- $ --
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Schedule of Noncash Operating and Investing Transactions
Common stock issued for services $ 160,000 $ 1,112,000
=========== ===========
Common stock issued for investment $ -- $ 360,000
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Reclassification from accounts payable to long term debt $ -- $ 200,000
=========== ===========
See accompanying notes to condensed consolidated financial statements.
6
CRITICAL CARE, INC. AND SUBSIDIARY
(F/K/A LASIK AMERICA, INC.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2005 AND 2004
Note 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------
The financial statements in this report have been prepared by Critical Care, Inc
without audit, pursuant to the rules of the Securities and Exchange Commission
for quarterly reports on Form 10-QSB and do not include all of the information
and note disclosures required by accounting principles generally accepted in the
United States of America for annual financial statements. These financial
statements should be read in conjunction with the financial statements and notes
thereto for the year ended July 31, 2005, included in the Company's form 10-KSB
filed with the Securities and Exchange Commission on March 30, 2006.
In the opinion of management, information included in this report reflects all
adjustments, consisting of normal, recurring adjustments, necessary for fair
presentation of results for these interim periods.
The results of operation for the three months ended October 31, 2005, are not
necessarily indicative of the results to be expected for the entire fiscal year
ending July 31, 2006.
Critical Care, Inc. (the Company) was incorporated in the State of Nevada on
March 21, 2001. The company operates an ophthalmic laser vision correction
center in Albuquerque, New Mexico. On October 26, 2004 the Company formally
changed its name from Lasik America, Inc. to Critical Care, Inc. The Company
contracted the services of consultants to assist in the expansion of its
operations by either developing or acquiring a group of dialysis clinics in
Italy.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned inactive subsidiary. All significance inter-company transaction
and the balances have been eliminated upon consolidation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America require management to make
estimates and assumptions that effect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Recent Accounting Pronouncements
- --------------------------------
The Financial Accounting Standards Board has recently issued several Statements
of Financial Accounting Standards.
In December 2004, the FASB issued FASB Statement No. 123 (revised 2004),
"Share-Based Payment" ("FAS 123(R)"). FAS 123(R) replaces FASB Statement No.
123, "Accounting for Stock-Based Compensation", and supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees". FAS 123(R) requires that the
compensation cost relating to share-based payment transactions be recognized in
the financial statements. That cost will be measured based on the fair value of
the equity or liability instruments issued. The provisions of this Statement are
effective for the first interim or annual reporting period that begins after
December 15, 2005. The Company is currently evaluating the method of adoption
and the impact of FAS 123(R) on its financial position and results of
operations. The Company is currently evaluating the provisions of SFAS No. 123
(R) and has not yet determined the impact, if any, that SFAS No. 123 (R) will
have on its financial statement presentation or disclosure.
In May 2005, the FASB issued SFAS No. 154 that establishes new standards
onUnaudited Condensed Consolidated Statements of accounting for changes in
accounting principles. Pursuant to the new rules, all such changes must be
accounted for by retrospective application to the financial statements of prior
periods unless it is impracticable to do so. SFAS No. 154 completely replaces
Accounting Principles Bulletin (APB) Opinion 20 and SFAS No. 3, through it
carries forward the guidance in those pronouncements with respect to accounting
for changes in estimates, changes in the reporting entity, and the correction of
errors. This statement is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005.
The Company does not expect that the adoption of these pronouncements will have
a material effect on the Company's financial position or results of operations.
7
NOTE 2: GOING CONCERN
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. The Company had a net loss of $
$248,824 and net cash used in operations of $24,349 for the three months ended
October 31, 2005, a working capital deficiency of $1,174,774, and a
shareholders' deficiency of $1,305,573 as of October 31, 2005 which raises
substantial doubts about its ability to continue as a going concern. The
financial statements do not include adjustments that might result from the
outcome of this uncertainty.
Management believes that actions are presently being taken to revise the
Company's operating and financial requirements in order to improve the Company's
financial position and operating results. However, given the levels of its cash
resources and working capital deficiency, anticipated cash to be generated by
operation will be insufficient to meet anticipated cash requirements for
operation, working capital, and capital expenditures during the fiscal year
2006. Therefore, the Company is seeking additional equity or debt financing, but
there can be no assurance that sufficient additional financing will be
available.
NOTE 3: LONG-TERM DEBT
Long-term debt consists of the following as of October 31, 2005 and July 31,
2005:
October 31, July 31,
2005 2005
----------- -----------
The Company's former CEO had entered into a loan
agreement with the Estate of Rohan for the
acquisition of an excimer laser used in the
operations of the Company. During the year ended
July 31, 2004, the Company acquired the item and
the purchase price of the equipment was included
in accounts payable due to the former CEO as of
July 31, 2004. Upon the resignation of the former
CEO, the loan was assumed by the Company. The loan
bears an interest at 8% per annum and is due on
February 1, 2007. Unpaid interest on the loan as
of October 31, 2005 was $20,000 which is included
in accrued expenses. $ 200,000 $ 200,000
The former CEO made non-interest bearing loans to
the Company thru a series of cash advances in
fiscal years 2002, 2003 and 2004. The Internal
Revenue Service's applicable federal rate (AFR)
was used to compute the interest expense. 76,984 76,984
Capital lease obligation bearing interest at 5.22%
per annum with interest and principal payable in
monthly installments of $3,158. The obligation was
due to expire in April 2005 with a $1 buyout. The
lease relates to an upgrade of laser equipment
with net book value of $8,752 and 15,315 at
October 31, 2005 and July 31, 2005 respectively.
On February 9, 2005, the capital lease was
restructured in the amount of $55,400 payable in
11 consecutive monthly installment of $4,616.67
beginning February 20, 2005. 14,110 23,940
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314,774 300,924
Less: Current portion (14,110) (23,940)
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Total Long-term Debt $ 276,984 $ 276,984
=========== ===========
8
NOTE 4: SHAREHOLDERS' EQUITY
- ----------------------------
On October 10, 2005, the Company issued 2,000,000 shares of common stock to the
Chief Executive Officer Director of the Company, having a fair value of
$160,000, in payment for legal and accounting and related services provided to
the Company.
NOTE 5: COMMITMENTS AND CONTINGENCIES
- -------------------------------------
Delinquent Payroll and Gross Receipts Taxes
- -------------------------------------------
The Company is delinquent on employment taxes payable to the Internal Revenue
Service and on gross receipts taxes payable to the State of New Mexico. The
Liability for these taxes has been shown on the balance sheet as of October 31,
2005. The Company has negotiated with the Internal Revenue Service and the State
of New Mexico to establish payment plans and expects to payoff the entire amount
of taxes owed. As of July 31, 2004 the Internal Revenue Service filed a lien
against all the assets of the Company related to these delinquent payroll taxes.
Litigation
- ----------
On March 31, 2003, a former employee of the Company filed a complaint that she
was fired as an employee inspite of an employment contract that she had with the
Company. The Company has responded to the complaint stating that she violated
her contract through non-performance and dishonesty.
On February 9, 2005, the complaint was settled in favor of the employee. The
Company was obligated to pay $1,000 per month beginning March 1, 2005 for the
sum of $13,500, and to issue $10,000 worth of restricted stock (100,000 shares)
at 10 cents based on a share value date February 20, 2005. As of October 31,
2005 the unpaid balance due to the employee was $5,500 and 60,000 shares of
stock.
NOTE 6: ACQUISITION OF SUBSIDIARY
- ---------------------------------
On August 5, 2004, the Company consummated its merger with Salus Holding, Inc.
("Salus"). Pursuant to the merger agreement, the shareholders of Salus was
issued 2,000,000 shares of common stock of the Company. The sole shareholder of
Salus, Homeland Security Technology, Inc., received 2,000,000 shares of the
Company's Common Stock having a fair value of $360,000 that approximated 43.7
percent of the then outstanding shares of the Company calculated on a fully
diluted basis at the date of issuance.
9
Salus was the sole shareholder in Icon Salus S.r.l.("Icon Salus"), a company
formed under the laws of Italy. Salus was constructing a dialysis facility in
Amaseno, Italy. Following the Company's acquisition of Salus, the Company
experienced difficulties in the development of the Amaseno Clinic and was unable
to obtain the requisite permits and licenses from the Italian government,
provincial and local. Thus on October 31, 2004, the Company abandoned the
development of the Amaseno Clinic and recorded a $360,000 loss on this
investment.
NOTE 7: LOANS PAYABLE TO OFFICERS
- ---------------------------------
During the quarter ended October 31, 2005, the Chief Executive Officer loaned
the Company $22,000 in the form of payments made on behalf of the Company.
NOTE 8: SUBSEQUENT EVENT
- ------------------------
On December 31, 2005, the Company issued a Convertable Note Payable to the Chief
Executive Officer for $363,563 plus 5% interest in exchange for expenses of the
Company that were paid by the Officer.
On January 25, 2006, the board authorized the increase of the Company's
authorized common stock from 25,000,000 shares to 100,000,000 shares.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
The following discussion and analysis should be read in conjunction with our
financial statements and the notes thereto appearing elsewhere in this report.
This report contains statements that constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements can be identified by the use of forward-looking
terminology, such as "may", "will", "should", "expect", "anticipate",
"estimate", "project", "continue", "plans", "intends" or other similar
terminology. We caution you that forward-looking statements are not guarantees
of future performance and involve risks and uncertainties, and that actual
results may differ materially from the statements that constitute
forward-looking statements as a result of various factors.
Overview
We are a medical services company that focuses on delivering laser vision
correction surgical procedures to consumers. Our affiliated and employed doctors
provide medical care to our clients and we provide the necessary equipment,
technical staff, administrative services and the excimer laser, needed for the
delivery of laser eye surgery to our clients. We do not practice medicine,
rather our affiliated and employed doctors deliver medical care and treatment to
eye surgery patients.
We were incorporated on March 21, 2001 as LASIK America, Inc. In October 1995
and in March 1996, the United States Food and Drug Administration approved the
use of excimer lasers manufactured by Summit Technology, Inc. and VISX, Inc., to
treat low to moderate nearsightedness. In May 2001, we opened our first excimer
laser center in Albuquerque, New Mexico. On October 26, 2004 we formally changed
our name from Lasik America, Inc. to Critical Care, Inc.
Our doctors perform laser vision correction surgery procedures in our New Mexico
center office. We provide our ophthalmologist and optometrist with
state-of-the-art equipment and facilities as well as support services necessary
to perform vision correction procedures. At present we have one employed
ophthalmologist and one employed optometrist in our center. Although we have no
written agreements with these doctors, we have agreed to compensate our
ophthalmic surgeon at a rate of $125.00 per eye and our optometrist at $800 per
day.
Our doctors perform surgery on clients of our center, which includes delivery of
pre and post-operative care. Our doctors also perform surgery on clients at our
center where co-managing optometrists perform the pre and post-operative care.
To date, the supply of our VISX excimer laser and related equipment has come
through agreements that we have entered into with DVI Financial, Inc. and a
patent license with VISX, Incorporated. The Company also owns and operates a
Nidek laser. In the event that we would not be able to obtain additional excimer
lasers and related equipment from these providers, we believe that other
satisfactory sources of supply are available now that the FDA has approved
additional manufacturers of excimer lasers.
Our plan of operation
We believe that our New Mexico center now in operation can sustain its current
operations on current revenue and what we believe will be increased usage of our
center by new clients generated from our advertising and marketing efforts, as
well as general client awareness of the laser vision correction procedure. At
11
current levels, we are generating a net loss from operations. With current
revenues, we have experienced a continuing increase in the number of surgical
procedures performed in our center primarily, by advertising locally and through
the placement of kiosks in local shopping malls where high pedestrian traffic
exists. Our New Mexico center has the capacity to perform approximately 100 eye
surgery procedures each week and at present, we are performing approximately 20
eye surgeries each week.
We currently generate on average approximately $69,000 per month in gross
revenue and believe that we will require approximately $900,000 in gross revenue
during the next 12 months to maintain our existing operations. We believe that
our cash requirements during the next 12 months will be satisfied through a
private offering of our equity or debt securities.
On August 5, 2004, a subsidiary of the Company, Lasik Acquisition Corp.,
consummated its merger with Salus Holding, Inc. ("Salus"). Pursuant to the
merger agreement, the shareholders of Salus have been issued 2,000,000 shares of
common stock of the Company. The sole shareholder of Salus, Homeland Security
Technology, Inc., was issued 2,000,000 shares of Critical's Common Stock that
approximated 43.7 percent of the outstanding shares of Critical calculated on a
fully diluted basis at the date of issuance.
Salus was the sole shareholder in Icon Salus S.r.l.("Icon Salus"), a company
formed under the laws of Italy. Salus was constructing a dialysis facility in
Amaseno, Italy. Following the Company's acquisition of Salus, the Company
experienced difficulties in the development of the Amaseno Clinic and was unable
to obtain the requisite permits and licenses from the Italian government,
provincial and local. Thus on October 31, 2004, the Company abandoned the
development of the Amaseno Clinic. On or about November 2005, Homeland Security
Technology, Inc. transferred the 2,000,000 shares of Critical Common Stock to
Ernest Remo, Chief Executive Officer and Chairman of the Board of Critical,
pursuant to a settlement agreement in connection with a promissory note by
Homeland Security Technology, Inc. in favor of Mr. Remo.
On October 28, 2004, the Company entered into an agreement to purchase certain
rights to acquire a group of five dialysis clinics from Icon Veneto Srl, an
Italian company, pursuant to a rights purchase agreement. The rights purchased
consist of a binding letter of intent assigned to the Company pursuant to the
agreement. Pursuant to the rights purchase agreement the Company issued to Icon
Veneto 100,000 shares of preferred stock of the Company. The preferred stock was
convertible into 10,000,000 shares of common stock of the Company. The five
dialysis clinics which are the subject of the rights purchase agreement had
established revenues of over Euro 4,000,000 (US$5,250,000). On February 1, 2005,
the Company and Icon Veneto entered into a settlement agreement whereby the
rights purchase agreement was terminated ab initio, as if it never existed, as a
result of a dispute between Icon Veneto and the Company with respect to
representations of Icon Veneto with respect to the rights. Consequently, the
Company Preferred Stock issued to Icon Veneto was cancelled.
Management continues to believe that expanding into the dialysis business will
offer the Company a greater opportunity for growth and long term success.
Management believes that there is a worldwide growth in kidney disease worldwide
which creates a great and continually increasing demand for dialysis services.
Management has determined that the dialysis business offers greater return on
investment than the Lasik business. Thus the Company is currently seeking other
opportunities to expand into this business.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 2005 AS COMPARED TO
THE THREE MONTHS ENDED OCTOBER 31, 2004:
The following table sets forth, for the three months ended October 31, 2005 and
2004, operating information expressed as a percentage of revenue. The results of
operations data for the three months ended October 31, 2005 and 2004 are not
necessarily indicative of the results to be expected for future periods.
12
Three Months Three Months
Ended October Ended October
31, 2005 31, 2004
Revenues 100% 100%
Operating Costs and non-cash compensations 192% 620%
Depreciation expense 9% 15%
Interest expense 2% 2%
Total Costs and Expenses 204% 637%
Net loss 104% 537%
Results of operations
- ---------------------
Revenues
We derive our revenues directly from the number of laser vision surgical
procedures performed at our center. Procedures performed by our affiliated
doctor generate revenue to us from the physician, who collects a fee from the
patient. Procedures performed by our employed doctor generate revenue directly
to us from the patient. Revenues for the three months ended October 31, 2005
totaled $206,881 as compared to $218,651 for the three months ended October 31,
2004. Total revenue is predicated on the number of procedures of laser vision
correction we performed during the period.
Operating Costs
Operating costs consist of doctor fees, royalty fees, medical supplies,
salaries, wages and related costs for general corporate functions. The total
operating costs for the three months ended October 31, 2005 was $271,746 as
compared to $244,134 for the three months ended October 31, 2004. As a
percentage of revenue, operating costs equaled 131% of total revenue during the
period as compared to 112% for the three months ended October 31, 2004. Royalty
fees are payable to the licensor of the VISX excimer laser we use for surgical
procedures and is currently $110.00 per eye. There is no royalty for use of the
Nidek laser, and the Company performs approximately 70% of the procedure with
the Nidek.
Non-cash compensation expense
Non-cash compensation expense consists of expenses related to common stock
issued in exchange for services. There was Non-cash compensation expense for the
three months ended October 31, 2005 in the amount of $160,000 as compared to
Non-cash compensation expense in the amount of $1,112,000 for the three months
ended October 31, 2004.
Depreciation
Depreciation expense for the three months ended October 31, 2005 amounted to
$19,187 from the depreciation of capital items acquired for use in our
operations as compared to $33,017 for the three months ended October 31, 2004.
Interest expense
The Company incurred interest expense of $4,772 for the three months ended
October 31, 2005 as compared to $4,284 for the three months ended October 31,
2004. The interest results from our financing costs of some of our capital
equipment and interest accrued on delinquent payroll and gross receipt taxes.
13
Net loss
Our net loss for the three months ended October 31, 2005 was $(248,824) as
compared to $(1,534,784) for the three months ended October 31, 2004.
Liquidity and capital resources
Since our inception, we have financed our operations through revenues and
capital raised through the sale of our common stock. In order to effectuate our
business plan as structured we will need to raise significant capital from
external sources. In addition, we intend on raising capital internally through
the increase in the number of procedures we perform. We currently do not have a
credit facility or any commitments for additional financing. If we are unable to
obtain adequate financing from internal or external sources we may be unable to
fully implement our business plan and may be forced to modify our operations.
Cash flows used by operating activities was ($24,349) for the three months ended
October 31, 2005 as compared to Cash Flows provided by operating activities of
$34,331 for the three months ended October 31, 2004. There was no Net cash (used
in) investing activities for the three months ended October 31, 2005 as compared
to Cash Flows used in investing activities of $12,570 for the three months ended
October 31, 2004. Net cash flows provided by financing activities of $13,998 in
the three months ended October 31, 2005 as compared to net cash flows used by
financing activities of ($21,761) for the three months ended October 31, 2004.
As of October 31, 2005, the Company also had a working Capital Deficiency of
$1,174,774 and a Stockholders' Deficiency of $1,305,573.
Management believes that actions are presently being taken to revise the
Company's operating and financial requirements in order to improve the Company's
financial position and operating results. However, given the levels of its cash
resources and working capital deficiency at October 31, 2005, anticipated cash
to be generated by operations will be insufficient to meet anticipated cash
requirements for operations, working capital, and capital expenditures during
the fiscal year 2006. Therefore, the Company is seeking additional equity or
debt financing, but there can be no assurance that sufficient additional
financing will be available.
Delinquent Payroll and Gross Receipts Taxes
The Company is delinquent on employment taxes payable to the Internal Revenue
Service an on gross receipts taxes payable to the State of New Mexico. The
Liability for these taxes has been shown on the balance sheet as of October 31,
2005. The Company has negotiated with the Internal Revenue Service and the State
of New Mexico to establish payment plans and expects to payoff the entire amount
of taxes owed. As of July 31, 2004 the Internal Revenue Service filed a line
against all the assets of the Company related to these delinquent payroll taxes.
Recently issued accounting standards
In December 2004, the FASB issued FASB Statement No. 123 (revised 2004),
"Share-Based Payment" ("FAS 123(R)"). FAS 123(R) replaces FASB Statement No.
123, "Accounting for Stock-Based Compensation", and supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees". FAS 123(R) requires that the
compensation cost relating to share-based payment transactions be recognized in
the financial statements. That cost will be measured based on the fair value of
the equity or liability instruments issued. The provisions of this Statement are
effective for the first interim or annual reporting period that begins after
December 15, 2005. The Company is currently evaluating the provisions of SFAS
No. 123 (R) and has not yet determined the impact, if any, that SFAS No. 123 (R)
will have on its financial statement presentation or disclosure.
14
In May 2005, the FASB issued SFAS No. 154 that establishes new standards
onUnaudited Condensed Consolidated Statements of accounting for changes in
accounting principles. Pursuant to the new rules, all such changes must be
accounted for by retrospective application to the financial statements of prior
periods unless it is impracticable to do so. SFAS No. 154 completely replaces
Accounting Principles Bulletin (APB) Opinion 20 and SFAS No. 3, through it
carries forward the guidance in those pronouncements with respect to accounting
for changes in estimates, changes in the reporting entity, and the correction of
errors. This statement is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005.
The Company does not expect that the adoption of these pronouncements will have
a material effect on the Company's financial position or results of operations.
ITEM 3. CONTROLS AND PROCEDURES
-----------------------
(a) Evaluation of disclosure controls and procedures.
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the its Chief
Executive Officer/Chief Financial Officer, of the effectiveness of the Company's
disclosure controls and procedures. Disclosure controls and procedures are
designed to ensure that information required to be disclosed in the periodic
reports filed or submitted under the Securities and Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms. Based upon that
evaluation, the Chief Executive Officer/Chief Financial Officer concluded that
the Company's disclosure controls and procedures are effective in alerting them
on a timely basis to material information relating to the Company required to be
included in the Company's reports filed or submitted under the Exchange Act.
(b) Changes in internal controls.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
15
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
A complaint was filed against the Company on March 31, 2003 by Mary Ratchford, a
former employee. Ms. Ratchford contends that she was fired as an employee
inspite of an employment contract that she had with the Company. The Company has
responded to the charge stating that she violated her contract through
non-performance and dishonesty. In February 2005, the Company and Ms. Ratchford
entered into a settlement agreement with respect to the litigation. Pursuant to
the Settlement Agreement, the Company agreed to pay Ms. Ratchford $13,500 in the
aggregate which is payable in fourteen installments; and issue 100,000 shares of
the Company's common stock that had a trading value of $10,000. Ms. Ratchford's
complaint will be dismissed following her receipt of the last payment pursuant
to the Settlement Agreement. As of October 31, 2005, the unpaid balance due Ms.
Ratchford was $5,500 and 60,000 shares of stock.
The Company is delinquent on employment taxes payable to the Internal Revenue
Service an on gross receipts taxes payable to the State of New Mexico. The
Liability for these taxes has been shown on the balance sheet as of October 31,
2004. The Company has negotiated with the Internal Revenue Service and the State
of New Mexico to establish payment plans and expects to payoff the entire amount
of taxes owed. As of July 31, 2004 the Internal Revenue Service filed a line
against all the assets of the Company related to these delinquent payroll taxes.
Critical is involved in other various legal proceedings and claims incident to
the normal conduct of its business. Critical believes that such legal
proceedings and claims, individually and in the aggregate, are not likely to
have a material adverse effect on its financial position or results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
A total of 5,000,000 shares of common stock were reserved and available for
grant under the Company's 2004 Stock Award and Incentive Plan. As of February
28, 2006, 5,000,000 shares were issued pursuant to the plan.
On August 5, 2004, the Company, consummated its merger with Salus Holding, Inc.
("Salus"). Pursuant to the merger agreement, the shareholders of Salus were
issued 2,000,000 shares of common stock of the Company. The sole shareholder of
Salus, Homeland Security Technology, Inc., was issued 2,000,000 shares of the
Company's Common Stock having a fair value of $360,000 that approximated 43.7
percent of then outstanding shares of the Company calculated on a fully diluted
basis at the date of issuance. Salus was the sole shareholder in Icon Salus
S.r.l. ("Icon Salus"), a company formed under the laws of Italy. Salus was
constructing a dialysis facility in Amaseno, Italy. Following the Company's
acquisition of Salus, the Company experienced difficulties in the development of
the Amaseno Clinic and was unable to obtain the requisite permits and licenses
from the Italian government, provincial and local. Thus on October 31, 2004, the
Company abandoned the development of the Amaseno Clinic and recognized a
$360,000 loss on this investment. On or about November 2005, Homeland Security
Technology, Inc. transferred the 2,000,000 shares of Critical Common Stock to
Ernest Remo, Chief Executive Officer and Chairman of the Board of Critical,
pursuant to a settlement agreement in connection with a promissory note by
Homeland Security Technology, Inc. in favor of Mr. Remo.
On October 12, 2004, the Company issued 5,000,000 shares of common stock to five
(5) consultants pursuant to a consulting agreement with each of the consultants.
The shares were granted pursuant to the Company's Share Option Plan.
16
On October 28, 2004, the Company entered into an agreement to purchase certain
rights to acquire a group of five dialysis clinics from Icon Veneto srl, an
Italian company, pursuant to a rights purchase agreement. The rights purchased
consist of a binding letter of intent assigned to the Company pursuant to the
agreement. Pursuant to the rights purchase agreement the Company issued to Icon
Veneto 100,000 shares of preferred stock of the Company. The preferred stock was
convertible into 10,000,000 shares of common stock of the Company. The five
dialysis clinics which are the subject of the rights purchase agreement had
established revenues of over Euro 4,000,000 (US$5,250,000). On February 1, 2005,
the Company and Icon Veneto entered into a settlement agreement whereby the
rights purchase agreement was terminated ab initio, as if it never existed, as a
result of a dispute between Icon Veneto and the Company with respect to
representations of Icon Veneto with respect to the rights. Consequently, the
Company Preferred Stock issued to Icon Veneto was cancelled.
On October 29, 2004, the Company issued 100,000 shares of common stock to Malcom
Bauer, a Director of the Company, for certain services that Mr. Bauer provided
to the Company.
On November 11, 2004, the Company issued 50,000 shares of common stock to
Stephen Czarnik, an attorney for the Company.
On February 15, 2005, the Company issued 5,000,000 shares of common stock to Les
Leger, a consultant to the Company for services to be provided to the Company.
Pursuant to an oral agreement between the Company and Mr. Ledger as of February
17, 2005, the stock was cancelled ab initio, as if never issued.
On March 8, 2005, the Company issued 200,000 shares of common stock to Jeffrey
Wasserstrom, a surgeon, for services provided to the Company.
On May 12, 2005, the Company issued 40,000 shares of common stock to Mary
Ratchford, a former employee, pursuant to a settlement agreement in connection
with a lawsuit brought by Ms. Ratchford.
On October 10, 2005, the Company issued of 2,000,000 shares of common stock to
the Chief Executive Officer in payment for certain accounting and related
services that were provided for the Company.
ITEM 3. DEFAULTS BY THE COMPANY UPON ITS SENIOR SECURITIES
--------------------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
-----------------
On January 25, 2006, the board authorized the increase of the Company's
authorized common stock from 25,000,000 shares to 100,000,000 shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) Exhibits
Exhibit 31.1 Certification of Ernest B. Remo pursuant to Rule 13-14(a)
and Item 307 of Regulation SB
Exhibit 32.1 Certification by Ernest B. Remo Pursuant to the 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
17
b) Reports on Form 8-K
Form 8K filed with the SEC dated on August 5, 2005 with respect to the merger of
Salus Holdings.
Form 8K filed on October 29, 2004 the change of the Company's name.
18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRITICAL CARE, INC.
-------------------
(Registrant)
By: /s/ Ernest B.Remo
--------------------------------
Ernest B. Remo
Chairman and
Chief Executive Officer
(Principal Executive
Officer and Principal
Accounting and
Financial Officer)
Date: April 27, 2006
19