U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
|X| Quarterly Report Pursuant to Section 13 or 15(d) of Securities Exchange
Act of 1934, as amended
For the quarterly period ended June 30, 2006
|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended
For the transition period from _______ to _______
Commission File No. 000-23967
MEDICAL STAFFING SOLUTIONS, INC.
(Name of Small Business Issuer in Its Charter)
Nevada 91-2135006
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
8150 Leesburg Pike, Suite 1200, Vienna, Virginia 22182
(Address of Principal Executive Offices) (Zip Code)
(703) 641-8890
(Issuer's Telephone Number, Including Area Code)
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 |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12B-2 of the Exchange Act). Yes |_| No |X|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
OUTSTANDING SHARES
CLASS August 21, 2006
----- ---------------
Common Stock 180,425,995
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
PART I
ITEM 1. FINANCIAL STATEMENTS
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
INDEX TO CONSENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
(UNAUDITED)
PAGE
----
Balance Sheet as of June 30, 2006 (Unaudited)............................ 2
Statements of Operations for the six (6)
months ended June 30, 2006 and 2005 (Unaudited)........................ 3
Statements of Cash Flows for the six (6) months ended June 30, 2006
and 2005 (Unaudited)................................................... 4
Notes to Financial Statements (Unaudited)................................ 6
F-1
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 2006
ASSETS
Current Assets:
Cash and cash equivalents $ 65,184
Accounts receivable, net 3,425,725
Due from related parties 69,305
Prepaid expenses 38,953
-----------
Total Current Assets 3,599,167
-----------
Fixed assets, net 118,447
Goodwill 2,528,010
Deposits 1,297,730
-----------
TOTAL ASSETS $ 7,543,354
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Notes payable, current portion $ 400,000
Loan payable - factoring agent 2,375,389
Accounts payable and accrued expenses 2,234,127
Lawsuit contingency 1,128,734
-----------
Total Current Liabilities 6,138,250
Long-term Liabilities:
Note payable, net of current 10,309
Loan payable - Officer 95,500
-----------
Total Liabilities 6,244,059
-----------
STOCKHOLDERS' EQUITY
Preferred Stock, $0.001 Par Value; 30,000,000 shares authorized,
4,400,000 shares designated Series A Convertible, $1 stated
value, 4,400,000 shares issued 4,315,000 outstanding at
June 30, 2006 4,315
Common Stock, $0.001 Par Value; 300,000,000 shares authorized
178,773,102 shares issued and outstanding at June 30, 2006 178,773
Discount on preferred Series A stock (1,400,000)
Additional Paid-in-Capital 10,199,171
Additional Paid-in-Capital - Warrants 1,142,686
Additional paid-in-Capital - Beneficial conversion 537,600
(Accumulated Deficit) (9,363,250)
-----------
Total Stockholders' Equity 1,299,295
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,543,354
===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-2
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2006 AND 2005
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
OPERATING REVENUES
Revenue $ 10,171,621 $ 2,859,076 $ 4,989,308 $ 1,212,986
COST OF SALES 7,239,471 1,959,864 3,523,872 834,303
------------ ------------ ------------ ------------
GROSS PROFIT 2,932,150 899,212 1,465,436 378,683
------------ ------------ ------------ ------------
OPERATING EXPENSES
Administrative payroll, benefits and overhead costs 2,500,225 907,409 1,328,729 389,143
General and administrative expenses 1,337,401 481,160 683,515 213,211
Depreciation and amortization 18,727 37,422 9,379 18,711
------------ ------------ ------------ ------------
Total Operating Expenses 3,856,353 1,425,991 2,021,623 621,065
------------ ------------ ------------ ------------
(LOSS) BEFORE OTHER INCOME (EXPENSES) (924,203) (526,779) (556,187) (242,382)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Other income 98,066 -- 12,756 --
Interest income -- 10,314 -- 5,196
Legal settlement (851,875) -- -- --
Beneficial interest expense (4,341) -- (4,341) --
Interest expense (425,254) (149,063) (358,231) (81,678)
------------ ------------ ------------ ------------
Total Other Income (Expenses) (1,183,404) (138,749) (349,816) (76,482)
------------ ------------ ------------ ------------
NET (LOSS) BEFORE PROVISION
FOR INCOME TAXES $ (2,107,607) $ (665,528) $ (906,003) $ (318,864)
Provision for Income Taxes -- -- -- --
------------ ------------ ------------ ------------
NET (LOSS) APPLICABLE TO COMMON SHARES $ (2,107,607) $ (665,528) $ (906,003) $ (318,864)
============ ============ ============ ============
NET (LOSS) PER BASIC AND DILUTED SHARES $ (0.01) $ (0.00) $ (0.01) $ (0.00)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 177,578,077 149,722,241 178,332,397 164,873,134
============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-3
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
2006 2005
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(2,107,607) $ (665,528)
----------- -----------
Adjustments to reconcile net (loss) to net cash
(used in) operating activities
Increase in allowance for doubtful accounts 40,182 --
Depreciation and amortization 18,727 37,422
Common stock issued for interest payments -- 62,142
Beneficial conversion expense 4,341 --
Changes in assets and liabilities
Decrease in accounts receivable 317,818 446,237
(Increase) in accounts receivable - other -- (9,100)
Decrease in prepaid expenses 58,974 14,592
(Increase) in deposits (1,247,730) (1,598,000)
Increase (decrease) in accounts payable and
and accrued expenses 229,143 (81,759)
Increase in legal settlement 1,128,734 --
----------- -----------
Total adjustments 550,189 (1,128,466)
----------- -----------
Net cash (used in) operating activities (1,557,418) (1,793,994)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (19,800) --
----------- -----------
Notes payable, current portion 400000
----------- -----------
Net cash (used in) investing activities (19,800) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issuance for cash - net of expenses -- 1,116,738
Preferred stock issuances for cash 1,400,000 --
Issuance costs deducted from equity (191,580) --
Cash contributions from subscription receivable 415,799 --
Proceeds from promissory note - SEDA -- 1,214,068
Net payments from loan payable - officer/litigation
settlement payable -- (15,000)
(Increase) in amounts due related parties (22,564) (21,659)
Net reduction in notes payable (255,751) (517,819)
----------- -----------
Net cash provided by financing activities 1,345,904 1,776,328
----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (231,314) (17,666)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 296,498 28,348
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 65,184 $ 10,682
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-4
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (CONTINUED)
2006 2005
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest expense $140,109 $131,904
======== ========
Income taxes $ -- $ --
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Common stock issued for loan commitment fees $ -- $160,000
======== ========
Common stock issued for interest payment $ -- $ 62,142
======== ========
During the six months ended June 30, 2006, 85,000 shares of preferred stock were
converted to common stock in accordance with an investment agreement (see note
13). Fifty thousand shares were converted to 2,304,147 shares of common stock at
a conversion price of $.0217 on January 30, 2006. Thirty-five thousand shares
were converted to 1,215,278 shares of common stock at a conversion price of
$.0288 on May 4, 2006.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-5
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The condensed consolidated unaudited interim financial statements included
herein have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). The
condensed consolidated financial statements and notes are presented as
permitted on Form 10-QSB and do not contain information included in the
Company's annual consolidated statements and notes. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in
the United States of America have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the December 31, 2005 audited financial
statements and the accompanying notes thereto. While management believes
the procedures followed in preparing these condensed consolidated
financial statements are reasonable, the accuracy of the amounts are in
some respects dependent upon the facts that will exist, and procedures
that will be accomplished by the Company later in the year.
These condensed consolidated unaudited financial statements reflect all
adjustments, including normal recurring adjustments which, in the opinion
of management, are necessary to present fairly the consolidated operations
and cash flows for the periods presented.
Medical Staffing Solutions, Inc. (the "Company") ("MSSI"), was
incorporated in the State of Nevada on June 21, 2001. The Company had no
revenues or operations and was considered a development stage company
until September 26, 2003 when they entered into a reverse merger with
TeleScience International, Inc. Prior to the transaction, MSSI had
10,499,333 shares of common stock. Upon the merger, MSSI cancelled
9,953,333 of these shares and issued 2,200,000 shares to acquire
TeleScience for 100% of the outstanding stock of TeleScience.
For accounting purposes, the transaction was accounted for as a reverse
acquisition under the purchase method of accounting. Accordingly,
TeleScience will be treated as the continuing entity for accounting
purposes, and the condensed consolidated financial statements presented
herein are those of TeleScience.
F-6
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
On September 29, 2003, the Board of Directors approved a 14-for-1 stock
split, increasing the outstanding shares of the Company to 41,200,005,
including 667 fractional shares (10,005 shares after the 14:1 split). As
of June 30, 2006, the Company had 178,773,102 shares of common stock
issued and outstanding.
The Company is a provider of medical personnel to state and federal
government agencies and private hospitals. The Company's business plan
anticipates diversification into building up a technology division, which
includes developing a Homeland Security subdivision. The Company has
expensed some start-up costs relating to this in the past year.
The Company entered into an asset purchase agreement on June 16, 2005 with
Nurses PRN Acquisition Group. Nurses PRN Acquisition Group had purchased
the assets of Nurses PRN, LLC, a Florida limited liability company. The
Company closed on this transaction on July 1, 2005. The purchase price was
$1,600,000 in cash, 9,500,000 shares of the Company's common stock valued
at $285,000, and the assumption of liabilities in the amount of $363,406.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant inter-company
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-7
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and Cost Recognition
Revenue is recognized under the accrual method of accounting when the
services are rendered and the customer has been billed, rather than when
cash is collected for the services provided. Specifically, the terms of
the contracts call for a fixed set fees based on an hourly rate per
individual.
Cost is recorded on the accrual basis as well, when the services are
incurred rather than paid for.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other
short-term investments with an initial maturity of three months or less to
be cash equivalents.
The Company maintains cash and cash equivalent balances at several
financial institutions that are insured by the Federal Deposit Insurance
Corporation up to $100,000. As of June 30, 2006, the Company had no
deposits in excess of the insured limits.
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful life of the assets.
Furniture and fixtures 7 Years
Office equipment 5 Years
Income Taxes
The income tax benefit is computed on the pretax loss based on the current
tax law. Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end based
on enacted tax laws and statutory tax rates.
F-8
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising
Costs of advertising and marketing are expensed as incurred. Advertising
and marketing costs were $16,742 and $21,520 for the six months ended June
30, 2006 and 2005, respectively.
Fair Value of Financial Instruments
The carrying amount reported in the condensed consolidated balance sheet
for cash and cash equivalents, deposits, prepaid expenses, accounts
payable, and accrued expenses approximate fair value because of the
immediate or short-term maturity of these financial instruments. The
carrying amount reported for notes payable approximates fair value
because, in general, the interest on the underlying instruments fluctuates
with market rates.
(Loss) Per Share of Common Stock
Historical net income (loss) per common share is computed using the
weighted average number of common shares outstanding. Diluted earnings per
share (EPS) include additional dilution from common stock equivalents,
such as stock issuable pursuant to the exercise of stock options and
warrants. Common stock equivalents are not included in the computation of
diluted earnings per share when the Company reports a loss because to do
so would be antidilutive for the periods presented.
F-9
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(Loss) Per Share of Common Stock (Continued)
The following is a reconciliation of the computation for basic and diluted
EPS:
June 30, June 30,
2006 2005
------------ ------------
Net Loss $ (2,107,607) $ (665,528)
Weighted-average common shares
outstanding (basic) 177,578,077 149,722,241
Weighted-average common stock equivalents:
Stock options and warrants 0 0
------------ ------------
Weighted-average common shares outstanding (diluted) 177,578,077 149,722,241
============ ============
Options and warrants outstanding to purchase stock were not included in
the computation of diluted EPS because inclusion would have been
anti-dilutive. As of June 30, 2006 there were no options available.
However, there were 95,000,000 freestanding warrants, and approximately
116,480,600 common shares available for conversion in association with the
convertible preferred Series A stock.
Reclassifications
Certain amounts for the six months ended June 30, 2005 have been
reclassified to conform to the presentation of the June 30, 2006 amounts.
The reclassifications have no effect on net income for the six months
ended June 30, 2005.
Recent Accounting Pronouncements
In December, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised
2004), Share-Based Payment ("FAS 123R"). FAS 123R requires that
compensation cost related to share-based payment transactions within the
scope of FAS 123R include stock options, restricted stock plans,
performance-based awards, stock appreciation rights, and employee share
purchase plans. The provisions of FAS 123R are effective for small
business issuers as of the first interim period that begins after December
15, 2005. The implementation of this standard did not have a material
impact on its financial position, results of operations or cash flows.
F-10
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Continued)
In December, 2004, FASB issued Financial Accounting Standards No. 153,
Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29,
Accounting for Non-monetary Transactions ("FAS 153"). This statement
amends APB Opinion 29 to eliminate the exception for non-monetary
exchanges of similar productive assets and replaces it with a general
exception for exchanges of non-monetary assets that do not have commercial
substance. Under FAS 153, if a non-monetary exchange of similar productive
assets meets a commercial-substance criterion and fair value is
determinable, the transaction must be accounted for at fair value
resulting in recognition of any gain or loss. FAS 153 is effective for
non-monetary transactions in fiscal periods that begin after June 15,
2005. The implementation of this standard did not have a material impact
on its financial position, results of operations or cash flows.
In March 2005, the FASB issued Statement of Financial Accounting Standards
Interpretation Number 47 ("FIN 47"), "Accounting for Conditional Asset
Retirement Obligations." FIN 47 provides clarification regarding the
meaning of the term "conditional asset retirement obligation" as used in
SFAS 143, "Accounting for Asset Retirement Obligations." FIN 47 is
effective for the year ended December 31, 2005. The implementation of this
standard did not have a material impact on its financial position, results
of operations or cash flows.
In May 2005, the FASB issued FAS 154, "Accounting for Changes and Error
Corrections--a replacement of APB Opinion No. 20 and FASB Statement No.
3." FAS 154 changes the requirements with regard to the accounting for and
reporting a change in an accounting principle. The provisions of FAS 154
require, unless impracticable, retrospective application to prior periods
presented in financial statements for all voluntary changes in an
accounting principle and changes required by the adoption of a new
accounting pronouncement in the unusual instance that the new
pronouncement does not indicate a specific transition method. FAS 154 also
requires that a change in depreciation, amortization or depletion method
for long-lived, non-financial assets be accounted for as a change in an
accounting estimate, which requires prospective application of the new
method. FAS 154 is effective for all changes in an accounting principles
made in fiscal years beginning after December 15, 2005. The Company has
adopted FAS 154 beginning January 1, 2006. Because FAS 154 is directly
dependent upon future events, the Company has not determined what effect,
if any, the expected adoption of FAS 154 will have on its financial
condition, results of operations or cash flows.
F-11
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Continued)
In February 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) No. 155, Accounting for
Certain Hybrid Financial Instruments. FAS No. 155 replaces FAS No. 133
Accounting for Derivative Instruments and Hedging Activities, and FAS No.
140 Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. FAS No. 155 resolves issues addressed in
Statement 133 Implementation Issue No. D1, "Application of Statement 133
to Beneficial Interests in Securitized Financial Assets." This statement
will be effective for all financial instruments acquired or issued after
the beginning of an entity's fiscal year that begins after September 15,
2006. The Company is currently analyzing whether this new standard will
have impact on its financial position and results of operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140." SFAS No. 156
requires an entity to recognize a servicing asset or liability each time
it undertakes an obligation to service a financial asset by entering into
a servicing contract under a transfer of the servicer's financial assets
that meets the requirements for sale accounting, a transfer of the
servicer's financial assets to a qualified special-purpose entity in a
guaranteed mortgage securitization in which the transferor retains all of
the resulting securities and classifies them as either available-for-sale
ortrading securities in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" and an acquisition or
assumption of an obligation to service a financial asset that does not
relate to financial assets of the servicer or its consolidated affiliates.
F-12
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Continued)
Additionally, SFAS No. 156 requires all separately recognized servicing
assets and servicing liabilities to be initially measured at fair value,
permits an entity to choose either the use of an amortization or fair
value method for subsequent measurements, permits at initial adoption a
one-time reclassification of available-for-sale securities to trading
securities by entities with recognized servicing rights and requires
separate presentation of servicing assets and liabilities subsequently
measured at fair value and additional disclosures for all separately
recognized servicing assets and liabilities. SFAS No. 156 is effective for
transactions entered into after the beginning of the first fiscal year
that begins after September 15, 2006. The Company is currently evaluating
the effect the adoption of SFAS No. 156 will have on its financial
position, results of operations and cash flows.
NOTE 3 - ACCOUNTS RECEIVABLE
The Company's revenues are derived from private hospitals and government
contracts with various state and federal agencies including hospitals,
medical facilities and penitentiaries. As such, payments for services
rendered are based on negotiated terms. The Company does provide for an
allowance of doubtful accounts and often evaluates receivables for
collectibility. At June 30, 2006, the Company has $3,550,140 due to them
for their services. Additionally, the Company has established an allowance
for doubtful accounts of $124,415 at June 30, 2006.
The accounts receivable are being used as collateral on a line of credit
the Company has with a factor (See Note 8).
F-13
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 2006:
Furniture, fixtures and equipment $299,265
Less: accumulated depreciation 180,818
--------
Net book value $118,447
========
Depreciation expense for the six months ended June 30, 2006 and 2005 was
$18,727 and $37,422, respectively.
NOTE 5 - DEPOSITS
The Company has deposits with various entities for security purposes. The
balance of these deposits at June 30, 2006 was $47,730.
The Company was required to place into escrow $1,250,000, pending
adjudication of an appeal (see note 15).
NOTE 6 - GOODWILL
In the acquisition of Nurses, PRN, the Company recorded goodwill in the
amount of $2,528,010. The Company has performed an analysis of the account
and has determined that no impairment is necessary at June 30, 2006.
NOTE 7 - DUE FROM RELATED PARTIES
The Company has outstanding at June 30, 2006, $69,305 from related
parties, primarily in the form of employee advances. These amounts have no
specific repayment terms. As such, the amounts are reflected in the
condensed consolidated balance sheet as current assets.
NOTE 8 - LINE OF CREDIT
In July 2005, the Company entered into a line of credit agreement with a
factor. The loan, which is due on demand bears interest at prime plus
1.00% (9.25% at June 30, 2006). The factor lends up to 90% of the
receivable balance to the Company, and receives payment directly on the
outstanding receivables and the remaining balance is remitted to the
Company. The outstanding balance at June 30, 2006 was $2,375,389. The
balance is reflected net of a 10% reserve that the factor has established
which is adjusted on each funding.
F-14
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 9 - PROVISION FOR INCOME TAXES
Deferred income taxes will be determined using the liability method for
the temporary differences between the financial reporting basis and income
tax basis of the Company's assets and liabilities. Deferred income taxes
will be measured based on the tax rates expected to be in effect when the
temporary differences are included in the Company's consolidated tax
return. Deferred tax assets and liabilities are recognized based on
anticipated future tax consequences attributable to differences between
financial statement carrying amounts of assets and liabilities and their
respective tax bases.
At June 30, 2006 and 2005, deferred tax assets approximated the following:
2006 2005
----------- -----------
Deferred tax assets $ 3,374,000 $ 1,828,000
Less: valuation allowances (3,374,000) (1,828,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
At June 30, 2006 and 2005, the Company had accumulated deficits in the
amounts $9,363,000 and $6,094,000, respectively, available to offset
future taxable income through 2025. The Company established valuation
allowances equal to the full amount of the deferred tax assets due to the
uncertainty of the utilization of the operating losses in future periods.
NOTE 10 - LOAN PAYABLE - OFFICER
The Company was party to a claim in which an individual was seeking
damages under an agreement into which the Company entered in 2002. The
Company eventually settled this claim, and consequently recorded a
liability for the settled amount of $1,092,156, which included attorney's
fees. The payout of this settlement was to be over forty-two months in
semi-monthly installments of $12,500 commencing February 2003. The
settlement accrued interest at 12% upon any default of the agreement. As
part of this agreement the individual can seek no further damages against
the Company.
The Company paid $216,236 of this amount, and then in November 2003, the
President of the Company, in a private stock transaction, signed over
personal shares of common stock of the Company in consideration of the
remainder of the liability. The Company recorded a loan payable to the
President for the balance of the unpaid liability, $875,920. The Company
has since paid down some of this liability and the total outstanding at
June 30, 2006 is $88,528. The officer advanced an additional $6,972. At
June 30, 2006, the total loan payable due the officer is $ 95,500.
F-15
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company had established a 401(k) Plan for its employees and agreed to
match a portion of the contribution. Effective January 1, 2004, the
Company discontinued its matching portion of the contribution.
Rent expense was $155,056 and $28,810 for the six months ended June 30,
2006 and 2005, respectively.
NOTE 12 - NOTE PAYABLE
In connection with the acquisition of Nurses PRN on July 1, 2005, the
Company assumed a note payable with Jeffrey Dowling in the amount of
$365,487. In addition, the Company assumed a note payable with Aftabe
Adamjee in the amount of $250,000. The note payable to Jeff Dowling is
payable in 26 monthly installments with a 9% interest rate. The note
payable to Aftabe Adamjee is payable in two installments. The Company
anticipates making full payment in 2006. The balances on these notes at
June 30, 2006 were $160,309 and $250,000, respectively.
NOTE 13 - STOCKHOLDERS' EQUITY
The Company has two classes of stock; a preferred class with a par value
of $.001 and 30,000,000 shares authorized, and a common class with a par
value of $.001 and 300,000,000 shares authorized.
The Company has 178,773,102 common shares issued and outstanding and
4,400,000 shares of Series A convertible preferred stock issued and
4,315,000 outstanding as of June 30, 2006.
On December 13, 2005, the Company issued 3,000,000 shares of Series A
convertible preferred stock. The stock was issued in three parts; the
first installment was consummated when the Company issued 2,184,201 shares
in payment of a promissory note held by Cornell Capital Partners LP
("Cornell"). The debt was in the amount of $2,113,332 plus accrued
interest of $70,869. The second installment was for 400,000 shares in the
amount of $400,000. The remaining shares were advanced two days prior to
the Company filing a registration statement, which was filed January 31,
2006. In addition, the Company extended a warrant to Cornell to purchase
15,000,000 shares of common stock at a fixed exercise price of $0.03.
F-16
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 13 - STOCKHOLDERS' EQUITY (CONTINUED)
On March 13, 2006, the Company amended its agreement with Cornell to
increase the amount of preferred shares to 4,400,000. Additional funds of
$1,400,000 were advanced from Cornell on that date. In addition, the
Company issued to Cornell four warrants to purchase 80,000,000 shares of
the Company's common stock as follows: (i) 30,000,000 shares at an
exercise price of $.005 per share, (ii) 30,000,000 shares at an exercise
price of $.01 per share, (iii) 10,000,000 shares at an exercise price of
$.015 per share, and (iv) 10,000,000 shares at an exercise price of $.02
per share. The warrants expire five years after the date of issuance.
On January 30, 2006, a convertible series A preferred shareholder notified
the Company of their intent to convert 50,000 shares of preferred stock
into common stock, as outlined in the agreement. The preferred shares were
converted at a price of $.0217, which translated into 2,304,147 shares of
common stock.
On May 4, 2006, a convertible series A preferred shareholder notified the
company of their intent to convert 35,000 shares of preferred stock into
common stock, as outlined in the agreement. The preferred shares were
converted at a price of $.0288, which translated into 1,215,278 shares of
common stock.
In connection with the conversion of preferred stock, total outstanding
preferred shares were decreased by 85,000 shares and beneficial interest
was recognized in the amount $4,341 for the six months ended June 30,
2006.
NOTE 14 - GOING CONCERN
As shown in the accompanying condensed consolidated financial statements,
the Company incurred substantial net losses for the six months ended June
30, 2006 and June 30, 2005. There is no guarantee whether the Company will
be able to generate enough revenue and/or raise capital to support those
operations. This raises substantial doubt about the Company's ability to
continue as a going concern.
F-17
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 14 - GOING CONCERN (CONTINUED)
Management is confident that they can improve operations and raise the
appropriate funds needed through contracts into which the Company recently
has entered.
The condensed consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
NOTE 15 - LITIGATION
In October 2004, The Roche Group sought action against the Company for
pecuniary loss in connection with an ex-dividend date of the Company's
common stock. The courts have dismissed two of the three counts with
prejudice. The Company is presently in the discovery phase of the trial on
the remaining count. Plaintiffs are seeking $125,000 in damages. The
Company feels the case has no merit, and will be dismissed as well.
On February 16, 2006, the Circuit Court of Fairfax County, Virginia
entered a final order against TeleScience in the amount of $851,875 along
with interest at 12% accruing since October 16, 2003.
In 2003, the Company believed it had settled a claim by the Plaintiff who
was a former officer and investor of TeleScience. In satisfaction of that
settlement, 2,655,678 restricted shares of the Company's common stock were
delivered to Plaintiff in November of 2003. The Plaintiff rejected the
share tender and demanded a cash settlement. The Company maintains the
tender to have been sufficient and binding. The parties engaged in legal
proceedings in November 2003 and the case went forward for a jury trial.
On November 16, 2005, the jury returned a favorable verdict for
TeleScience. The Plaintiff petitioned the Court to set aside the jury
verdict. The motion was set for oral argument December 16, 2005. On
February 16, 2006 the Court reversed its position in favor of the
Plaintiff. TeleScience intends to vigorously pursue an appeal.
As a result of this latest decision, the Company placed $1,250,000 in
escrow with the Fairfax County Circuit Court of Appeals. The proceeds will
be held in escrow until adjudication of the matter with the Court of
Appeals. The final order in the amount $851,875 was recorded as a current
liability along with $276,859 in accrued interest.
F-18
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
JUNE 30, 2006 AND 2005
NOTE 15 - LITIGATION (CONTINUED)
In the event that the Company is successful in its appeal process, Cornell
has the option to redeem the 1,400,000 shares of Series A preferred stock
in exchange for the proceeds previously received.
In June 2006, Mirza W. Ahmed and Asra Ahmed (together, the "Plaintiff")
filed suit against the Company and the Company's subsidiary Nurses Onsite
for failure to pay under a note which such note had allegedly been
assigned to Plaintiff by the original beneficiary, Aftab Adamjee
("Adamjee"). Plaintiff is seeking $250,000 plus accrued interest and
expenses including attorneys fees. On or about July 19, 2006, Defendants
filed an Answer and Affirmative Defenses. Defendants deny the key
allegations of the Complaint and assert that they are not liable to
Plaintiffs for a variety of affirmative defenses including, but not
limited to, Plaintiff's lack of standing to assert the claims raised and
that the note was made fraudulently to avoid Defendant Nurses Onsite's
restrictions on paying said note. Plaintiff replied to the affirmative
defenses denying same. The attorneys are not able to assess the likelihood
of success on the merits for these claims at this stage, but the Company
does intend to defend them vigorously.
F-19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction - Forward Looking Statements
Any statements that express, or involve discussions as to, expectations,
beliefs, plans, objectives, assumptions of future events or performance are not
statements of historical facts and may be forward-looking. These forward-looking
statements are based largely on Medical Staffing's expectations and are subject
to a number of risks and uncertainties, including but not limited to, economic,
competitive, regulatory, growth strategies, available financing and other
factors discussed elsewhere in this report and in documents filed by Medical
Staffing with the U.S. Securities and Exchange Commission ("SEC"). Many of these
factors are beyond Medical Staffing's control. Actual results could differ
materially from the forward-looking statements made. In light of these risks and
uncertainties, there can be no assurance that the results anticipated in the
forward-looking information contained in this report will, in fact, occur.
Any forward-looking statement speaks only as of the date on which such statement
is made, and Medical Staffing undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Business
MSSI is a provider of specialty medical staffing services throughout the
country. We presently provide, through our wholly-owned subsidiary, TeleScience,
health related staffing services to Federal and State government clients. These
clients include the U.S. Military, Veterans Administration, Public Health
Service and State correctional and health and welfare facilities. The facilities
include hospitals and clinics. The services include both auxiliary care and
professional care staffing. These staffing positions include personnel in the
dental, medical and pharmacy areas. Occupational areas provided include nurses,
nurse practitioners, dental assistants, pharmacists and physicians. Through our
wholly-owned subsidiary, Nurses Onsite Corp, we provide health related staffing
services to private for-profit and non-profit acute care facilities in nine (9)
states. These clients include some of the largest hospital chains in the country
as well as small, single location facilities. We provide Registered Nurses (RN),
Licensed Practical Nurses (LPN), various types of therapists and Certified
Nursing Assistants (CNA's). The majority of our health care workers in the NOC
subsidiary are RN's.
The Nurses Onsite Corp. Business
Nurses Onsite Corp. is a provider of per diem nurses to private hospitals.
Nurses Onsite Corp. maintains a listing of nurses having a variety of skills and
who may be called upon to fill appropriate open shift positions at hospitals.
Nurses Onsite Corp. establishes relationships with various hospitals who call
upon Nurses Onsite Corp. to fulfill their needs for nurses due to vacancies
created by vacations, increased patient loads or similar need situations as well
as for extended periods.
Revenues have grown as a result of our acquisition of Nurses Onsite Corp., which
has aggregate revenues greater than Medical Staffing. Nurses Onsite Corp. has
substantially increased the Company's operations in the private healthcare
nursing sector. The acquisition has made a positive contribution to revenue and
has provided us an entry vehicle into the commercial nurse staffing arena.
Nurses Onsite Corp. is presently operating in fourteen (14) staffing locations
in nine (9) states (including Virginia) and has more than 900 nurses that it can
call upon to fulfill the needs of over four hundred (400) hospitals it presently
services.
1
We attempt to price our contracts so that we can receive a reasonable profit. In
the competitive market in which we operate we have constraints at both ends of
our contract equation. If we price our services too high we either will not win
the contract or even if we are awarded the contract, since there are often
several successful awardees, our services will not be utilized since they could
be more expensive than the offerings of other successful awardees. At the same
time, if we price our contract too low, we will not have sufficient revenues to
attract the talent we need to provide the services while being profitable under
the contract. Without this talent we cannot achieve revenues with profits.
General
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included herein. The
information contained below includes statements of the Company's or management's
beliefs, expectations, hopes, goals and plans that, if not historical, are
forward-looking statements subject to certain risks and uncertainties that could
cause actual results to differ materially from those anticipated in the
forward-looking statements.
Going Concern
As reflected in the Company's financial statements as of June 30, 2006, the
Company's accumulated deficit is $9,363,250 and its working capital is
$(2,539,083). The ability of the Company to continue as a going concern is
dependent on the Company's ability to raise additional debt or capital,
including the ability to raise capital. Management is planning to attempt to
obtain capital principally through the sale of equity securities and/or part of
its current business. The Company is also in negotiations with private investors
to raise debt capital to support its operations during the next twelve months.
The financial statements for June 30, 2006 do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
Critical Accounting Policies And Estimates
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, or GAAP. These
accounting principles require us to make certain estimates, judgments and
assumptions. We believe that the estimates, judgments and assumptions upon which
we rely are reasonably based upon information available to us at the time that
these estimates, judgments and assumptions are made. These estimates, judgments
and assumptions can affect the reported amounts of assets and liabilities as of
the date of the financial statements, as well as the reported amounts of revenue
and expenses during the periods presented. To the extent there are material
differences between these estimates, judgments and assumptions and actual
results, our financial statements will be affected. The significant accounting
policies that we believe are the most critical to aid in fully understanding and
evaluating our reported financial results include the following:
o Revenue recognition;
o Allowance for doubtful accounts; and
o Accounting for income taxes.
In many cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP and does not require management's judgment in its
application. There are also areas in which management's judgment in selecting
among available alternatives would not produce a materially different result.
Our senior management has reviewed these critical accounting policies and
related disclosures. See Notes to Condensed Consolidated Financial Statements,
which contain additional information regarding our accounting policies and other
disclosures required by GAAP.
Revenue Recognition
Revenue on time-and-materials contracts is recognized based upon hours incurred
at contract rates plus direct costs. Revenue on fixed-price contracts is
recognized on the percentage-of-completion method based on costs incurred in
relation to total estimated costs. Anticipated losses are recognized as soon as
they become known. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
2
Allowance For Doubtful Accounts
We determine our allowance by considering a number of factors, including the
length of time trade accounts receivable are past due, our previous loss
history, the customer's current ability to pay its obligation to us, and the
condition of the general economy and the industry as a whole. We make judgments
as to our ability to collect outstanding receivables based on these factors and
provide allowances for these receivables when collections become doubtful.
Provisions are made based on specific review of all significant outstanding
balances.
Accounting For Income Taxes
We account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under the
asset and liability method of SFAS No. 109, deferred income taxes are recognized
for the expected future tax consequences of temporary differences between
financial statement carrying amounts, and the tax bases of existing assets and
liabilities using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Any deferred tax asset has been reserved by the Company with an
offsetting valuation allowance adjustment.
Results of Operations
Results Of Operations For The Quarter Ended June 30, 2006, Compared To The
Quarter Ended June 30, 2005
Revenues
Revenues for the quarter ended June 30, 2006 were $4,989,308, an increase of
$3,776,322, as compared to revenues of $1,212,986 for the quarter ended June 30,
2005. The increase in revenues in 2006 was attributable to the acquisition of
Nurses Onsite Corp.
Cost Of Sales
Cost of sales for the quarter ended June 30, 2006 was $3,523,872, or seventy-one
percent (71%) of revenues, as compared to $834,303, or sixty-nine percent (69%)
of revenues, for the quarter ended June 30, 2005. This percentage increase in
cost of sales was primarily attributable to cost of sales on the Nurses Onsite
Corp. contracts.
Gross Profit
Gross profit for the quarter ended June 30, 2006, was $1,465,436 or twenty-nine
percent (29%) of revenues, as compared to gross profit of $378,683, or
thirty-one (31%) of revenues, for the quarter ended June 30, 2005.
Operating Expenses
Operating expenses for the quarter ended June 30, 2006 were $2,021,623 as
compared to $621,065, or fifty-one percent (51%) of revenues, for the quarter
ended June 30, 2005, an increase of $1,400,558 or two hundred twenty-five
percent (225%). The increase in operating expenses in 2006 was primarily
attributable to increased cost of general administrative expenses resulting
mainly from the acquisition of Nurses Onsite Corp.
3
Other Income (Expense)
Other income (expense) for the quarter ended June 30, 2006 was $(349,816) as
compared to $(76,482) for the quarter ended June 30, 2005, an increase of
$273,334 or three hundred fifty-seven percent (357%). The increased expense
inclusion of the February 16, 2006 legal ruling against the Company in the
amount of $851,875 plus interest, which is being appealed, as well as increased
interest costs.
Net Loss
The Company had a net loss of $906,003 for the quarter ended June 30, 2006,
compared to a net loss of $318,864 for the quarter ended June 30, 2005. The
increased loss of $587,139 was mainly attributable to increased interest costs,
predominantly accrued in connection with the February 16, 2006 legal ruling
against the Company, which is being appealed as well as lower margins which were
not offset by reduced operating expenses as a percentage of sales,.
Results Of Operations For The Six Months Ended June 30, 2006, Compared To
The Six Months Ended June 30, 2005
Revenues
Revenues for the six (6) months ended June 30, 2006 were $10,171,621, an
increase of $7,312,545 or two hundred fifty-six percent (256%), as compared to
revenues of $2,859,076 for the six (6) months ended June 30, 2005. The increase
in revenues in 2006 was attributable to the acquisition of Nurses Onsite Corp.
Cost Of Sales
Cost of sales for the six (6) months ended June 30, 2006 was $7,239,471, or
seventy-one percent (71%) of revenues, as compared to $1,959,864, or sixty-nine
percent (69%) of revenues, for the six (6) months ended June 30, 2005. This
percentage increase in cost of sales was primarily attributable to cost of sales
on the Nurses Onsite Corp. contracts.
Gross Profit
Gross profit for the six (6) months ended June 30, 2006, was $2,932,150 or
twenty-nine percent (29%) of revenues, as compared to gross profit of $899,212,
or thirty-one (31%) of revenues, for the six (6) months ended June 30, 2005.
Operating Expenses
Operating expenses for the six (6) months ended June 30, 2006 were $3,856,353,
as compared to $1,425,991, or forty-nine percent (49%) of revenues, for the six
(6) months ended June 30, 2005, an increase of $2,430,362 or one hundred seventy
percent (170%). The percentage of sales was decreased, but the amount in total
increased due to the acquisition of Nurses-Onsite Corp.
4
Other Income (Expense)
Other income (expense) for the six (6) months ended June 30, 2006 was
$(1,183,404) as compared to $(138,749) for the six (6) months ended June 30,
2005. The increased expense was from the inclusion of the February 16, 2006
legal ruling against the Company in the amount of $851,875 plus interest, which
is being appealed, as well as increased interest costs.
Net Loss
The Company had a net loss of $2,107,607 for the six (6) months ended June 30,
2006, compared to a net loss of $665,528 for the six (6) months ended June 30,
2005. The increased loss of $1,442,079 was mainly attributable to the inclusion
of the February 16, 2006 legal ruling against the Company in the amount of
$851,875 plus interest, which is being appealed, as well as increased interest
costs and lower margins which were not offset by reduced operating expenses as a
percentage of sales.
Liquidity and Capital Resources
The Company's financial statements have been prepared on a going concern basis
that contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. The Company incurred a net
loss of $2,107,607 and $665,528 for the six (6) months ended June 30, 2006 and
2005, respectively, and had an accumulated deficit of $9,363,250 at June 30,
2006. At June 30, 2006, the Company had a working capital deficit of $2,539,083.
Due to insufficient cash generated from operations, the Company currently does
not internally generate cash sufficient to pay all of its incurred expenses and
other liabilities. Management recognizes that they must generate additional
resources to enable them to continue operations. Management is planning to
attempt to obtain additional capital principally through the sale of equity
securities and/or part of its current business. The realization of assets and
satisfaction of liabilities in the normal course of business is dependent upon
Medical Staffing obtaining additional equity capital and ultimately obtaining
profitable operations. However, no assurances can be given that the Company will
be successful in these activities. Should any of these events not occur, the
accompanying consolidated financial statements will be materially affected and
the Company could be forced to curtail or cease its business operations.
Cash used in operating activities was $1,557,418 for the six (6) months ended
June 30, 2006, compared to cash used of $1,793,994 for the same period in 2005.
Cash used in investing activities was $19,800 for the six (6) months ended June
30, 2006, compared to cash used in investing activities of $0 for the same
period in 2005. This increase was principally due to acquisition of certain
fixed office assets.
Net cash provided by financing activities was $1,345,904 for the six (6) months
ended June 30, 2006, compared to $1,776,328 during the same period in 2005. This
was mainly due to the funding through Series A convertible preferred shares,
convertible debentures and a now-terminated Standby Equity Distribution
Agreement with Cornell Capital Partners, LP ("Lerner Capital").
5
In May 2002, the Company entered into a line of credit agreement with a factor.
The loan was fully paid off in June 2005.
On March 11, 2004, the Company entered into a now-terminated Standby Equity
Distribution Agreement with Cornell Capital. Under the agreement, the Company
was to issue and sell to Cornell Capital common stock for a total purchase price
of up to $5,000,000. Cornell Capital received a one-time commitment fee of
750,000 shares of the Company's common stock. In addition, the Company entered
into a placement agent agreement with Newbridge Securities Corporation, a
registered broker-dealer. Pursuant to the placement agent agreement, the Company
paid a one-time placement agent fee of 10,000 restricted shares of common stock
equal to approximately $1,400 based on the Company's stock price on March 11,
2004. This Agreement expired in April 2006. Through June 30, 2006, Medical
Staffing had drawn down $2,440,000 under the Standby Equity Distribution
Agreement and Medical Staffing has issued 74,744,294 shares of common stock to
Cornell Capital. The proceeds have been utilized to repay principal of the
$1,000,000 promissory note issued to Cornell Capital on June 11, 2004 and the
$315,000 promissory note issued to Cornell Capital on October 18, 2004, and a
portion of the $2,000,000 promissory note issued to Cornell Capital on January
5, 2005 as set forth below.
As of June 30, 2005, the note has been fully paid. The Company terminated the
Standby Equity Distribution Agreement on January 11, 2006 together with all
related transaction documents thereto.
On January 1, 2005, Medical Staffing and Dr. Brajnandan B. Sahay entered into a
five (5) year employment agreement. Pursuant to the employment agreement, Dr.
Sahay shall serve as Medical Staffing's President and Chief Executive Officer or
other executive officer of Medical Staffing. Dr. Sahay will receive a salary of
$250,000 per year, four (4) weeks paid vacation, a car allowance and will be
reimbursed for business expenses. Dr. Sahay will receive additional
consideration of 3,000,000 options to purchase common stock of Medical Staffing
for the fiscal year 2005 at an exercise price of $0.06 per share. For each year
after 2005 and during the term of the employment agreement, Dr. Sahay shall be
entitled to receive 3,000,000 options to purchase common stock of Medical
Staffing at an exercise price equal to the average of the closing price of
Medical Staffing's common stock for the ten (10) days immediately preceding
September 30 of the applicable year.
On January 5, 2005, Medical Staffing received $2,000,000 in return for a
promissory note issued to Cornell Capital which was subsequently amended on June
7, 2005. The promissory note, as amended, accrues interest at twelve percent
(12%) per year and matured on January 5, 2006. On April 26, 2005, Medical
Staffing received $500,000 in return for a promissory note issued to Cornell
Capital which was amended on June 7, 2005. The promissory note, as amended,
accrues interest at twelve percent (12%) per year and matured in December 2005.
On June 27, 2005, Medical Staffing entered into a factoring agreement (the
"Factoring Agreement") with its wholly-owned subsidiary TeleScience
International, Inc. ("TeleScience"), its wholly-owned subsidiary Nurses PRN
Acquisition Corp. then "NPRN" and now "Nurses Onsite Corp." and SYSTRAN
Financial Service Corporation ("SYSTRAN"), a subsidiary of Textron Financial
Corporation ("Textron"), pursuant to which SYSTRAN established a Five Million
Dollar ($5,000,000) credit facility (the "Facility") with Medical Staffing in
order for Medical Staffing to finance the accounts receivables of TeleScience
and Nurses Onsite Corp. The Factoring Agreement shall commence its term on the
date Medical Staffing first receives funds pursuant to the Facility, and shall
continue through twelve (12) months, with twelve (12) month renewal periods.
Medical Staffing shall pay interest on any outstanding balance at the Wells
Fargo Bank Prime Rate plus one half of one percent (0.50%), and pay a discount
fee of one half of one percent (0.50%) of the face amount of all unbilled
invoices and bills purchased by SYSTRAN. SYSTRAN shall have a first and only
security interest in all of Medical Staffing's present and future accounts,
deposit accounts, chattel paper, contract rights (including insurance contracts
and insurance proceeds), general intangibles, choses in action, instruments and
documents, whether owned as of the date of the Factoring Agreement or acquired
thereafter, and the proceeds of each of the foregoing. Upon the request of
Medical Staffing, the Facility shall be reviewed for conversion to a Textron
asset-based revolving credit facility. The outstanding balance at June 30, 2006
was $ 2,375,389.
6
On July 1, 2005, we completed our Asset Purchase Agreement, whereby Medical
Staffing, through its wholly-owned subsidiary Nurses PRN Acquisition Corp. (then
"NPRN" and now "Nurses Onsite Corp."), acquired the business of Nurses PRN, LLC.
As consideration for the purchased assets, Medical Staffing agreed to issue and
deliver 9,500,000 shares of common stock to Nurses PRN, LLC to be delivered to
the members of Nurses PRN, LLC and 2,500,000 shares to a creditor. NPRN paid
Nurses PRN, LLC $1,600,000 as a cash consideration and agreed to pay a
contingent payment based on NPRN's achievement of certain financial targets
which shall not exceed $500,000. Medical Staffing also assumed certain assumed
liabilities including: (a) a $365,487 note payable issued to Mr. Jeff Dowling by
NPRN; (b) a $250,000 note payable to Mr. Aftabe Adamjee by NPRN and (c) certain
general payables as set forth in the Asset Purchase Agreement. The acquisition
was funded by a promissory note.
Effective August 10, 2005, the Company issued to Cornell Capital a common stock
purchase warrant in connection with a commitment for the now-terminated
$50,000,000 Standby Equity Distribution Agreement and for Ten United States
Dollars ($10.00) and other good a valuable consideration. On December 13, 2005,
the Company and Cornell Capital terminated the Warrant.
On September 2, 2005 Medical Staffing entered into a Securities Purchase
Agreement with Cornell Capital whereby the Company issued and sold to Cornell
Capital up to $2,113,332 of secured convertible debentures (the "Convertible
Debenture") which shall be convertible into shares of the Company's common
stock. Of this amount, $1,095,428 (comprised of $1,072,164 in principal and
$23,264 in accrued interest) has been previously funded pursuant to that certain
promissory note dated January 5, 2005, as amended and restated on June 7, 2005,
and $517,903 (comprised of $506,904 in principal and $10,999 in accrued
interest) has been previously funded pursuant to that certain promissory note
dated April 26, 2005, as amended and restated on June 7, 2005. The promissory
notes have simultaneously terminated upon the issuance of the Convertible
Debenture and an additional $500,000 has also been funded pursuant to Securities
Purchase Agreement for a total purchase price of up to $2,113,332. The
Convertible Debenture terminated on December 13, 2005 pursuant to that certain
Investment Agreement with Cornell Capital.
On December 13, 2005 (the "Transaction Date"), Medical Staffing entered into an
Investment Agreement with Cornell Capital pursuant to which the Company issued
and sold to Cornell Capital, and Cornell Capital purchased from the Company,
Three Million Dollars ($3,000,000) of Series A Preferred shares which shall be
convertible into shares of the Company's common stock and which amount shall
solely consist of (a) the surrendering of that certain Convertible Debenture
held by Cornell Capital as of September 2, 2005 equal to $2,184,201 ($2,113,332
in principal plus $70,869 in accrued interest) and (b) an additional cash amount
equal to Eight Hundred Fifteen Thousand Seven Hundred Ninety-Eight Dollars
($815,798), of which Four Hundred Thousand Dollars ($400,000) was funded as of
December 13, 2005 and the remaining Four Hundred Fifteen Thousand Seven Hundred
and Ninety-Eight Dollars ($415,798) was funded as of January 27, 2006 pursuant
to that certain Investor Registration Rights Agreement dated as of the
Transaction Date.
The Series A Preferred shares have the designations, preferences and rights set
forth in the Certificate of Designation as filed with the Secretary of State for
the State of Nevada effective December 16, 2005. The holders of Series A
Preferred shares have the sole right and discretion to elect conversion at any
time and from time to time into such number of fully paid and non-assessable
shares of common stock equal to the quotient of the Liquidation Amount ($1.00)
divided by the Conversion Price, subject to certain adjustments as is more fully
set forth in the Certificate of Designation. However, no holder of Series A
Preferred shares shall be entitled to convert the Series A Preferred shares to
the extent, but only to the extent, that such conversion would, upon giving
effect to such conversion, cause the aggregate number of shares of common stock
beneficially owned by such holder to exceed 4.99% of the outstanding shares of
common stock following such conversion (which provision may be waived by such
holder by written notice from such holder to the Company, which notice shall be
effective sixty-one (61) days after the date of such notice). The Conversion
Price is equal to ninety-five percent (95%) of the lowest volume weighted
average of the common stock for the thirty (30) trading days immediately
preceding the date of conversion, as quoted by Bloomberg LP. The holders of
Series A Preferred shares shall vote with the holders of common stock on an as
converted basis as of the time a vote is taken and not as separate classes.
On December 13, 2005, the Company issued to Cornell Capital a common stock
purchase warrant (the "December Warrant") whereby Cornell Capital is entitled to
purchase from the Company, upon surrender of the December Warrant, Fifteen
Million (15,000,000) fully paid and nonassessable shares of our common stock at
an exercise price of $0.03 per share (or as subsequently adjusted pursuant to
the terms of the December Warrant). The December Warrant has "piggy back"
registration rights and expires five (5) years from the date of issuance, on or
about December 13, 2010.
On February 16, 2006 the Circuit Court of Fairfax County, Virginia (the "Court")
entered a Final Order in favor of plaintiff Azmat Ali (the "Plaintiff") against
the Company's wholly-owned subsidiary TeleScience, Dr. Brajnandan B. Sahay and
Mrs. Rupa Sahay (TeleScience, Dr. Sahay and Mrs. Sahay are collectively referred
to herein as the "Defendant"), in the matter Azmat Ali v. TeleScience
International, Inc., et al. (At Law No. 218574). This matter came to be heard on
December 16, 2005, upon the Plaintiff's motion to set aside the jury verdict
entered in favor of the Defendants on November 16, 2005. For reasons set forth
in the Court's Opinion Letter, the Court entered a judgment in favor of the
Plaintiff in the amount of $851,875 with interest at twelve percent (12%) from
the date of October 16, 2003.
In 2003, the Company believed it had settled a claim by the Plaintiff who was a
former officer and investor of TeleScience. In satisfaction of that settlement,
2,655,678 restricted shares of Company's common stock were delivered to
Plaintiff in November of 2003. The Plaintiff rejected the share tender and
demanded a cash settlement. The Company maintains the tender to have been
sufficient and binding. The parties engaged in legal proceedings in November
2003 and the case went forward for a jury trial. On November 16, 2005, the jury
returned a verdict in favor of TeleScience, and at that time, the Plaintiff
moved the Court to set aside the jury verdict. The motion was set for oral
argument for December 16, 2005, and on February 16, 2006 the Court ruled in
favor of the Plaintiff. TeleScience has appealed this decision and intends to
vigorously pursue an appeal. The Company has been advised that the appeal will
be heard in September 2006.
As a result of the latest decision in this matter, the Company has placed the
net proceeds obtained in the revised Investment Agreement in the amount of
$1,250,000 in escrow with the Fairfax County Circuit Court of Appeal. The
proceeds will be held in escrow until adjudication of the matter with the Court
of Appeals.
In the event that the Company is successful in its appeal process, Cornell
Capital has the option to redeem the 1,400,000 shares of Series A preferred
stock in exchange for the proceeds previously received.
In October 2004, The Roche Group sued the Company for pecuniary loss in
connection with an ex-dividend date of the Company's stock. The courts have
dismissed two (2) of the three (3) counts with prejudice. The parties have
agreed to mediation in an attempt to fully resolve the litigation. Plaintiffs
are seeking $125,000 in damages. The Company believes the case is without merit
and intends to vigorously defend.
In June 2006, Contemporary Nursing Solutions, Inc. (CNS) filed an amended
complaint/suit which included the Company and its subsidiaries and asked for
injunctive and other relief for hiring a former employee of CNS. The Company is
presently in the discovery phase of the proceeding. The Company believes the
case is without merit and, if necessary, intends to vigorously defend.
In June 2006, Mirza W. Ahmed and Asra Ahmed (together, the "Plaintiff") filed
suit against the Company and the Company's subsidiary Nurses Onsite for failure
to pay under a note which such note had allegedly been assigned to Plaintiff by
the original beneficiary, Aftab Adamjee ("Adamjee"). Plaintiff is seeking
$250,000 plus accrued interest and expenses including attorneys fees. On or
about July 19, 2006, Defendants filed an Answer and Affirmative Defenses.
Defendants deny the key allegations of the Complaint and assert that they are
not liable to Plaintiffs for a variety of affirmative defenses including, but
not limited to, Plaintiff's lack of standing to assert the claims raised and
that the note was made fraudulently to avoid Defendant Nurses Onsite's
restrictions on paying said note. Plaintiff replied to the affirmative defenses
denying same. The attorneys are not able to assess the likelihood of success on
the merits for these claims at this stage, but the Company does intend to defend
them vigorously.
7
On March 13, 2006, Medical Staffing entered into an Amended and Restated
Investment Agreement with Cornell Capital pursuant to which the Company issued
and sold to Cornell Capital, and Cornell Capital purchased from the Company,
Four Million Four Hundred Thousand Dollars ($4,400,000) of Series A Preferred
shares which shall be convertible into shares of the Company's common stock, of
which Three Million Dollars ($3,000,000) was previously funded pursuant to that
certain Investment Agreement, dated as of December 13, 2005, by and between the
Parties and the remaining One Million Four Hundred Thousand Dollars ($1,400,000)
was funded on March 13, 2006. The Series A Preferred shares shall be convertible
into shares of the Company's common stock, which will be registered pursuant to
that certain Amended and Restated Investor Registration Rights Agreement dated
as of March 13, 2006.
On March 13, 2006, the Company issued to Cornell Capital four (4) warrants (the
"March Warrants") to purchase an aggregate of Eighty Million (80,000,000) shares
of the Company's common stock as follows: (i) a warrant to purchase Thirty
Million (30,000,000) shares of the Company's Common Stock for a period of five
(5) years at an exercise price of $0.005 per share; (ii) a warrant to purchase
Thirty Million (30,000,000) shares of the Company's Common Stock for a period of
five (5) years at an exercise price of $0.01 per share; (iii) a warrant to
purchase Ten Million (10,000,000) shares of the Company's Common Stock for a
period of five (5) years at an exercise price of $0.015 per share; and (iv) a
warrant to purchase Ten Million (10,000,000) shares of the Company's common
stock for a period of five (5) years at an exercise price of $0.02 per share.
The shares of the Company's common stock issuable upon exercise of the March
Warrants shall have "piggy-back" and demand registration rights and expire five
(5) years from the date of issuance, on or about March 14, 2011.
If the Company is unable to raise sufficient funds to meet its long-term capital
needs, there is a risk that the Company will be required to cease operations.
Plan Of Operations
Medical Staffing (through our wholly-owned subsidiary, Nurses Onsite Corp.)
provides:
8
o long-term per diem staffing of nurses (RNs, LPNs, CNAs and RTs) to
provider hospitals in Virginia, Maryland, D.C., Florida, Texas,
Nevada, Arizona, Louisiana, Georgia and California.
Medical Staffing (through our wholly-owned subsidiary, TeleScience) provides:
o medical staffing services to government facilities. The contracts
for these services are typically awarded to the provider deemed most
capable by the various government branches involved and usually last
for a year or more.
Management Strategy
Medical Staffing's management has taken several initiatives to grow and expand
its current businesses of medical staffing services.
Management's Strategic Plan
The Management's strategic plan which is: (1) continue to grow its medical
services organically and (2) enhance recruitment subject to the availability of
capital.
Organic Growth. The Company has already taken several initiatives to grow its
business in medical staffing organically by increasing its bid rate at least one
bid a week on average in the government sector. We are also looking into our
contracts to adjust our hiring strategy to increase our revenue by offering
better incentives to attract more healthcare providers to our existing contracts
in California.
Enhancing Recruitment. The Company has embarked upon a long-range plan for
recruiting ancillary and professional-level staff for medical contracts. The
Medical Systems operations presently provide long-term medical staffing services
for a wide array of military, federal, and state government health care
facilities, such as hospitals and clinics. Medical Staffing has also
significantly increased its number of contracts with private non-government
clients. These initiatives arise from the recognition of the opportunities
provided by the well known and chronic shortage of health care professionals
- -especially registered nurses in the United States. Subsequent to our
acquisition of Nurses Onsite Corp., the Company opened a national recruiting
office, which did not meet expectations and has been closed and consolidated
with its Nurses Onsite office in West Palm Beach, Florida.
Overseas Recruiting of Registered Nurses. One of the largest shortages in terms
of vacancies and intractability of recruiting domestic personnel exists in the
nursing profession. This profession, historically dominated by women, is
experiencing nurse shortages that are closely related to the opening of many
alternative career fields to a younger generation of women. This situation is
unlikely to change, leading to the intractability of attracting a large number
of American women into nursing. Medical Staffing perceives an opportunity in
this situation, which can provide business expansion for many years. It is
Medical Staffing's plan to aggressively recruit nurses from suitable countries
overseas over the next few years. MSSI is currently in the process of searching
for a suitable overseas partner that would provide the sourcing screening and
training of foreign nurses for placement at one of our client facilities.
Domestic Recruiting of Health Care Professionals. Medical Staffing has a
constant need for recruiting medical and non-medical professionals for filling
positions created by newly won contracts or for filling vacancies caused by
turnover, terminations, or relocations. The Company also uses newspaper and
internet media extensively for this purpose. NOC's website was recently enhanced
to provide for online applications for jobs open or for future upcoming
positions.
9
Growth in Virtual Markets
The Company has successfully established contracts in four markets where it does
not have offices. These virtual markets are San Antonio (TX), Atlantic City
(NJ), Richmond (VA) and Floyd (GA). The Company has deployed its recruiting
resources into these markets to generate sufficient applicant activity. We are
optimistic regarding our future growth in virtual markets as they do not require
the typical initial investment necessary to establish a physical presence. The
company plans to continue expansion into these markets by bolstering its
recruitment team through its centralized model.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standard No. 123 (Revised 2004),
Shared-Based Payment ("FAS 123R"). FAS 123R requires that compensation cost
related to share-based payment transaction within the scope of FAS 123R include
stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of FAS
123R are effective for small business issuers as of the first interim period
that begins after December 15, 2005. Accordingly, the Company will implement the
revised standard in the fourth quarter of fiscal year 2005. Currently, the
company accounts for its share-based payment transactions under the provision of
APB 25, which does not necessarily require the recognition of compensation cost
in the financial statements. Management in assessing of compensation cost in the
financial statements. Management has assessed the implications of this revised
standard, and has determined that it did not materially impact the Company's
results of operations in the second quarter of fiscal year 2006.
On December 16, 2004, FASB issued Statement of Financial Accounting Standards
No. 153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29,
Accounting for Non-monetary Transactions ("SFAS 153"). This statement amends APB
Opinion 29 to eliminate the exception for non-monetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. Under SFAS 153, if a
non-monetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable, the transaction must be accounted for
at fair value resulting in recognition of any gain or loss. SFAS 153 is
effective for non-monetary transactions in fiscal periods that begin after June
15, 2005. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position, results of
operations or cash flows.
In March 2005, the FASB issued Statement of financial Accounting Standards
Interpretation Number 47 ("FIN 47"), Accounting for Conditional Asset Retirement
Obligation." FIN 47 provides clarification regarding the meaning of the term
"conditional asset retirement obligation" as used in SFAS 143, "Accounting for
Asset Retirement Obligations." Fin 47 is effective for the year ended December
31, 2005. The implementation of this standard did not have a material impact on
its financial position, results of operation or cash flows.
In May 2005, the FASB issued FAS 154, "Accounting for Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3."
FAS154 changes the requirements with regard to the accounting for and reporting
a change in an accounting principle. The Provisions of FAS 154 require, unless
impracticable, retrospective application to prior periods presented in financial
statements for all voluntary changes in an accounting principle and changes
required by the adoption of a new accounting pronouncement in the unusual
instance that the new pronouncement does not indicate a specific transition
method. FAS 154 also requires that a change in depreciation, amortization or
depletion method for long-lived, non-financial assets be accounted for as a
change in an accounting estimate, which requires prospective application of new
method. FAS 154 is effective for all changes in an accounting principle made in
fiscal years beginning after December 15, 2005. The Company plans to adopt FAS
154 beginning January 1, 2006. Because FAS 154 is directly dependent upon future
events, the Company cannot determine what effect, if any, the expected adoption
of FAS 154 will have on its financial condition, results of operations or cash
flows.
In February 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting (FAS) No. 155, Accounting for Certain Hybrid
Financial Instruments. FAS No 155 replaces FAS No 133 Accounting for Derivative
Instruments and Hedging Activities, and FAS No. 140 Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. FAS No. 155
resolves issues in Statement 133 Implementation Issue No. DI, "Application of
Statement 133 to Beneficial Interest in Securitized Financial Assets,", This
statement will be effective for all financial instruments acquired or issued
after the beginning of an entity's fiscal year that begins September 15, 2006.
The Company is currently analyzing whether this new standard will have impact on
its financial position and results of operations.
10
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140." SFAS No. 156 requires
an entity to recognize a servicing asset or liability each time it undertakes an
obligation to service a financial asset by entering into a servicing contract
under a transfer of the servicer's financial assets that meets the requirements
for sale accounting, a transfer of the servicer's financial assets to a
qualified special-purpose entity in a guaranteed mortgage securitization in
which the transferor retains all of the resulting securities and classifies them
as either available-for-sale or trading securities in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities" and an
acquisition or assumption of an obligation to service a financial asset that
does not relate to financial assets of the servicer or its consolidated
affiliates.
Additionally, SFAS No. 156 requires all separately recognized servicing assets
and servicing liabilities to be initially measured at fair value, permits an
entity to choose either the use of an amortization or fair value method for
subsequent measurements, permits at initial adoption a one-time reclassification
of available-for-sale securities to trading securities by entities with
recognized servicing rights and requires separate presentation of servicing
assets and liabilities subsequently measured at fair value and additional
disclosures for all separately recognized servicing assets and liabilities. SFAS
No. 156 is effective for transactions entered into after the beginning of the
first fiscal year that begins after September 15, 2006. The Company is currently
evaluating the effect the adoption of SFAS No. 156 will have on its financial
position, results of operations and cash flows.
RISK FACTORS
We are subject to various risks that may materially harm our business, financial
condition and results of operations. You should carefully consider the risks and
uncertainties described below and the other information in this filing before
deciding to purchase our common stock. If any of these risks or uncertainties
actually occurs, our business, financial condition or operating results could be
materially harmed. In that case, the trading price of our common stock could
decline and you could lose all or part of your investment.
MEDICAL STAFFING HAS HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE
FUTURE, WHICH MAY CAUSE US TO CURTAIL OPERATIONS
Since our inception we have not been profitable and have lost money on both a
cash and non-cash basis. For the quarter ended June 30, 2006 and the quarter
ended June 30, 2005, we incurred losses of $2,107,607 and $665,528,
respectively. Our accumulated deficit was $9,363,250 for the quarter ended June
30, 2006, and $6,094,057 for the quarter ended June 30, 2005. Future losses are
likely to occur, as we are dependent on spending money to pay for our
operations. We may not be successful in reaching or maintaining profitable
operations. Accordingly, we may experience liquidity and cash flow problems. If
our losses continue, our ability to operate may be severely impacted, which
could cause Medical Staffing to curtail its operations.
WE HAVE BEEN THE SUBJECT OF A GOING CONCERN OPINION FROM OUR INDEPENDENT
AUDITORS, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE
CAN BECOME PROFITABLE OR OBTAIN ADDITIONAL FUNDING
Our independent auditors have added an explanatory paragraph to their audit
opinions issued in connection with our financial statements for the years ended
December 31, 2005 and December 31, 2004, which states that the financial
statements raise substantial doubt as to Medical Staffing's ability to continue
as a going concern. Our ability to make operations profitable or obtain
additional funding will determine our ability to continue as a going concern.
Our financial statements do not include any adjustments that might result from
the outcome of this uncertainty. We expect to be able to continue operations for
twelve (12) months with the cash currently on hand, anticipated from our
operations and from the sale of the securities, such as preferred series A
stock. We believe that we will need to obtain approximately $2 million in
additional debt or equity capital from one (1) or more sources to fund
operations for the next twelve (12) months. These funds are expected to be
obtained from the sale of securities or assets.
WE HAVE BEEN SUBJECT TO A WORKING CAPITAL DEFICIT, WHICH MEANS THAT OUR CURRENT
ASSETS ARE NOT SUFFICIENT TO SATISFY OUR CURRENT LIABILITIES AND, THEREFORE OUR
ABILITIES TO CONTINUE OPERATIONS IS AT RISK
We have had a working capital deficit in the past, which means that our current
liabilities have exceeded our current assets. However, the company realized a
negative working capital of $2,539,083 at June 30, 2006, as compared to a
negative working capital of $1,916,264 at June 30, 2005.
MEDICAL STAFFING WILL NEED TO RAISE ADDITIONAL CAPITAL AND MAY NEED TO SELL ALL
OR A PART OF ITS CURRENT BUSINESS TO SUSTAIN OPERATIONS WHICH CAPITAL MAY NOT BE
AVAILABLE AND WHICH COULD BE MATERIALLY HARMFUL TO OUR BUSINESS
Unless Medical Staffing can become profitable with the existing sources of funds
we have available, we will require additional capital to sustain operations and
we may need to sell all or a part of our current business. Financing, whether
from external sources or related parties, may not be available if needed or on
favorable terms. Our inability to obtain adequate financing will result in the
need to sell all or a part of our current business. Any of these events could
result in a lower stock price.
11
OUR COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY FLUCTUATE
SIGNIFICANTLY, WHICH MAY AFFECT SHAREHOLDERS' ABILITY TO SELL SHARES OF OUR
COMMON STOCK
There has been a limited public market for our common stock and a more active
trading market for our common stock may not develop. An absence of an active
trading market could adversely affect our shareholders' ability to sell our
common stock in short time periods, or possibly at all. Our common stock has
experienced, and is likely to experience in the future, significant price and
volume fluctuations, which could adversely affect the market price of our common
stock without regard to our operating performance. In addition, we believe that
factors such as quarterly fluctuations in our financial results and changes in
the overall economy or the condition of the financial markets could cause the
price of our common stock to fluctuate substantially. These factors may
negatively impact shareholders' ability to sell shares of Medical Staffing's
common stock.
OUR COMMON STOCK MAY BE AFFECTED BY SALES OF SHORT SELLERS, WHICH MAY AFFECT
SHAREHOLDERS' ABILITY TO SELL SHARES OF OUR COMMON STOCK
Short sales are sales of a stock that an investor does not own. An investor that
desires to short sell stock typically "borrows" the stock from another
shareholder so that the investor can sell it at the then-current market price,
and agrees to replace the "borrowed shares" by the end of the contract period.
An investor short sells stock if he/she anticipates the market price of the
stock will fall because he/she "borrows" and sells the shares at the current
market price and then must replace the borrowed shares at a later date when
hopefully he/she can buy them at a lower price.
Our common stock has experienced, and is likely to experience in the future,
significant price and volume fluctuations. These fluctuations could cause short
sellers to enter the market from time to time in the belief that Medical
Staffing will have poor results in the future. The market for our stock may not
be stable or appreciate over time and the sale of our common stock may
negatively impact shareholders' ability to sell shares of Medical Staffing's
common stock.
In addition, the significant downward pressure on the price of the common stock
as Cornell Capital sells material amounts of common stock could further
encourage short sales by third parties. This could place further downward
pressure on the price of our common stock.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK", WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS
Our common stock is deemed to be "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934, as amended. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline. Penny stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the NASDAQ automated quotation system
(NASDAQ listed stock must still have a price of not less than $5.00 per
share); or
o In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three (3) years)
or $10 million (if in continuous operation for less than three (3)
years), or with average revenues of less than $6.0 million for the last
three (3) years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor.
12
WE COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL, WHICH COULD BE DETRIMENTAL TO
OUR OPERATIONS
Our success largely depends on the efforts and abilities of key executives,
including Dr. Brajnandan B. Sahay, our Chairman of the Board, President, Chief
Executive Officer and Acting Principal Financial Officer . The loss of the
services of Dr. Sahay could materially harm our business because of the cost and
time necessary to replace and train a replacement. Such a loss would also divert
management attention away from operational issues. We do not presently maintain
key-man life insurance policies on Dr. Sahay. We also have other key employees
who manage our operations and if we were to lose their services, senior
management would be required to expend time and energy to replace and train
replacements. To the extent that we are smaller than our competitors and have
fewer resources we may not be able to attract the sufficient number and quality
of staff.
LIABILITY FOR EMPLOYEE PAYROLL
As of June 30, 2006, the Company is delinquent in paying payroll taxes of
$________________. There can be no assurance that the Company's ultimate
liability for employee payroll costs will not have a material adverse effect on
its financial condition, results of operations or cash flows.
THE COMPANY'S DISCLOSURE CONTROLS AND PROCEDURES ARE NOT EFFECTIVE AND A
MATERIAL WEAKNESS EXISTS AS OF JUNE 30, 2006
Based upon their evaluation as of the end of the period covered by this report,
the Company's Chief Executive Officer/Chief Financial Officer has concluded that
the Company's disclosure controls and procedures are not effective to ensure
that information required to be included in the Company's periodic SEC filings
is recorded, processed, summarized and reported within the time periods
specified in the SEC rules and forms.
A material weakness is a significant deficiency or a combination of significant
deficiencies that result in a more than remote likelihood than a material
misstatement of the annual or interim financial statements will not be prevented
or detected. Our independent registered public accounting firm has advised
management and the Board of Directors that it had identified the following
material weaknesses in our internal controls: (a) the Company has insufficient
personnel in the accounting and financial reporting function due to the size of
the Company which prevents the ability to employ sufficient resources to have
adequate segregation of duties within the internal control system. This material
weakness affects management's ability to effectively review and analyze elements
of the financial statement closing process and prepare consolidated financial
statements in accordance with U.S. GAAP; and (b) the Company made a number of
adjustments at the end of the three-month period ended June 30, 2006 evidencing
deficiencies in the analysis and reconciliation of equity accounts, which were
indicative of a material weakness in controls over the accounting and reporting
of capital transactions.
In order to remediate this material weakness in our internal control over
financial reporting, management is in the process of designing and implementing
and continuing to enhance controls to aid in the correct preparation, review,
presentation and disclosures of our Consolidated Financial Statements. We are
continuing to monitor, evaluate and test the operating effectiveness of these
controls.
13
ITEM 3. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized,
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Based upon their evaluation as of the end of the period covered by this report,
the Company's Chief Executive Officer/Chief Financial Officer has concluded
that, the Company's disclosure controls and procedures are not effective to
ensure that information required to be included in the Company's periodic SEC
filings is recorded, processed, summarized and reported within the time periods
specified in the SEC rules and forms.
A material weakness is a significant deficiency or a combination of significant
deficiencies that result in a more than remote likelihood than a material
misstatement of the annual or interim financial statements will not be prevented
or detected.
Bagell, Josephs, Levine and Company, LLC, our independent registered public
accounting firm, has advised management and the Board of Directors that it had
identified the following material weaknesses in our internal controls:
A material weakness exists as of June 30, 2006, with regard to insufficient
personnel in the accounting and financial reporting function due to the size of
the Company which prevents the ability to employ sufficient resources to have
adequate segregation of duties within the internal control system. This material
weakness affects management's ability to effectively review and analyze elements
of the financial statement closing process and prepare consolidated financial
statements in accordance with U.S. GAAP.
In addition, a material weakness exists as of June 30, 2006, in controls over
closing procedures due to a number of adjustments made at the end of the
three-month period. There were deficiencies in the analysis and reconciliation
of equity accounts, which were indicative of a material weakness in controls
over the accounting and reporting of capital transactions.
In order to remediate this material weakness in our internal control over
financial reporting, management is in the process of designing and implementing
and continuing to enhance controls to aid in the correct preparation, review,
presentation and disclosures of our Consolidated Financial Statements. We are
continuing to monitor, evaluate and test the operating effectiveness of these
controls.
14
Other than indicated above, there were no changes in the Company's internal
control over financial reporting that occurred during the last fiscal quarter
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
Limitations on the Effectiveness of Controls
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
15
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 16, 2006 the Circuit Court of Fairfax County, Virginia (the "Court")
entered a Final Order in favor of plaintiff Azmat Ali (the "Plaintiff") against
the Company's wholly-owned subsidiary TeleScience, Dr. Brajnandan B. Sahay and
Mrs. Rupa Sahay (TeleScience, Dr. Sahay and Mrs. Sahay are collectively referred
to herein as the "Defendant"), in the matter Azmat Ali v. TeleScience
International, Inc., et al. (At Law No. 218574). This matter came to be heard on
December 16, 2005, upon the Plaintiff's motion to set aside the jury verdict
entered in favor of the Defendants on November 16, 2005. For reasons set forth
in the Court's Opinion Letter, the Court entered a judgment in favor of the
Plaintiff in the amount of $851,875 with interest at twelve percent (12%) from
the date of October 16, 2003.
In 2003, the Company believed it had settled a claim by the Plaintiff who was a
former officer and investor of TeleScience. In satisfaction of that settlement,
2,655,678 restricted shares of Company's common stock were delivered to
Plaintiff in November of 2003. The Plaintiff rejected the share tender and
demanded a cash settlement. The Company maintains the tender to have been
sufficient and binding. The parties engaged in legal proceedings in November
2003 and the case went forward for a jury trial. On November 16, 2005, the jury
returned a verdict in favor of TeleScience, and at that time, the Plaintiff
moved the Court to set aside the jury verdict. The motion was set for oral
argument for December 16, 2005, and on February 16, 2006 the Court ruled in
favor of the Plaintiff. TeleScience has appealed this decision and intends to
vigorously pursue an appeal. The Company has been advised that the appeal will
be heard in September 2006.
As a result of the latest decision in this matter, the Company has placed the
net proceeds obtained in the revised Investment Agreement in the amount of
$1,250,000 in escrow with the Fairfax County Circuit Court of Appeal. The
proceeds will be held in escrow until adjudication of the matter with the Court
of Appeals.
In the event that the Company is successful in its appeal process, Cornell
Capital has the option to redeem the 1,400,000 shares of Series A preferred
stock in exchange for the proceeds previously received.
In October 2004, The Roche Group sued the Company for pecuniary loss in
connection with an ex-dividend date of the Company's stock. The courts have
dismissed two (2) of the three (3) counts with prejudice. The parties have
agreed to mediation in an attempt to fully resolve the litigation. Plaintiffs
are seeking $125,000 in damages. The Company believes the case is without merit
and intends to vigorously defend.
In June 2006, Contemporary Nursing Solutions, Inc. (CNS) filed an amended
complaint/suit which included the Company and its subsidiaries and asked for
injunctive and other relief for hiring a former employee of CNS. The Company is
presently in the discovery phase of the proceeding. The Company believes the
case is without merit and, if necessary, intends to vigorously defend.
In June 2006, Mirza W. Ahmed and Asra Ahmed (together, the "Plaintiff") filed
suit against the Company and the Company's subsidiary Nurses Onsite for failure
to pay under a note which such note had allegedly been assigned to Plaintiff by
the original beneficiary, Aftab Adamjee ("Adamjee"). Plaintiff is seeking
$250,000 plus accrued interest and expenses including attorneys fees. On or
about July 19, 2006, Defendants filed an Answer and Affirmative Defenses.
Defendants deny the key allegations of the Complaint and assert that they are
not liable to Plaintiffs for a variety of affirmative defenses including, but
not limited to, Plaintiff's lack of standing to assert the claims raised and
that the note was made fraudulently to avoid Defendant Nurses Onsite's
restrictions on paying said note. Plaintiff replied to the affirmative defenses
denying same. The attorneys are not able to assess the likelihood of success on
the merits for these claims at this stage, but the Company does intend to defend
them vigorously.
The Company may become involved in litigation, from time to time, in the
ordinary course of business.
ITEM 2. CHANGES IN SECURITIES
On January 30, 2006, a convertible Series A preferred shareholder notified the
Company of their intent to convert 50,000 shares of Series A preferred stock
into common stock, as outlined in the investment agreement. The Series A
preferred shares were converted at a price $0.0217, which translated into
2,304,147 shares common stock. There were no other transactions involving common
stock in the quarter ended March 31, 2006.
II-1
In connection with the conversion of the Series A preferred stock, total
outstanding preferred shares were decreased by 50,000 shares.
In January 2006, the Company incurred additional financing fees valued at
$160,000. The Company charged the financing fees and associated legal fees
against paid-in-capital in connection with the equity financing agreement.
On March 13, 2006, the Company amended and restated its agreement with Cornell
Capital to increase the amount of Series A preferred shares to 4,400,000. The
additional funds of $1,400,000 were advanced on that date. In addition, the
Company issued to Cornell Capital four (4) additional March Warrants to purchase
an aggregate of 80,000,000 shares of the Company's common stock as follows; (i)
30,000,000 shares at an exercise price of $0.005 per share, (ii) 30,000,000
shares at an exercise price of $0.01 per share, (iii) 10,000,000 shares at an
exercise price of $0.015 per share and (iv) 10,000,000 shares at an exercise
price of $0.02 per share. All of the March Warrants expire five (5) years after
the date of issuance.
On May 4, 2006, a convertible Series A preferred shareholder notified the
Company of their intent to convert 35,000 shares of Series A preferred stock
into common stock, as outlined in the investment agreement. The Series A
preferred shares were converted at a price $0.0288, which translated into
1,215,278 shares common stock. There were no other transactions involving common
stock in the quarter ended June 30, 2006.
In connection with the conversion of the Series A preferred stock, total
outstanding preferred shares were decreased by 35,000 shares.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
EXHIBIT NO.
3.1 Articles of Incorporation, as amended Incorporated by reference to Exhibit 3(a) to the
Company's Registration Statement on Form SB-2 as
filed with the United States Securities and Exchange
Commission on October 9, 2001
3.2 Bylaws Incorporated by reference to Exhibit 3(b) to the
Company's Registration Statement on Form SB-2 as
filed with the United States Securities and Exchange
Commission on October 9, 2001
3.3 Certificate of Amendment to Articles of Incorporation Incorporated by reference to Exhibit 3 to the
Company's Annual Report on Form 10-KSB as filed with
the United States Securities and Exchange Commission
on March 27, 2003
3.4 Certificate of Amendment to Articles of Incorporation Incorporated by reference to Exhibit 3 to the
Company's Annual Report on Form 10-KSB as filed with
the United States Securities and Exchange Commission
on March 27, 2003
II-2
4.1 Certificate of Designation of Series A Preferred Stock, as filed with Incorporated by reference to Exhibit 4.1 to the
the Secretary of State of the State of Nevada on December 16, 2005 Company's Form 8-K as filed with the SEC on January
18, 2006
4.2 Amended and Restated Certificate of Designation of Series A Preferred Incorporated by reference to Exhibit 4.1 to the
Stock as filed with the Secretary of State for the State of Nevada on Company's Form 8-K filed with the SEC on March 17,
March 13, 2006 2006
10.1 Sublease Agreement dated December 23, 2002 by and among InterAmerica Incorporated by reference to Exhibit 10.1 to the
Technologies, Inc., Kemron Environmental Services and Telescience Company's Annual Report on Form 10-KSB as filed with
International, Inc. the United States Securities and Exchange Commission
on April 9, 2004
10.2 Promissory Note in the principal amount of $875,920 made by the Incorporated by reference to Exhibit 10.2 to the
Company in favor of Dr. B.B. Sahay Company's Annual Report on Form 10-KSB as filed with
the United States Securities and Exchange Commission
on April 9, 2004
10.3 Memorandum of Understanding dated March 10, 2004, by and between Incorporated by reference to Exhibit 10.3 to the
Silver Star Technologies, Inc. and TeleScience International, Inc. Company's Annual Report on Form 10-KSB as filed with
the United States Securities and Exchange Commission
on April 9, 2004
10.4 Memorandum of Understanding by and between Telescience International, Incorporated by reference to Exhibit 10.4 to the
Inc. and Chesapeake Government Technologies, Inc. Company's Annual Report on Form 10-KSB as filed with
the United States Securities and Exchange Commission
on April 9, 2004
10.5 Proposal dated January 7, 2004 from Professional Nursing Resources, Incorporated by reference to Exhibit 10.5 to the
Inc. to Telescience International, Inc. Company's Annual Report on Form 10-KSB as filed with
the United States Securities and Exchange Commission
on April 9, 2004
10.6 Renewal Agreement dated February 5, 2004, from Commonwealth of Incorporated by reference to Exhibit 10.14 to the
Pennsylvania to Telescience International, Inc. regarding Contract Company's Annual Report on Form 10-KSB as filed with
2550-09 Personal Protection Equipment PPE the United States Securities and Exchange
Commission on April 9, 2004
10.7 Memorandum of Understanding dated February 23, 2004, to Mobile Incorporated by reference to Exhibit 10.15 to the
Healthcare Solutions, Inc. from Telescience International, Inc. Company's Annual Report on Form 10-KSB as filed with
the United States Securities and Exchange Commission
on April 9, 2004
II-3
10.8 Master Contract dated April 1, 2004, by and between Telescience Incorporated by reference to Exhibit 10.17 to the
International, Inc. and State of California Department of Corrections Company's Annual Report on Form 10-KSB as filed with
the United States Securities and Exchange Commission
on April 9, 2004
10.9 Memorandum dated March 26, 2003 regarding Branch Office Location Incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-KSB as filed with
the United States Securities and Exchange Commission
on April 9, 2004
10.10 $1,000,000 Promissory Note issued to Cornell Capital Partners, LP by Incorporated by reference to Exhibit 10.18 to
Medical Staffing on June 8, 2004 Medical Staffing's Annual Report on Form 10-KSB as
filed with the United States Securities and Exchange
Commission on March 31, 2005
10.11 $315,000 Promissory Note issued to Cornell Capital Partners, LP by Incorporated by reference to Exhibit 10.19 to
Medical Staffing on October 6, 2004 Medical Staffing's Annual Report on Form 10-KSB as
filed with the United States Securities and Exchange
Commission on March 31, 2005
10.12 Amended and Restated Promissory Note issued to Cornell Capital Incorporated by reference to Exhibit 10.25 to
Partners, LP by Medical Staffing on January 5, 2005 and amended on Medical Staffing's Amended Form SB-2 as filed with
June 7, 2005 the United States Securities and Exchange Commission
on August 5, 2005
10.13 Employment Agreement between Medical Staffing and Brajnandan B. Sahay Incorporated by reference to Exhibit 10.21 to
dated January 1, 2005 Medical Staffing's Annual Report on Form 10-KSB as
filed with the United States Securities and Exchange
Commission on March 31, 2005
10.14 Contract dated December 6, 2004, by and between Telescience Incorporated by reference to Exhibit 10.22 to
International, Inc. and State of California Department of Corrections Medical Staffing's Annual Report on Form 10-KSB as
filed with the United States Securities and Exchange
Commission on March 31, 2005
10.15 Master Contract dated December 19, 2004, by and between Telescience Incorporated by reference to Exhibit 10.23 to
International, Inc. and State of California Department of Corrections Medical Staffing's Annual Report on Form 10-KSB as
filed with the United States Securities and Exchange
Commission on March 31, 2005
10.16 90 Days Consulting Services Contract Incorporated by reference to 5.1 to Medical
Staffing's Form SB-2 as filed with the United States
Securities and Exchange Commission on April 13, 2005
10.17 Amended and Restated Promissory Note issued to Cornell Capital Incorporated by reference to Exhibit 10.25 to
Partners, LP by Medical Staffing on April 26, 2005 and amended on Medical Staffing's Amended Form SB-2 as filed with
June 7, 2005 the United States Securities and Exchange Commission
on August 5, 2005
II-4
10.18 SYSTRAN Financial Services Corporation Factoring Agreement, dated as Incorporated by reference to Exhibit 99.1 to Medical
of October 31, 2005, by and between Medical Staffing Solutions, Inc., Staffing's Form 8-K as filed with the United States
TeleScience International, Inc., Nurses PRN Acquisition Corp. and Securities and Exchange Commission on July 14, 2005
SYSTRAN Financial Service Corporation
10.19 Form of Addendum to the SYSTRAN Financial Services Corporation Incorporated by reference to Exhibit 99.2 to Medical
Factoring Agreement Staffing's Form 8-K as filed with the United States
Securities and Exchange Commission on July 14, 2005
10.20 Form of Continuing Guaranty Incorporated by reference to Exhibit 99.3 to Medical
Staffing's Form 8-K as filed with the United States
Securities and Exchange Commission on July 14, 2005
10.21 Form of Letter to SYSTRAN Credit and Operations Departments Incorporated by reference to Exhibit 99.4 to
Medical Staffing's Form 8-K as filed with the United
States Securities and Exchange Commission on July
14, 2005
10.22 Securities Purchase Agreement, dated September 2, 2005, by and Incorporated by reference to Exhibit 99.1 to Medical
between Medical Staffing Solutions, Inc. and Cornell Capital Staffing's Form 8-K as filed with the United States
Partners, LP Securities and Exchange Commission on October 3,
2005
10.23 Secured Convertible Debenture, dated September 2, 2005, issued by Incorporated by reference to Exhibit 99.2 to Medical
Medical Staffing Solutions, Inc. to Cornell Capital Partners, LP Staffing's Form 8-K as filed with the United States
Securities and Exchange Commission on October 3,
2005
10.24 Investor Registration Rights Agreement, dated September 2, 2005, by Incorporated by reference to Exhibit 99.3 to Medical
and between Medical Staffing Solutions, Inc. and Cornell Capital Staffing's Form 8-K as filed with the United States
Partners, LP Incorporated by reference to Exhibit 99.3 to Medical Securities and Exchange Commission on October 3, 3,
Staffing's Form 8-K as filed with the United States Securities and 2005
Exchange Commission on October 3, 2005
10.25 Escrow Agreement, dated September 2, 2005, by and between Medical Incorporated by reference to Exhibit 99.4 to Medical
Staffing Solutions, Inc., Cornell Capital Partners, LP and David Staffing's Form 8-K as filed with the United States
Gonzalez, Esq., as Escrow Agent Securities and Exchange Commission on October 3,
2005
10.26 Security Agreement, dated September 2, 2005, by and between Medical Incorporated by reference to Exhibit 99.5 to Medical
Staffing Solutions, Inc. and Cornell Capital Partners, LP Staffing's Form 8-K as filed with the United States
Securities and Exchange Commission on October 3,
2005
II-5
10.27 Irrevocable Transfer Agent Instructions, dated September 2, 2005 Incorporated by reference to Exhibit 99.6 to Medical
Staffing's Form 8-K as filed with the United States
Securities and Exchange Commission on October 3,
2005
10.28 Warrant, effective August 10, 2005, issued by Medical Staffing Incorporated by reference to Exhibit 99.7 to Medical
Solutions, Inc. to Cornell Capital Partners, LP Staffing's Form 8-K as filed with the United States
Securities and Exchange Commission on October 3,
2005
10.29 Investment Agreement, dated December 13, 2005, by and between Medical Incorporated by reference to Exhibit 10.1 to the
Staffing Solutions, Inc. and Cornell Capital Partners, LP Company's Form 8-K as filed with the SEC on January
18, 2006
10.30 Investor Registration Rights Agreement, dated December 13, 2005, by Incorporated by reference to Exhibit 10.2 to the
and between Medical Staffing Solutions, Inc. and Cornell Capital Company's Form 8-K as filed with the SEC on January
Partners, LP 18, 2006
10.31 Escrow Agreement, dated December 13, 2005, by and among Medical Incorporated by reference to Exhibit 10.3 to the
Staffing Solutions, Inc., Cornell Capital Partners, LP and David Company's Form 8-K as filed with the SEC on January
Gonzalez, Esq. as Escrow Agent 18, 2006
10.32 Irrevocable Transfer Agent Instructions, dated December 13, 2005, by Incorporated by reference to Exhibit 10.4 to the
and among Medical Staffing Solutions, Inc., David Gonzalez, Esq. and Company's Form 8-K as filed with the SEC on January
Holladay Stock Transfer, Inc. 18, 2006
10.33 Warrant, dated December 13, 2005, issued by Medical Staffing Incorporated by reference to Exhibit 10.5 to the
Solutions, Inc. to Cornell Capital Partners, LP Company's Form 8-K as filed with the SEC on January
18, 2006
10.34 Amended and Restated Investment Agreement, dated March 13, 2006, by Incorporated by reference to Exhibit 10.1 to the
and between Medical Staffing Solutions, Inc. and Cornell Capital Company's Form 8-K filed with the SEC on March 17,
Partners, LP 2006
10.35 Amended and Restated Investor Registration Rights Agreement, dated Incorporated by reference to Exhibit 10.2 to the
March 13, 2006, by and between Medical Staffing Solutions, Inc. and Company's Form 8-K filed with the SEC on March 17,
Cornell Capital Partners, LP 2006
II-6
10.36 Irrevocable Transfer Agent Instructions, dated March 13, 2006, by and Incorporated by reference to Exhibit 10.3 to the
among Medical Staffing Solutions, Inc., David Gonzalez, Esq. and Company's Form 8-K filed with the SEC on March 17,
Holladay Stock Transfer, Inc. 2006
10.37 Warrant CCP 2, dated March 13, 2006, issued by Medical Staffing Incorporated by reference to Exhibit 10.4 to the
Solutions, Inc. to Cornell Capital Partners, LP Company's Form 8-K filed with the SEC on March 17,
2006
10.38 Warrant CCP 3, dated March 13, 2006, issued by Medical Staffing Incorporated by reference to Exhibit 10.5 to the
Solutions, Inc. to Cornell Capital Partners, LP Company's Form 8-K filed with the SEC on March 17,
2006
10.39 Warrant CCP 4, dated March 13, 2006, issued by Medical Staffing Incorporated by reference to Exhibit 10.6 to the
Solutions, Inc. to Cornell Capital Partners, LP Company's Form 8-K filed with the SEC on March 17,
2006
10.40 Warrant CCP 5 dated March 13, 2006, issued by Medical Staffing Incorporated by reference to Exhibit 10.7 to the
Solutions, Inc. to Cornell Capital Partners, LP Company's Form 8-K filed with the SEC on March 17,
2006
10.41 Termination Agreement dated March 13, 2006, by and among Medical Incorporated by reference to Exhibit 10.8 to the
Staffing Solutions, inc., Cornell Capital Partners, LP and David Company's Form 8-K filed with the SEC on March 17,
Gonzalez, Esq. 2006
14.1 Code of Ethics Incorporated by reference to Exhibit 14.1 to the
Company's Annual Report on Form 10-KSB as filed with
the SEC on April 9, 2004
31.1 Certification by Chief Executive Officer/Principal Financial Officer Provided herewith
pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification by Chief Executive Officer and Principal Financial Provided herewith
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.1 Final Order, dated February 16, 2006, in the matter of Azmat Ali v. Incorporated by reference to Exhibit 99.1 to the
TeleScience International, Inc., et al. (At Law No. 218574) in the Company's Current Report on Form 8-K as filed with
Circuit Court of Fairfax County, Virginia the SEC on March 6, 2006
II-7
99.2 Opinion Letter, dated February 16, 2006, in the matter of Azmat Ali Incorporated by reference to Exhibit 99.2 to the
v. TeleScience International, Inc., et al. (At Law No. 288574) in the Company's Current Report on Form 8-K as filed with
Circuit Court of Fairfax County, Virginia the SEC on March 6, 2006
(B) Current Reports on Form 8-K Filed During the Quarter Ended June 30, 2006:
On June 9, 2006, the Company filed Amendment No. 1 to the Company's Current
Report on Form 8-K originally filed with the SEC on or about July 11, 2006 to
correct certain figures set forth in the MSSI and Subsidiaries Unaudited
Proforma Condensed Consolidated Statement of Operations for the Year Ended
December 31, 2004 and to add certain disclosures to the MSSI and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
II-8
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, Medical Staffing has duly caused this Quarterly Report
on Form 10QSB to be signed on its behalf by the undersigned, thereunto duly
authorized on August 21, 2006.
August 21, 2006 MEDICAL STAFFING SOLUTIONS, INC.
By: /s/ Brajnandan B. Sahay
------------------------------------
Name: Brajnandan B. Sahay,
Title: President, Chief Executive
Officer and Director
II-9