U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
|X| Quarterly Report Pursuant to Section 13 or 15(d) of Securities xchange
Act of 1934, as amended
For the quarterly period ended September 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 November 14, 2006
Common Stock 180,425,995
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
ITEM 1. FINANCIAL STATEMENTS
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005
(UNAUDITED)
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet as of September 30, 2006 (Unaudited) F-2
Statements of Operations for the Nine and Three Months Ended
September 30, 2006 and 2005 (Unaudited) F-3
Statements of Cash Flows for the Nine Months Ended
Septemebr 30, 2006 and 2005 (Unaudited) F-4 - F-5
Notes to Financial Statements F-6 - F-20
F-1
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2006
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 49,734
Accounts receivable, net 3,472,153
Due from related parties 72,034
Prepaid expenses 42,343
------------
Total Current Assets 3,636,264
------------
Fixed assets, net 109,063
Goodwill 2,528,010
Deposits 130,836
------------
TOTAL ASSETS $ 6,404,173
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Note payable $ 372,809
Loan payable - factoring agent 2,296,947
Accounts payable and accrued expenses 3,101,472
------------
Total Current Liabilities 5,771,228
Long-term Liabilities:
Loan payable - officer 95,500
------------
Total Liabilities 5,866,728
------------
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 Par Value; 30,000,000 shares authorized, 4,400,000 shares
designated Series A Convertible, $1 stated value, 4,400,000 shares issued
4,295,000 outstanding at September 30, 2006 4,295
Common Stock, $.001 Par Value; 300,000,000 shares authorized
180,425,995 shares issued and outstanding at September 30, 2006 180,426
Discount on preferred Series A stock (1,400,000)
Additional paid-in-capital 10,204,420
Additional paid-in-capital - warrants 1,142,686
Additional paid-in-capital - beneficial conversion 537,600
(Deficit) (10,131,982)
------------
Total Stockholders' Equity 537,445
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,404,173
============
The accompanying notes are an intergal part of these condensed consolidated
financial statements.
F-2
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMEMTS OF OPERATIONS
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2006 2005 2006 2005
------------- ------------- ------------- -------------
OPERATING REVENUES
Revenue $ 14,596,385 $ 7,303,222 $ 4,424,764 $ 4,444,146
COST OF SALES 10,819,949 5,214,044 3,580,478 3,254,180
------------- ------------- ------------- -------------
GROSS PROFIT 3,776,436 2,089,178 844,286 1,189,966
------------- ------------- ------------- -------------
OPERATING EXPENSES
Administrative payroll, benefits and overhead costs 3,137,547 1,615,180 637,322 707,771
General and administrative expenses 2,160,932 1,399,540 823,531 892,130
Depreciation and amortization 26,901 20,427 8,174 9,255
------------- ------------- ------------- -------------
Total Operating Expenses 5,325,380 3,035,147 1,469,027 1,609,156
------------- ------------- ------------- -------------
(LOSS) BEFORE OTHER INCOME (EXPENSES) (1,548,944) (945,969) (624,741) (419,190)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSES)
Other income 49,632 -- (48,434) --
Interest income -- 11,134 -- 820
Legal Settlement (851,875) -- -- --
Beneficial interest expense (5,333) -- (992) --
Interest expense (519,819) (239,313) (94,565) (90,250)
------------- ------------- ------------- -------------
Total Other Income (Expenses) (1,327,395) (228,179) (143,991) (89,430)
------------- ------------- ------------- -------------
NET (LOSS) BEFORE PROVISION FOR INCOME TAXES $ (2,876,339) $ (1,174,148) $ (768,732) $ (508,620)
Provision for Income Taxes -- -- -- --
------------- ------------- ------------- -------------
NET (LOSS) APPLICABLE TO COMMON SHARES $ (2,876,339) $ (1,174,148) $ (768,732) $ (508,620)
============= ============= ============= =============
NET (LOSS) PER BASIC AND DILUTED SHARES $ (0.02) $ (0.01) $ (0.00) $ (0.01)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 178,477,270 157,219,810 180,246,333 72,936,244
============= ============= ============= =============
The accompanying notes are an intergal part of these condensed consolidated
financial statements.
F-3
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(UNAUDITED)
2006 2005
----------- -----------
CASH FLOW FROM OPERATING ACTIVITES
Net (loss) $(2,876,339) $(1,174,148)
----------- -----------
Adjustments to reconcile net (loss) to net cash
used in operating activities
Decrease in allowance for doubtful accounts 30,780 --
Depreciation and amortization 26,901 20,427
Beneficial conversion expenses 5,333 --
Options issued for compensation 5,890 --
Common stock issued for services -- 59,519
Common stock issued for interest payments -- 62,142
Changes in assets and liabilities
Decrease in accounts receivable 280,792 306,238
(Increase) in accounts receivable- other -- (48,217)
(Increase) decrease in prepaid expenses 55,584 (85,774)
(Increase) decrease in deposits (80,836) 9,700
Decrease in accounts payable and
and accrued expenses 1,097,739 --
Increase in legal settlement 0 44,979
----------- -----------
Total adjustments 1,422,183 369,014
----------- -----------
Net cash (used in) operating activities (1,454,156) (805,134)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (19,800) --
Acquisition of business entity -- (1,600,000)
(Increase) in amounts due related parties -- (86,659)
----------- -----------
Net cash (used in) investing activities (19,800) (1,686,659)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITES
Common stock issuance for cash - net of expenses -- 1,241,738
Preferred stock issuance for cash 1,400,000 --
Issuance costs deducted from equity (191,580) --
Cash contributions from subscription receivable 415,799 --
Proceeds from stand-by equity distribution agreement -- 1,748,332
Net payments from loan payable - officer/litigation
settlement payable -- 29,400
(Increase) in amounts due related parties (25,294) --
Net (payments) on notes payable (371,733) (554,831)
----------- -----------
Net cash provided by financing activities 1,227,192 2,464,639
----------- -----------
NET (DECREASE) IN CASH AND CASH
EQUIVALENTS (246,764) (27,154)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 296,498 28,348
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 49,734 $ 1,194
=========== ===========
The accompanying notes are an intergal part of these condensed consolidated
financial statements.
F-4
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest expense $ 208,917 $ 175,171
=========== ===========
Income taxes -- --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Common stock issuance for loan commitment fees -- $ 160,000
=========== ===========
Common stock issuance for interest payment -- $ 62,142
=========== ===========
Options issued for compensation $ 5,890 --
=========== ===========
During the nine months ended September 30, 2006, 105,000 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 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 on May 4,2006. Twenty thousand shares were converted to 1,652,893
shares of common stock at a conversion price of $ .0121 on July 11, 2006.
The accompanying notes are an intergal part of these condensed consolidated
financial statements.
F-5
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
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 audit 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
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
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 September 30, 2006, the
Company had 180,425,995 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
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
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 September
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
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
Advertising
Costs of advertising and marketing are expensed as incurred.
Advertising and marketing costs were $54,213 and $24,723 for
the nine months ended September 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
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
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:
Sept 30, Sept 30,
2006 2005
------------- -------------
Net Loss $ (2,876,339) $ (1,174,148)
Weighted-average common shares 178,477,270 157,219,810
outstanding (basic)
Weighted-average common stock equivalents:
Stock options and warrants -- --
------------- -------------
Weighted-average common shares
outstanding (diluted) 178,477,270 157,219,810
============= =============
Net (loss) per basic and diluted
shares $ (0.02) $ (0.01)
============= =============
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 September 30, 2006 there
were no options available. However, there were 95,000,000
freestanding warrants, and approximately 114,827,700 common
shares available for conversion in association with the
convertible preferred Series A stock.
Reclassifications
Certain amounts for the nine months ended September 30, 2005
have been reclassified to conform to the presentation of the
September 30, 2006 amounts. The reclassifications have no
effect on net income for the nine months ended September 30,
2005.
F-10
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
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.
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
F-11
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(CONTINUED)
Recent Accounting Pronouncements (Continued)
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-12
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
In February 2006, the FASB issued SFAS No. 155, "Accounting
for Certain Hybrid Financial Instruments, an amendment of FASB
Statements No. 133 and 140." SFAS No. 155 resolves issues
addressed in SFAS No. 133 Implementation Issue No. D1,
"Application of Statement 133 to Beneficial Interests in
Securitized Financial Assets," and permits fair value
remeasurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require
bifurcation, clarifies which interest-only strips and
principal-only strips are not subject to the requirements of
SFAS No. 133, establishes a requirement to evaluate interests
in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring
bifurcation, clarifies that concentrations of credit risk in
the form of subordination are not embedded derivatives and
amends SFAS No. 140 to eliminate the prohibition on a
qualifying special-purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. SFAS No.
155 is effective for all financial instruments acquired or
issued after the beginning of the first fiscal year that
begins after September 15, 2006. The adoption of SFAS No. 155
did not have a material impact on the Company's financial
position, results of operations, or cash flows.
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 adoption
of SFAS No. 156 did not have a material impact on the
Company's financial position, results of operations, or cash
flows.
F-13
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements,("FAS
157"). This Standard defines fair value, establishes a
framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. The adoption of FAS
157 is not expected to have a material impact on the Company's
financial position, results of operations or cash flows.
The FASB also issued in September 2006 Statement of Financial
Accounting Standards No. 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans -- an
amendment of FASB Statement No. 87, 88, 106 and 132(R), ("FAS
158") . This Standard requires recognition of the funded
status of a benefit plan in the statement of financial
position. The Standard also requires recognition in other
comprehensive income certain gains and losses that arise
during the period but are deferred under pension accounting
rules, as well as modifies the timing of reporting and adds
certain disclosures. FAS 158 provides recognition and
disclosure elements to be effective as of the end of the
fiscal year after December 15, 2006 and measurement elements
to be effective for fiscal years ending after December 15,
2008. The Company has not yet analyzed the impact FAS 158 will
have on its financial condition, results of operations, cash
flows or disclosures.
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 September 30, 2006, the Company has $3,472,153 due to them
for their services. Additionally, the Company has established
an allowance for doubtful accounts of $115,013 at September
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-14
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
NOTE 4- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September
30, 2006:
Furniture, fixtures and equipment $299,265
Less: accumulated depreciation 190,202
---------
Net book value $109,063
=========
Depreciation expense for the nine months ended September 30,
2006 and 2005 was $26,901 and $20,427 respectively.
NOTE 5- DEPOSITS
The Company has deposits with various entities for security
purposes. The balance of these deposits at September 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 September 30, 2006.
NOTE 7- DUE FROM RELATED PARTIES
The Company has outstanding at September 30, 2006, $72,034
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% (9.75% at September 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 September 30, 2006 was
$2,296,947. The balance is reflected net of a 10% reserve that
the factor has established which is adjusted on each funding.
F-15
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
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 September 30, 2006 and 2005, deferred tax assets
approximated the following:
2006 2005
----------- -----------
Deferred tax assets $ 3,470,000 $ 1,963,000
Less: valuation allowances (3,470,000) (1,963,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
At September 30, 2006 and 2005, the Company had accumulated
deficits in the amounts $10,132,000 and 6,603,000,
respectively, available to offset future taxable income
through 2026. 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
F-16
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
NOTE 10- LOAN PAYABLE - OFFICER (CONTINUED)
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
September 30, 2006 is $95,500.
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 $252,051 and $111,513 for the nine months
ended September 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 September 30, 2006 were $122,809 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 180,426,111 common shares issued and
outstanding and 4,295,000 shares of Series A convertible
preferred stock issued and 4,295,000 outstanding as of
Sptember 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
F-17
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
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.
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.
On July 11, 2006 a convertible series A preferred shareholder
notified the company of their intent to convert 20,000 shares
of preferred stock into common stock, as outlined in the
agreement. The preferred shares were converted at a price of $
.0121, which translated into 1,652, 893 shares of common
stock.
In connection with the conversion of preferred stock, total
outstanding preferred shares were decreased by 105,000 shares
and beneficial interest was recognized in the amount $5,333
for the nine months ended September 30, 2006.
F-18
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
NOTE 14- GOING CONCERN
As shown in the accompanying condensed consolidated financial
statements, the Company incurred substantial net losses for
the nine months ended September 30, 2006 and 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.
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.
On September 6, 2006 MSSI and NOC entered into the LOI with
General Healthcare Resources, Inc. (GHR) pursuant to which GHR
would acquire substantially all of the assets of NOC for an
aggregate purchase price equal to Two Million Eight Hundred
Fifty Thousand Dollars (2,850,000). The transaction is subject
to satisfactory completion of due diligence and other
condition including the execution of a definitive agreement.
The parties have agreed to execute a definitive Asset Purchase
Agreement within sixty (60) days following the execution of
the LOI.
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.
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 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.
19
MEDICAL STAFFING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
NOTE 15- LITIGATION (CONTINUED)
As a result of the February 16, 2006 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 $302,415 in accrued interest to
September 30, 2006.
On September 8, 2006 the Supreme Court of Virginia in the City
of Richmond upon review of the record and consideration of the
argument submitted in support of and in opposition to the
granting of an appeal, refused the Petition.
On November 17, 2006 the Virginia Supreme Court denied the
Company's petition for rehearing of its September 8, 2006
ruling denying the Company's appeal in this case against the
plaintiff.
20
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. Over the next twelve (12) months, Nurses Onsite Corp. plans to
establish operations in additional locales within the states in which it
operates.
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 September 30, 2006, the
Company's accumulated deficit is $10,132,000 and its working capital is
$(2,134,964). 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 confident that they can
improve operations and raise the appropriate funds needed through contracts into
which the Company recently has entered. Management is planning to obtain capital
principally through the sale of equity securities and/or part of its current
assets to support its operations during the next twelve (12) months. The
financial statements for September 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 Three (3) Months Ended September 30, 2006,
Compared To The Three Months Ended September 30, 2005
Revenues
Revenues for the quarter ended September 30, 2006 were $4,424,764, a decrease of
$19,382, as compared to revenues of approximately $4,444,146 for the quarter
ended September 30, 2005. The decrease in revenues in 2006 was attributable to
completion of contracts.
Cost Of Sales
Cost of sales for the quarter ended September 30, 2006, was $3,580,478 million,
or eighty-one percent (81%) of revenues, as compared to $3,254,180, or
seventy-three percent (73%) of revenues, for the quarter ended September 30,
2005. The percentage increase in cost of sales for the quarter ended September
30, 2006 was primarily attributable to the increase in the cost of labor
associated with the Nurses Onsite contracts.
Gross Profit
Gross profit for the quarter ended September 30, 2006, was $ 844,286, or
nineteen percent (19%) of revenues, as compared to gross profit of $1,189,966,
or twenty- seven (27%) of revenues, for the quarter ended September 30, 2005.
Operating Expenses
Operating expenses for the quarter ended September 30, 2006, were $1,469,027 or
thirty-three percent (33%) of revenues, as compared to $1,609,156, or thirty-six
percent (36%) of revenues, for the quarter ended September 30, 2005. The
decrease in operating expenses in 2006 was primarily attributable to the reduced
cost of administrative and general and administrative expenses.
Other Income (Expense)
Other income (expense) for the quarter ended September 30, 2006, was $(143,991),
as compared to $(89,430) for the quarter ended September 30, 2005. The increase
was from interest expenses.
3
Net Loss
The Company had a net loss of $768,732 for the quarter ended September 30, 2006,
compared to a net loss of $508,620 for the quarter ended September 30, 2005. The
increased loss of $260,112 was mainly attributable to increase interest costs,
predominantly accrued in connection with 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 Nine (9) Months Ended September 30, 2006,
Compared To The Nine (9) Months Ended September 30, 2005
Revenues
Revenues for the nine (9) months ended September 30, 2006 were $14,596,385 an
increase of $7,293,163, or one hundred percent (100%) as compared to revenues of
approximately $7,303,222 for the nine months ended September 30, 2005. The
increase in revenues in 2006 was attributable to acquisition of Nurses Onsite
Corp.
Cost Of Sales
Cost of sales for the nine (9) months ended September 30, 2006, was $10,819,949
million, or seventy-four percent (74%) of revenues, as compared to $5,214,044,
or seventy-one percent (71%) of revenues, for the nine (9) months ended
September 30, 2005. The percentage increase in cost of sales was primarily
attributable to increased cost of the labor associated with providing Nurses
Onsite Corp. nursing services.
Gross Profit
Gross profit for the nine (9) months ended September 30, 2006, was $3,776,436,
or twenty-six percent (26%) of revenues, as compared to gross profit of
$2,089,178, or twenty-nine (29%) of revenues, for nine (9) months ended
September 30, 2005.
Operating Expenses
Operating expenses for the nine (9) months ended September 30, 2006, were
$5,325,380 or thirty-six percent (36%) of revenues, as compared to $3,035,147,
or forty-two percent (42%) of revenues, for the nine (9) months ended September
30, 2005. The increase in operating expenses in 2006 was primarily attributable
to increased costs associated with the acquisition of Nurses Onsite Corp. The
decrease in operating expenses as a percentage of revenues was due to the
reduced percentage cost of general and administrative expenses as a percentage
of revenues.
Other Income (Expense)
Other income (expense) for the nine (9) months ended September 30, 2006, was
$(1,327,395), as compared to $(228,179) for the nine (9) months ended September
30, 2005. The increase 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 $2,876,339 for the nine (9) months ended September
30, 2006, compared to a net loss of $1,174,148 for the nine (9) months ended
September 30, 2005. The increased loss of $1,702,191 was mainly attributable to
inclusion of the February 6, 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 margin which were not offset by reduced operating
expenses as a percentage of sales.
4
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 $2,876,399 and $1,174,148 for the nine (9) months ended September 30,
2006 and 2005, respectively, and had an accumulated deficit of $10,131,982 at
September 30, 2006. At September 30, 2006 the Company had a working capital
deficit of $2,134,964 due to insufficient cash generated from operations.
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.
The Company is at present meeting its current obligations from its monthly cash
flows and cash proceeds from the sale of equity securities and debt, which
during 2003, 2004, 2005 and to date in 2006 has included cash from operations,
investor capital, loans from related parties and from other lenders. However,
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. As a result, the Company is dependent on investor capital and
loans to meet its expenses and obligations. Although investor funds and related
party loans have allowed the Company to meet its obligations in the recent past,
there can be no assurances that the Company's present methods of generating cash
flow will be sufficient to meet future obligations. Historically, the Company
has, from time to time, been able to raise additional capital from sales of its
capital stock, but there can be no assurances that the Company will be able to
raise additional capital in this manner.
Cash used in operating activities was $1,454,157 for the nine (9) months ended
September 30, 2006, compared to cash used of $805,134 for the same period in
2005.
Cash used in investing activities was $19,800 for the nine (9) months ended
September 30, 2006, compared to cash used in investing activities of $1,686,659
for the same period in 2005. This decreased amount of $1,666,859 was mainly due
to the expenditure of $1,600,000 for the acquisition of Nurses Onsite Corp. in
the same period last year.
Net cash provided by financing activities was $1,227,193 for the nine (9) months
ended September 30, 2006, compared to $2,464,639 during the same period in 2005.
This decreased amount of $1,237,446 was mainly due to a reduction in sales of
securities.
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 September 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.
5
On June 11, 2004, the Company received $1,000,000 in return for a promissory
note to Cornell Capital. 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 October 18, 2004, the Company received $315,000 in return for a promissory
note issued to Cornell Capital. As of June 30, 2005, the note has been fully
paid.
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 September 30,
2006 was $2,296,947.
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.
6
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.
Effective January 1, 2006, Dr. L. Carl Jacobsen was appointed to serve as Vice
President - General Counsel of the Company. Prior to his appointment, Dr.
Jacobsen served as Vice President of Human Resources & Administration for the
Company since September 25, 2003. Dr. Jacobsen is presently responsible for all
legal matters and he also serves as secretary and as an advisor to the Board of
Directors. Dr. Jacobsen earned his JD degree from Antioch School of Law and his
PhD in linguistics from UCLA.
Effective January 1, 2006, Ms. Reeba Magulick has been appointed to serve as
Vice President - Corporate Marketing of the Company. Prior to her appointment,
Ms. Magulick served as Assistant Vice President, Medical Systems Division for
TeleScience and as Vice President of Operations for Nurses Onsite Corp. Ms.
Magulick also performed the function of Investor Relations coordinator with
Medical Staffing's shareholders. Prior to joining Medical Staffing in February
2004, Ms. Magulick completed a five (5) year tenure at Ford Motor Company, where
she succeeded in driving sales, market share, customer satisfaction and
profitability performance within her market area. Ms. Magulick earned her
Bachelor of Science degree in Commerce with a Marketing Concentration from the
University of Virginia's McIntire School of Commerce and she earned an MBA from
the University of Maryland's Robert H. Smith School of Business.
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.
On March 13, 2006, the Company and Cornell Capital entered into a Termination
Agreement pursuant to which the parties terminated that certain Escrow
Agreement, dated December 13, 2005, by and among the Parties and David Gonzalez,
Esq., as escrow agent.
On September 7, 2006, the Company signed a Letter of Intent to sell the assets
of Nurses Onsite Corp. to General Healthcare Resources, Inc., a Pennsylvania
corporation for the sum of $2,850,000. The sale is presently anticipated to be
consummated by the end of November 2006.
From time to time, the Company may evaluate potential acquisitions involving
complementary businesses, content, products or technologies. We currently do not
have any planned acquisitions. The Company's future capital requirements will
depend on many factors, including the success of our operations, economic
conditions and other factors including the results of future operations. 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:
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.
8
Management's Strategic Plan
The Management's strategic plan is to: (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.
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.
Recent Accounting Pronouncements
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.
9
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.
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.
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements,("FAS 157"). This Standard defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. FAS
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years. The
adoption of FAS 157 is not expected to have a material impact on the Company's
financial position, results of operations or cash flows.
The FASB also issued in September 2006 Statement of Financial Accounting
Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans -- an amendment of FASB Statement No. 87, 88, 106 and
132(R), ("FAS 158"). This Standard requires recognition of the funded status of
a benefit plan in the statement of financial position. The Standard also
requires recognition in other comprehensive income certain gains and losses that
arise during the period but are deferred under pension accounting rules, as well
as modifies the timing of reporting and adds certain disclosures. FAS 158
provides recognition and disclosure elements to be effective as of the end of
the fiscal year after December 15, 2006 and measurement elements to be effective
for fiscal years ending after December 15, 2008. The Company has not yet
analyzed the impact FAS 158 will have on its financial condition, results of
operations, cash flows or disclosures.
10
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 September 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 September 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.
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.
11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 16, 2006, the Circuit Court of Fairfax County, Virginia (the "Trial
Court") entered a Final Order in favor of plaintiff Azmat Ali against
TeleScience, a wholly-owned subsidiary of the Company, Dr. Brajnandan B. Sahay
and Mrs. Rupa Sahay (TeleScience, Dr. Sahay and Mrs. Sahay are collectively
referred to herein as the "Defendant-Appellant"), in the matter Azmat Ali v.
TeleScience International, Inc., et al. (At Law No. 218574) as is more fully set
forth in the Company's Current Report on Form 8-K as filed with the SEC on March
6, 2006. In response to the Trial Court's ruling, Defendant-Appellant made a
petition for appeal (the "Petition") with the Supreme Court of Virginia in the
City of Richmond (the "Supreme Court"). On September 8, 2006, the Supreme Court,
upon review of the record and consideration of the argument submitted in support
of and in opposition to the granting of an appeal, refused the Petition. On
November 17, 2006 the Virginia Supreme Court denied the Company's petition for
rehearing of its September 8, 2006 ruling denying the Company's appeal in this
case against the plaintiff.
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. Plaintiffs are seeking
$125,000 in damages. The parties have agreed to mediation in an attempt to fully
resolve the litigation. The mediation is in progress.
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 (together,
the "Defendants") 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 attorney's fees. Nurses Onsite has been advised by the Internal
Revenue Service (IRS) that the original beneficiary was liable to the IRS for an
amount in excess of the note amount and that payment to a third party should not
be made until the IRS deficiency is satisfied. The Company believes the attempt
to assign the note was an attempt to defraud the IRS. 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 Nurses Onsite's restrictions on paying said note.
Plaintiff replied to the affirmative defenses denying the 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.
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.
II-1
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.
On July 11, 2006, a convertible Series A preferred shareholder notified the
Company of their intent to convert 20,000 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 $0.0121, which translated into
1,652,893 shares common stock. There were no other transactions involving common
stock in the quarter ended September 30, 2006.
In connection with the conversion of the Series A preferred stock, total
outstanding preferred shares were decreased by 20,000 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 Incorporated by reference to Exhibit 3(a) to the Company's Registration
amended 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 Incorporated by reference to Exhibit 3 to the Company's Annual Report on
Articles of Incorporation Form 10-KSB as filed with the United States Securities and Exchange
Commission on March 27, 2003
3.4 Certificate of Amendment to Incorporated by reference to Exhibit 3 to the Company's Annual Report on
Articles of Incorporation Form 10-KSB as filed with the United States Securities and Exchange
Commission on March 27, 2003
4.1 Certificate of Designation of Incorporated by reference to Exhibit 4.1 to the Company's Form 8-K as
Series A Preferred Stock, as filed with the SEC on January 18, 2006
filed with the Secretary of State
of the State of Nevada on
December 16, 2005
II-2
4.2 Amended and Restated Certificate Incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed
of Designation of Series A with the SEC on March 17, 2006
Preferred Stock as filed with the
Secretary of State for the State
of Nevada on March 13, 2006
10.1 Sublease Agreement dated Incorporated by reference to Exhibit 10.1 to the Company's
December 23, 2002 by and Annual Report among on Form 10-KSB as filed with the
InterAmerica Technologies, United States Securities and Exchange Commission on April 9, 2004
Inc., Kemron Environmental
Services and Telescience
International, Inc.
10.2 Promissory Note in the principal Incorporated by reference to Exhibit 10.2 to the Company's Annual Report
amount of $875,920 made by the on Form 10-KSB as filed with the United States Securities
Company in favor of Dr. B.B. Sahay and Exchange Commission on April 9, 2004
10.3 Memorandum of Understanding Incorporated by reference to Exhibit 10.3 to the Company's Annual Report
dated March 10, 2004, by and on Form 10-KSB as filed with the United States Securities and Exchange
between Silver Star Commission on April 9, 2004
Technologies, Inc. and
TeleScience International,
Inc.
10.4 Memorandum of Understanding by Incorporated by reference to Exhibit 10.4 to the Company's Annual Report
and between Telescience on Form 10-KSB as filed with the United States Securities and Exchange
International, Inc. and Commission on April 9, 2004
Chesapeake Government
Technologies, Inc.
10.5 Proposal dated January 7, 2004 Incorporated by reference to Exhibit 10.5 to the Company's Annual Report
from Professional Nursing on Form 10-KSB as filed with the United States Securities and Exchange
Resources, Inc. to Telescience Commission on April 9, 2004
International, Inc.
10.6 Renewal Agreement dated February Incorporated by reference to Exhibit 10.14 to the Company's Annual Report
5, 2004, from Commonwealth of on Form 10-KSB as filed with the United States Securities and Exchange
Pennsylvania to Telescience Commission on April 9, 2004
International, Inc. regarding
Contract 2550-09 Personal
Protection Equipment PPE
10.7 Memorandum of Understanding dated Incorporated by reference to Exhibit 10.15 to the Company's Annual Report
February 23, 2004, to Mobile on Form 10-KSB as filed with the United States Securities and Exchange
Healthcare Solutions, Inc. from Commission on April 9, 2004
Telescience International, Inc.
10.8 Master Contract dated April 1, Incorporated by reference to Exhibit 10.17 to the Company's Annual Report
2004, by and between on Form 10-KSB as filed with the United States Securities and Exchange
Telescience International, Inc. Commission on April 9, 2004
and State of California
Department of Corrections
II-3
10.9 Memorandum dated March 26, Incorporated by reference to Exhibit 10.20 to the Company's Annual Report
2003 regarding Branch on Form 10-KSB as filed with the United States Securities and Exchange
Office Location Commission on April 9, 2004
10.10 $1,000,000 Promissory Note Incorporated by reference to Exhibit 10.18 to Medical Staffing's Annual
issued to Cornell Capital Report on Form 10-KSB as filed with the United States Securities and
Partners, LP by Medical Exchange Commission on March 31, 2005 2004
Staffing on June 8,
10.11 $315,000 Promissory Note issued Incorporated by reference to Exhibit 10.19 to Medical Staffing's Annual
to Cornell Capital Partners, LP Report on Form 10-KSB as filed with the United States Securities and
by Medical Staffing on Exchange Commission on March 31, 2005
October 6, 2004
10.12 Amended and Restated Incorporated by reference to Exhibit 10.25 to Medical Staffing's Amended
Promissory Note issued to Form SB-2 as filed with the United States Securities and Exchange
Cornell Capital Partners, LP Commission on August 5, 2005
by Medical Staffing on
January 5, 2005 and amended on
June 7, 2005
10.13 Employment Agreement between Incorporated by reference to Exhibit 10.21 to Medical Staffing's Annual
Medical Staffing and Brajnandan Report on Form 10-KSB as filed with the United States Securities and
B. Sahay dated January 1, 2005 Exchange Commission on March 31, 2005
10.14 Contract dated December 6, 2004, Incorporated by reference to Exhibit 10.22 to Medical Staffing's Annual
by and between Telescience Report on Form 10-KSB as filed with the United States Securities and
International, Inc. and State of Exchange Commission on March 31, 2005
California Department of
Corrections
10.15 Master Contract dated December Incorporated by reference to Exhibit 10.23 to Medical Staffing's Annual
19, 2004, by and between Report on Form 10-KSB as filed with the United States Securities and
Telescience International, Inc. Exchange Commission on March 31, 2005
and State of California
Department of Corrections
10.16 90 Days Consulting Services Incorporated by reference to 5.1 to Medical Staffing's Form SB-2 as filed
Contract with the United States Securities and Exchange Commission on April 13,
2005
10.17 Amended and Restated Promissory Incorporated by reference to Exhibit 10.25 to Medical
Note issued to Cornell Staffing's Amended Form SB-2 as filed with the United States Securities and
Capital Partners, LP by Exchange Commission on August 5, 2005
Medical Staffing on April 26,
2005 and amended on June 7,
2005
10.18 SYSTRAN Financial Services Incorporated by reference to Exhibit 99.1 to Medical Staffing's Form 8-K
Corporation Factoring as filed with the United States Securities and Exchange Commission on
Agreement, dated as of by July 14, 2005
October 31, 2005, and
between Medical Staffing
Solutions, Inc., TeleScience
International, Inc., Nurses PRN
Acquisition Corp. and SYSTRAN
Financial Service Corporation
II-4
10.19 Form of Addendum to the Incorporated by reference to Exhibit 99.2 to Medical Staffing's Form 8-K
SYSTRAN Financial Services as filed with the United States Securities and Exchange Commission on
Corporation Factoring July 14, 2005
Agreement
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 Incorporated by reference to Exhibit 99.4 to Medical Staffing's Form
Credit and Operations 8-K as filed with the United States Securities and Exchange Commission on
Departments July 14, 2005
10.22 Securities Purchase Agreement, Incorporated by reference to Exhibit 99.1 to Medical Staffing's Form 8-K
dated September 2, 2005, by and as filed with the United States Securities and Exchange Commission on
between Medical Staffing October 3, 2005
Solutions, Inc. and Cornell
Capital Partners, LP
10.23 Secured Convertible Debenture, Incorporated by reference to Exhibit 99.2 to Medical Staffing's Form 8-K
dated September 2, 2005, issued as filed with the United States Securities and Exchange Commission on
by Medical Staffing Solutions, October 3, 2005
Inc. to Cornell Capital Partners,
LP
10.24 Investor Registration Rights Incorporated by reference to Exhibit 99.3 to Medical Staffing's Form 8-K
Agreement, dated September 2, as filed with the United States Securities and Exchange Commission on
2005, by and between Medical October 3, 2005
Staffing Solutions, Inc. and
Cornell Capital Partners, LP
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 October 3,
2005
10.25 Escrow Agreement, dated September Incorporated by reference to Exhibit 99.4 to Medical Staffing's Form 8-K
2, 2005, by and between Medical as filed with the United States Securities and Exchange Commission on
Staffing Solutions, Inc., Cornell October 3, 2005
Capital Partners, LP and David
Gonzalez, Esq., as Escrow Agent
10.26 Security Agreement, dated Incorporated by reference to Exhibit 99.5 to Medical Staffing's Form 8-K
September 2, 2005, by and as filed with the United States Securities and Exchange Commission on
between Medical Staffing October 3, 2005
Solutions, Inc. and Cornell
Capital Partners, LP
10.27 Irrevocable Transfer Agent Incorporated by reference to Exhibit 99.6 to Medical Staffing's Form 8-K
Instructions, dated September as filed with the United States Securities and Exchange Commission on
2, 2005 October 3, 2005
10.28 Warrant, effective August 10, Incorporated by reference to Exhibit 99.7 to Medical Staffing's Form 8-K
2005, issued by Medical as filed with the United States Securities and Exchange Commission on
Staffing Solutions, October 3, 2005
Inc. to Cornell Capital
Partners, LP
II-5
10.29 Investment Agreement, dated Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K as
December 13, 2005, by and between filed with the SEC on January 18, 2006
Medical Staffing Solutions,
Inc. and Cornell Capital
Partners, LP
10.30 Investor Registration Rights Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K as
Agreement, dated December 13, filed with the SEC on January 18, 2006
2005, by and between Medical
Staffing Solutions, Inc. and
Cornell Capital Partners, LP
10.31 Escrow Agreement, dated December Incorporated by reference to Exhibit 10.3 to the Company's Form 8-K as
13, 2005, by and among Medical filed with the SEC on January 18, 2006
Staffing Solutions, Inc., Cornell
Capital Partners, LP and David
Gonzalez, Esq. as Escrow Agent
10.32 Irrevocable Transfer Agent Incorporated by reference to Exhibit 10.4 to the Company's Form 8-K as
Instructions, dated December 13, filed with the SEC on January 18, 2006
2005, by and among Medical
Staffing Solutions, Inc., David
Gonzalez, Esq. and Holladay Stock
Transfer, Inc.
10.33 Warrant, dated December 13, 2005, Incorporated by reference to Exhibit 10.5 to the Company's Form 8-K as
issued by Medical Staffing filed with the SEC on January 18, 2006
Solutions, Inc. to Cornell
Capital Partners, LP
10.34 Amended and Restated Investment Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed
Agreement, dated March 13, 2006, with the SEC on March 17, 2006
by and between Medical Staffing
Solutions, Inc. and Cornell
Capital Partners, LP
10.35 Amended and Restated Investor Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed
Registration Rights Agreement, with the SEC on March 17, 2006
dated March 13, 2006, by and
between Medical Staffing
Solutions, Inc. and Cornell
Capital Partners, LP
10.36 Irrevocable Transfer Agent Incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed
Instructions, dated March 13, with the SEC on March 17, 2006
2006, by and among Medical
Staffing Solutions, Inc., David
Gonzalez, Esq. and Holladay Stock
Transfer, Inc.
10.37 Warrant CCP 2, dated March 13, Incorporated by reference to Exhibit 10.4 to the Company's Form 8-K filed
2006, issued by Medical Staffing with the SEC on March 17, 2006
Solutions, Inc. to Cornell
Capital Partners, LP
II-6
10.38 Warrant CCP 3, dated March 13, Incorporated by reference to Exhibit 10.5 to the Company's Form 8-K filed
2006, issued by Medical Staffing with the SEC on March 17, 2006
Solutions, Inc. to Cornell
Capital Partners, LP
10.39 Warrant CCP 4, dated March 13, Incorporated by reference to Exhibit 10.6 to the Company's Form 8-K filed
2006, issued by Medical Staffing with the SEC on March 17, 2006
Solutions, Inc. to Cornell
Capital Partners, LP
10.40 Warrant CCP 5 dated March 13, Incorporated by reference to Exhibit 10.7 to the Company's Form 8-K filed
2006, issued by Medical Staffing with the SEC on March 17, 2006
Solutions, Inc. to Cornell
Capital Partners, LP
10.41 Termination Agreement dated March Incorporated by reference to Exhibit 10.8 to the Company's Form 8-K filed
13, 2006, by and among Medical with the SEC on March 17, 2006
Staffing Solutions, inc., Cornell
Capital Partners, LP and David
Gonzalez, Esq.
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 Provided herewith
Officer/Principal Financial
Officer 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 Provided herewith
Officer and Principal Financial
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, Incorporated by reference to Exhibit 99.1 to the Company's Current Report
2006, in the matter of Azmat Ali on Form 8-K as filed with the SEC on March 6, 2006
v. TeleScience International,
Inc., et al. (At Law No. 218574)
in the Circuit Court of Fairfax
County, Virginia
99.2 Opinion Letter, dated February Incorporated by reference to Exhibit 99.2 to the Company's Current Report
16, 2006, in the matter of Azmat on Form 8-K as filed with the SEC on March 6, 2006
Ali v. TeleScience International,
Inc., et al. (At Law No. 288574)
in the Circuit Court of Fairfax
County, Virginia
99.3 Order, dated September 8, 2006, Incorporated by reference to Exhibit 99.3 to the Company's Current Report
from the Supreme Court on Form 8-K as filed with the SEC on September 18, 2006
of Virginia in the City
of Richmond
II-7
(B) Current Reports on Form 8-K Filed During the Quarter Ended September 30,
2006:
On September 13, 2006, the Company filed a Current Report on Form 8-K with the
SEC announcing that it had entered into a Letter of Intent with General
Healthcare Resources, Inc. and Nurses Onsite on September 6, 2006 pursuant to
which GHR would acquire substantially all of the assets of Nurses Onsite.
On September 18, 2006, the Company filed a Current Report on Form 8-K with the
SEC announcing that on September 8, 2006, the Supreme Court of Virginia in the
City of Richmond refused the Petition made for appeal by TeleScience, Dr. Sahay
and Mrs. Sahay as Defendant-Appellants in the matter Azmat Ali v. TeleScience
International, Inc., et al. (At Law No. 218574).
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
to be signed on its behalf by the undersigned, thereunto duly authorized on
November 20, 2006.
November 20, 2006 MEDICAL STAFFING SOLUTIONS, INC.
By: /s/ Brajnandan B. Sahay
-----------------------
Name: Brajnandan B. Sahay,
Title: President, Chief Executive
Officer and Director