Overview
Prior to the fourth quarter of 2018, through our subsidiaries, we operated four
restaurants that offered healthy food. In the fourth quarter of 2018, we
discontinued the restaurant business. The restaurant business is treated as a
discontinued operation.
Our current business is the distribution of a medical screening device, the
PC8B, which we purchase from LD Technology, LLC, the manufacturer pursuant to a
private label contract. The PC8B medical device is a screening tool designed for
use by physicians and medical personnel in managing patient's health.
We have a private label agreement with the manufacturer of the PC8B pursuant to
which we are required to make certain minimum purchases of equipment in order to
maintain the agreement. The minimum purchases, based on agreed-up pricing, start
at $140,000 for the first quarter, which is the quarter that ended February 28,
2019, and $202,500 per quarter for the balance of the first contract year,
increasing annually to $375,000 for each quarter in the fourth contract year. We
are required to make payment at the time the purchase order is placed. If we
fail to meet the purchase and payment requirements for any contract quarter, we
have 15 business days from the end of the contract quarter to purchase and pay
for the shortfall for such quarter, and, in the event that we fail to pay for
such shortfall, the agreement shall automatically terminate without any notice.
Because of our lack of cash to make our required purchases, during the nine
months ended September 30, 2019, we sold $148,500 of equipment at cost to a
company owned by our chief operating officer in order to generate the cash we
needed to purchase the equipment for inventory. The Company did not recognize
revenue on the sale of these devices. The Company is current with its purchase
requirements through the period ended September 30, 2019.
Our business plan contemplates our placing the equipment in a physician's
office, with the physician paying us a fixed monthly fee plus an additional fee
per every test performed by the physician, although the terms of the service
agreements may vary from customer to customer, depending on the needs of the
customer.
Because we are a one product company, we are dependent upon our ability to
market the PC8B to physicians and to satisfy insurance carriers that our tests
are reimbursable. If we are unable to market this equipment we may not be able
to continue in business. We cannot assure you that we will be successful in
either placing the equipment with physicians or selling the equipment to the
physicians or otherwise generating revenue and gross profit from this product.
Results of Operations
Results of Operations for the three months ended September 30, 2019 compared to
the three months ended September 30, 2018.
Revenue and Cost of Goods Sold
Revenue for the three months ended September 30, 2019 was $64,600, of which
$61,000 related to the sale of devices and $3,600 related to monthly fees and
service fees relating to service agreements with physicians. Cost of goods sold
for the three months ended September 30, 2019 was $27,504. Gross profit for the
three months ended September 30, 2019 was $37,096. There was no revenue or cost
of goods sold for the three months ended September 30, 2018, as operating
activities from continuing operations began in the fourth quarter of 2018.
Operating Expenses
Operating expenses for the three months ended September 30, 2019 and 2018 were
$400,460 and $25,593, respectively. The increase in operating expenses in 2019
was primarily due to the increase in stock compensation, consulting fees and
professional fees. Stock compensation related to the grant of warrants was
$139,490 during the three months ended September 30, 2019. There was no stock
compensation during the three months ended September 30, 2018.
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Other Expenses
Other expenses during the three months ended September 30, 2019 consisted of
$115,218 of amortization of debt discount, $6,250 of financing costs and $9,873
of interest expense, totaling to $131,341. Other expenses during the three
months ended September 30, 2018 consisted of $78,294 of amortization of debt
discount, $89,000 on the loss on the extinguishment of debt and $4,505 of
interest expense, totaling to $171,696.
Net Loss
For the reasons described above, our net loss from continuing operations for the
three months ended September 30, 2019 was $494,705, or $(0.03) per share (basic
and diluted), compared to a net loss from continuing operations of $197,392, or
$(0.02) per share (basic and diluted) for the three months ended September 30,
2018. Our net loss from discontinued operations for the three months ended
September 30, 2019 was $10,356, or $(0.00) per share (basic and diluted),
compared to a net loss from discontinued operations of $341,823, or $(0.02) per
share (basic and diluted) for the three months ended September 30, 2018. Our net
loss for the three months ended September 30, 2019 was $505,061, or $(0.03) per
share (basic and diluted), compared to a net loss of $341,823, or $(0.04) per
share (basic and diluted) for the three months ended September 30, 2018.
Results of Operations for the nine months ended September 30, 2019 compared to
the nine months ended September 30, 2018.
Revenue and Cost of Goods Sold
Revenue for the nine months ended September 30, 2019 was $132,270. Sales of PC8B
devices during the nine months ended September 30, 2019 were $121,000, of which
$60,000 represented sales to a company owned by our chief operating officer,
while $11,270 represented revenues for monthly fees and service fees relating to
agreements with physicians. Cost of goods sold for the nine months ended
September 30, 2019 was $55,504. Gross profit for the nine months ended September
30, 2019 was $76,766. There was no revenue or cost of goods sold for the nine
months ended September 30, 2018, as operating activities from continuing
operations began in the fourth quarter of 2018.
Operating Expenses
Operating expenses for the nine months ended September 30, 2019 and 2018 were
$948,943 and $277,500, respectively. The increase in operating expenses in 2019
was primarily due to the increase in stock compensation, consulting fees,
professional fees and employee-related costs.
Other Expenses
Other expenses during the nine months ended September 30, 2019 consisted of
$197,531 of amortization of debt discount, $74,541 of financing costs and
$22,553 of interest expense, totaling to $294,625. Other expenses during the
nine months ended September 30, 2018 consisted of $189,242 of amortization of
debt discount, $89,000 on the loss on the extinguishment of debt and $13,201 of
interest expense, totaling to $291,443.
Net Loss
For the reasons described above, our net loss from continuing operations for the
nine months ended September 30, 2019 was $1,166,802, or $(0.08) per share (basic
and diluted), compared to a net loss from continuing operations of $586,943, or
$(0.07) per share (basic and diluted) for the nine months ended September 30,
2018. Our net loss from discontinued operations for the nine months ended
September 30, 2019 was $217,871, or $(0.01) per share (basic and diluted),
compared to a net loss from discontinued operations of $495,227, or $(0.06) per
share (basic and diluted) for the nine months ended September 30, 2018. Our net
loss for the nine months ended September 30, 2019 was $1,384,673 or $(0.09) per
share (basic and diluted), compared to a net loss of $1,064,170, or $(0.12) per
share (basic and diluted) for the nine months ended September 30, 2018.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate adequate amounts of cash to
meet its cash needs.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. We have not generated
significant revenues since inception and has discontinued its restaurant
business and changed its business operation focusing on establishing ourselves
as the United States distributor of a medical screening device. During the nine
months ended September 30, 2019, we incurred a net loss from continuing
operations of $1,166,802 on revenues of $132,270, used cash from continuing
operations of $863,460, and had a stockholders' deficit of $1,465,037 as of
September 30, 2019. These factors raise substantial doubt about our ability to
continue as a going concern. Our ability to continue as a going concern is
dependent upon the Company's ability to generate revenue, to raise additional
funds and implement its strategies. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
In addition, our former independent registered public accounting firm, in its
report on our December 31, 2018 financial statements, has raised substantial
doubt about our ability to continue as a going concern.
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At September 30, 2019, we had cash on hand in the amount of $13,539. Our
operations are dependent upon its ability to develop its proposed business of
marketing medical devices used for screening, to raise adequate financing and to
commence profitable operations in the future and repay its liabilities arising
from normal business operations as they become due. Our ability to raise
financing may be impaired by the terms of our outstanding convertible notes and
warrants.
Comparison of the nine months ended September 30, 2019 and 2018
As of September 30, 2019, we had $13,539 in cash, negative working capital of
$1,907,284 and an accumulated deficit of $11,231,786.
As of September 30, 2018, we had $86,555 in cash, negative working capital of
$838,347 and an accumulated deficit of $2,984,767.
Cash flows used in operating activities
During the nine months ended September 30, 2019, we used cash flows from
operating activities from continuing operations of $863,460, compared to
$106,031 used in the nine months ended September 30, 2018. During the nine
months ended September 30, 2019, we incurred a net loss from continuing
operations of $ 1,166,802 with $523,391 of non-cash expenses, compared to a net
loss from continuing operations of $568,943 and $462,912 of non-cash expenses
during the nine months ended September 30, 2018.
Cash flows used in investing activities
During the nine months ended September 30, 2019, we had purchases of property
and equipment of $98,367, representing the purchase of PC8B units which are held
for placement pursuant to service agreements. During the nine months ended
September 30, 2018, we had no cash flows from investing activities from
continuing operations.
Cash flows provided by financing activities
During the nine months ended September 30, 2019, we had proceeds from loans
payable from related parties of $247,700, proceeds from a bank loan of
$1,151,250 and proceeds from common stock issued for cash under a Securities
Purchase Agreement of $64,000. We used cash to repay loans payable from related
parties of $295,000 and to repay convertible debt of $50,000. During the nine
months ended September 30, 2018, we had proceeds from the issuance of
convertible notes payable of $287,500 and advances from related parties of
$154,948. We used cash of $6,249 to repay a bank loan and $39,000 to repay
advances from related parties.
Acquisition Agreements
On July 17, 2019, we entered into a stock purchase agreement with our chief
operating officer and his spouse pursuant to which we agreed to purchase from
them all of the outstanding capital stock of JAS Practice Management, Inc.
("JAS"), and Center for Psychological Development, Inc. ("CPD"). JAS provides
providing billing, coding, and consulting services to medical practices, and
provides services to us. CPD, through its physicians, offers primary care and
outpatient behavioral health service in seven locations in Oklahoma and Texas.
The purchase price consists of $1,000,000 plus 5,000,000 shares of a
newly-created series of preferred stock to be designated as the Series A
Preferred Stock, which will automatically be converted into common stock at such
date as the closing price on the principal stock exchange or market on which the
common stock is traded has a closing price equal to $2.00 per share (subject to
adjustment in the event of stock splits, distribution, dividends, reverse splits
and other similar recapitalizations). The purchase is subject to the delivery by
JAS and CPD of audited financial statements for the years ended December 31,
2018 and 2017 and unaudited financial statements for the three months ended
March 31, 2019 and 2018, and the completion of our due diligence. We are
providing the funding for the financial statement.
On August 22, 2019, we entered into a stock purchase agreement with the
stockholders of LD Technology, LLC ("LD Technology") and Medical Screening, Inc.
("Medical Screening") pursuant to which we would purchase the capital stock of
both corporations. LD Technology is the manufacturer of our PC8B equipment and
Medical Screening owns the intellectual property. The purchase price consists of
(a) two payments to be made by the Company in the aggregate amount of
$12,000,000, with a payment of $5,000,000 being made on the initial closing date
and a payment of $7,000,000 within 12 months thereafter and (b) the issuance to
the Sellers on the Deferred Closing Date of common stock valued on such date
equal to $3,000,000, for a total purchase price of $15,000,000. The purchase is
subject to customary closing conditions, including payment of the purchase
price, the delivery of audited financial statements of LD Technology and Medical
Screening for the years ended December 31, 2018 and 2017 and unaudited financial
statements for the six months ended June 30, 2019 and 2018, and the satisfactory
completion of the Company's due diligence of the target companies. We are
funding the preparation of the financial statements. Either party can terminate
the agreement if the closing has not been completed the later of 90 days from
the date of the agreement or 30 days after the receipt of the financial
statement.
Both of the acquisitions require us to raise substantial funding in order to
make the payments required under the agreements. We cannot assure you that we
will be able to raise the necessary funding, in which event we will be unable to
complete the acquisitions. Further, even if we complete the acquisition, we
cannot assure you that we will be able to operate either business profitably.
The acquisition of any business is subject to significant risks and we cannot
assure you that we will be able to successfully address any such risks.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses and related disclosures about contingent
assets and liabilities. We base these estimates and assumptions on historical
experience and on various other information and assumptions that are believed to
be reasonable under the circumstance. Estimates and assumptions about future
events and their effects cannot be perceived with certainty and, accordingly,
these estimates may change as additional information is obtained, as more
experience is acquired, as our operating environment changes and as new events
occur. Our critical accounting policies are listed in the notes to our unaudited
condensed consolidated financial statements.
Recently Issued Accounting Pronouncements.
See Management's discussion of recent accounting policies included in footnote 2
to the condensed consolidated financial statements.
Off-Balance Sheet Arrangements.
The Company has no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on its financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
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