UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-KSB

 

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2005

 

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 000-33187

 

INSTACARE CORP.

(Name of small business issuer in its charter)

 

Nevada

 

91-2105842

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

2660 Townsgate Road, Sute 300

 

 

Westlake Village, California

 

91361

(Address of principal executive offices)

 

(zip code)

 

Issuer's Telephone Number:

(805) 446-1973

 

Copies of Communications to:

Stoecklein Law Group

402 West Broadway, Suite 400

San Diego, CA 92101

(619) 595-4882

Fax (619) 595-4883

 

Securities registered under Section 12(b) of the Exchange Act: None

 

Securities registered under Section 12(g) of the Exchange Act:

 

Common Stock, $0.001 par value

(Title if Class)

 

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ]

 

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 _____

 

 



 

 

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes _____ No     X       

 

The issuer’s revenues for its most recent fiscal year ended December 31, 2005. $5,614,313.

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and ask price, as of March 31, 2006 was $2,517,138 based on a share value of $0.46.

 

The number of shares of Common Stock, $0.001 par value, outstanding on March 31, 2006 was 7,304,200 shares.

 

Transitional Small Business Disclosure Format (check one): Yes ___ No      X      

 



 

 

INSTACARE CORP.

FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2005

 

Index to Report

on Form 10-KSB

 

PART I

 

 

Page

 

Item 1.

Description of Business

2

Item 2.

Description of Property

23

Item 3.

Legal Proceedings

23

Item 4.

Submission of Matters to a Vote of Security Holders

24

 

PART II

 

Item 5.

Market for Common Equity and Related Stockholder Matters

24

Item 6.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 7.

Financial Statements

46

Item 8.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

46

Item 8A.

Controls and Procedures

46

Item 8B.

Other Information

47

 

PART III

 

Item 9.

Directors and Executive Officers, Promoters, and Control Persons; Compliance with Section 16(a) of the Exchange Act.

47

Item 10.

Executive Compensation

51

Item 11.

Security Ownership of Certain Beneficial Owners and Management

52

Item 12.

Certain Relationships and Related Transactions

54

Item 13.

Exhibits

54

Item 14

Principal Accountant Fees and Services

55

 

 



FORWARD-LOOKING STATEMENTS

 

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

 

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

 

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any or our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

 

 

increased competitive pressures from existing competitors and new entrants;

 

increases in interest rates or our cost of borrowing or a default under any material debt agreements;

 

deterioration in general or regional economic conditions;

 

adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;

 

loss of customers or sales weakness;

 

inability to achieve future sales levels or other operating results;

 

the unavailability of funds for capital expenditures and/or general working capital; and

 

operational inefficiencies in distribution or other systems.

 

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Factors That May Affect Our Plan of Operation” in this document.

 

Throughout this Annual Report references to “we”, “our”, “us”, “instaCare”, “the Company”, and similar terms refer to instaCare Corp.

 

 

1

 



PART I

 

ITEM 1.

DESCRIPTION OF BUSINESS

 

(a) General Business Development

 

Throughout this filing all references to shares have been restated to reflect an 80:1 reverse stock split enacted on February 3, 2006.

 

instaCare Corp. was incorporated in the State of Nevada on March 2, 2001 as ATR Search Corporation (“ATR”). In June of 2002, ATR merged with Medicius, Inc. whereby Medicius remained as a wholly owned subsidiary of ATR. Following the merger the operations of Medicius were conducted through ATR and the former operations of ATR were conducted through CareTechnologies, LLC, a wholly owned subsidiary of ATR. Under the terms of the merger agreement, the stockholders of Medicius received 412,110 shares of ATR’s common stock and 103,028 warrants in exchange for 100% of the outstanding shares of Medicius’ common stock.

 

On August 2, 2002, we amended our Articles of Incorporation to change our name from ATR to CareDecision Corporation. CareTechnologies, LLC was dissolved on May 20, 2003, but CareDecision continued conducting all operations of CareTechnologies.

 

On November 19, 2004, we incorporated two Nevada subsidiary companies, Pharma Tech Solutions, Inc. and PDA Services, Inc.

 

On November 24, 2004, we entered into an Agreement and Plan of Merger, which was subsequently amended on December 27, 2004, among Pharma Tech Solutions, Inc. and CareGeneration, Inc., a Nevada corporation. This agreement included CareGeneration’s private acquisition of retail pharmaceutical license applications, client lists, receivables, business contacts, relationships, goodwill and the rights to use the wholesale pharmaceutical distribution license, trade names and sales names of Kelly Company World Group, Inc., a Delaware corporation. In February 2005, the merger was completed whereby CareGeneration merged with Pharma Tech wherein CareGeneration ceased to exist and Pharma Tech continued as a majority owned subsidiary. Pursuant to the merger agreement, the stockholders of CareGeneration received 39,750,000 shares of Pharma Tech’s common stock, equaling approximately 49% of the outstanding shares of Pharma Tech, and 531,250 shares of our common stock in exchange for all of the shares of CareGeneration’s common and preferred stock. In addition, we agreed to place 1,250,000 shares of our common stock in escrow, which could have been earned by the former stockholders of CareGeneration upon the achievement of certain revenue milestones from the period beginning on December 27, 2004 and ending, according to each respective milestone schedule, no later than December 31, 2005. Each share of the escrowed common stock was exchangeable for 0.04375 shares of Pharma Tech’s common stock issued to the stockholders of CareGeneration subject to certain milestones and share earn-outs listed below:

 

 

2

 



 

125,000 shares would be earned if Pharma Tech, either through its efforts or through the efforts of Ronald Kelly or Kelly Company World Group, achieved as a unit, $15 million in wholesale pharmaceutical revenues in any two calendar months beginning October 1, 2004 and ending no later than March 31, 2005.

 

250,000 shares would be earned if Pharma Tech, either through its efforts or through the efforts of Ronald Kelly or Kelly Company World Group, achieved as a unit, $50 million in wholesale pharmaceutical revenue in any two fiscal (calendar) quarters beginning on January 1, 2005 and ending no later than June 30, 2005.

 

125,000 shares would be earned if PharmaTech, either through its efforts or through the efforts of Ronald Kelly or Kelly Company World Group, raised $1.5 million or more in equity capital for CareDecision in the period beginning October 1, 2004 and ending no later than March 31, 2005.

 

625,000 shares would be earned if Pharma Tech, through its efforts or through the efforts of Ronald Kelly or Kelly Company World Group, achieved as a unit, $100 million in wholesale pharmaceutical revenue in calendar year 2005.

 

The milestones and share earn-outs expired on December 31, 2005. As of December 31, 2005, the 1,250,000 shares that were to be placed in escrow were not earned, although the former control party of CareGeneration, Inc., Ronald Kelly has made demand for payment of 125,000 shares even though Mr. Kelly (through his then counsel) admitted that the shares were not earned according to the terms of the milestones earnout agreement.

 

In July 2005, we brought suit against Mr. Kelly for certain defaults and breaches of the merger agreement with CareGeneration, Inc. and other agreements with Mr. Kelly and other of his controlled entities that ran parallel to the CareGeneration, Inc. merger agreement. Further, we have also sought to cancel that portion of the 531,250 shares paid directly to Mr. Kelly in the merger agreement.

 

On April 1, 2005, we amended our Articles of Incorporation to change our name from CareDecision Corporation to instaCare Corp.

 

(b) Our Business

 

We have recently focused our business attention towards providing prescription drugs through several medical distribution channels. Our secondary business objective has been to provide information technology (IT) for use with Internet-based communication, and network software systems and applications, that reside on and function through a Windows CE-Based PDA- available from most major computer brands such as Sony, Dell, IBM and Palm -to the medical fields and the lodging and time-share real estate industries.

 

We are distributing prescription drugs and developing products that offer solutions in medical care and management by providing physicians with information at the point of care. Unlike other medical information systems using standard computer terminals, we use palm-sized computers (PDA's), which operate on any Microsoft Windows CE "Pocket PC" based handheld device, either in a wireless or "wired" mode, and allows physicians to carry, access and update their patients' histories, medication data, and best care guidelines - all at the point of care .

 

3

 



The local host for our PDA devices is a Windows (9X, NT, XP or later) based PC, which, in turn, permits one to eight of the aforementioned PDA's to be linked to either a medical network or hotel/motel wide area network, or help-desk network, and allows each PDA to become a uniquely identified mobile node on that network, independent of PC linkage, thereby, assisting the professional, whether he be a doctor, hotel owner, hotel guest or satellite broadcast technician.

 

We have established a core management team experienced in all phases of health care, data management and the Web. 

 

Through December 31, 2005, our operations have been conducted through instaCare Corp. and our subsidiary Medicius, Inc. However, we also continue to operate our two majority owned subsidiaries Pharma Tech Solutions, Inc. and PDA Services, Inc. and plan additional transactions through these subsidiaries in the future.

 

Our business objectives include:

 

 

1.

Providing medical communication devices based on networks of personal digital assistants (PDA). These products are believed to provide benefits of on demand medical information to private practice physicians, licensed medical service providers such as diagnostic testing laboratories, and medical insurers. We have created PDA-centric products and a suite of Internet enhanced software applications that include those features that specifically respond to the requirements of the practicing physician.

 

2.

Provide, as an emerging Internet pharmacy, retail drug prescriptions fulfillment with the goal of delivering affordable, discounted prescriptions to the millions of uninsured and underinsured consumers in the United States.

 

3.

Combining our newly acquired wholesale and retail drug distribution with our PDA technologies, creating wholesale and retail ePharmacies similar in function to existing Internet pharmacies but directed to serving the large base of underinsured and uninsured Americans; and

 

4.

The practice of specializing in the distribution of medical diagnostic and medical disposable products associated with the on-going care of diabetes inflicted patients now that our new prescription drug distribution business is coming on-line.

 

Our real estate and hotel/motel objectives include building electronic commerce networks based on personal digital assistants (PDA) to the hotels, motels and single building, multi-unit apartment buildings with a desire to offer local advertising and electronic services to their tenants/guests.

 

PRESCRIPTION DRUG DISTRIBUTION

 

On January 4, 2005, we transacted our first commerce through our wholly-owned subsidiary Medicius, Inc. This commerce was initiated under a “work-through” agreement by and between us, our subsidiaries Pharma Tech Solutions, Inc. and Medicius, Inc., CareGeneration, Inc., Ronald Kelly and his Kelly Company World Group, Inc. private corporation. Subsequently, we have accepted additional orders for future business and fulfilled these orders. Because of the issues that arose between the Company and Mr. Kelly and his controlled entities, inclusive of Mr. Kelly’s failure to transfer a certain drug distribution license and Mr. Kelly’s on-going competition with the Company and our subsidiary, Pharma Tech Solutions, Inc., we have transacted all commerce through instaCare and our wholly owned subsidiary, Medicius, Inc. since January 4, 2005. We have also applied for and been granted additional

 

4

 



drug distribution licenses in an effort to allow us to increase our operational efficiency. Some prescription drug distribution operations are currently being conducted through PDA Services, Inc., which is in the process of establishing a facility in Hope, North Dakota. In addition, we have established, through Pharma Tech, a “direct to patient” prescription fulfillment program.

 

With our new prescription drug distribution business now coming on-line, we have decided to begin the practice of specializing in the distribution of medical diagnostic and medical disposable products associated with the on-going care of diabetes inflicted patients. This decision was made because the treatment and care of diabetes patients is an on-going lifetime process. Subsequent to year end, we announced the execution of contracts with two large multinational pharmaceutical companies for the distribution of their lines of diabetic monitoring and testing products. Our management has projected gross revenues of approximately $12 million for fiscal 2006 based upon these contracts alone. Our management also believes that there is potential for collateral business through these companies and is in the process of expanding its product lines accordingly. We also plan to enter agreements with additional pharmaceuticals companies and to add more of these diagnostic products as we further specialize into this medical niche. Further, we have recently expanded our offerings to include asthma control products.

 

Specializing in rapid delivery of prescription drugs and diagnostic products, we are in the final stages of augmenting our prescription drug and prescription diagnostics distribution business by creating a nationwide network. Internet enables Mail Order Pharmacy to primarily service the 40+ million Americans who are either uninsured or underinsured.

 

We have also created a fully integrated Prescription Fulfillment Program through which physicians can directly submit prescriptions using a hand-held device, tablet PC, or PDA that is enabled with a Wi-Fi link to the Internet -- instead of issuing a standard prescription for the patient to fill at a local drugstore.

 

Using our technology, prescriptions for medication or diabetic supplies are submitted instantaneously and securely to our FDA-certified drug distribution facility. We fill the prescription immediately and the customer receives his/her medications at his/her home within 24 hours, usually by the next morning 24/7. We then bill Medicare, Medicaid, or the patient's insurance company directly.

 

This concept is directed towards practitioners who treat long term care patients, the uninsured and underinsured. This concept already has enlisted organizations that manage or finance the indigent practices of more than 2,500 doctors. We have established our first fulfillment center to service these uninsured and underinsured patients in Phoenix, Arizona. We have also secured a retail prescription license in Arizona.

 

5

 



By using wireless technology to link our centrally located drug distribution center with an established wholesale prescription distributor, we are positioned to bring economic and administrative efficiencies to the projected $8 billion marketplace for delivering prescriptions to the uninsured and underinsured.

 

The retail prescription business - often subsidized or funded by government benefits -- is a development stage enterprise moving to take advantage of the tremendous opportunity in retail pharmacy business via direct mail order distribution of prescriptions and related products and supplies. As part of our acquisition of CareGeneration, Inc., we also acquired from CareGeneration a proprietary, retail mail order methodology for the distribution of pharmaceutical and healthcare supplies which includes:

 

 

1.

Discounted pharmaceutical and healthcare supplies marketed by mail order to minority and citizen organizations (religious groups, unions, etc.)

 

2.

A proprietary "biometric" secured bankcard primarily targeted to the under-insured. The bankcard is honored by any FDIC bank within the United States.

 

3.

Discounted pharmaceutical and healthcare supplies marketed by mail order to state Medicaid and the Federal Medicare plans.

 

We subsequently learned that CareGeneration did not own or have exclusive rights to the biometric technology referenced in Item 2 above, and we have undertaken a conversion of some of our existing technology to replace this needed and secure device through our own efforts.

 

Retail Prescription

 

The retail prescription business is often subsidized or funded by government benefits which seems to be aggressively moving to take advantage of the tremendous opportunity in retail pharmacy business via direct mail order distribution of prescriptions and related products/supplies. We acquired a retail mail order business concept for the distribution of pharmaceutical and healthcare supplies from CareGeneration. We are focusing our distribution activities to patients who lack prescription drug coverage and patients who qualify for government or institutional programs such as Medicare, Medicaid, children's health insurance programs and long term care institutions and organizations.

 

 

Our retail prescription business maintain three operating units:

 

 

1.

Licensed wholesale prescription drug distribution business, where we deliver bulk prescription drugs on a wholesale basis to clients formerly serviced by the now merged CareGeneration, Inc.;

 

2.

Licensed distribution of diabetes diagnostics and supplies, where we deliver diabetic testing strips and associated diagnostic products under several business models; and

 

3.

Internet pharmacy/prescription fulfillment, which we are methodically, but cautiously, entering.

 

6

 



Our plan is to combine the wholesale and retail drug distribution businesses and couple these businesses with the capabilities to connect physicians, using our PDA technologies, creating wide-ranging ePharmacies similar in function to existing Internet pharmacies but directed to serving the large base of institutionalized, underinsured and uninsured Americans.

 

Retail prescription distribution methods

 

On December 27, 2004, pursuant to the agreement and plan of merger with CareGeneration, Ronald Kelly, a former director, agreed to transfer to Pharma Tech a Wholesale Drug Distribution License (license no. 004-001681, expiring 12/31/2006 issued to Kelly Company world Group, Inc, Ronald R. Kelly, 96 S. Madison St., Carthage, IL. 82321, by the State of Illinois and jointly governed by regulators from the State of Illinois, the U. S. Drug Enforcement Agency and the U.S. Food and Drug Administration). Additionally, Mr. Kelly agreed to seek transfer of a reciprocal drug distribution license issued by the State of Indiana, a client list and know-how in the form of written (published) drug distribution policies and procedures applicable to independent prescription drug and diagnostic distributors. To date, these licenses have yet to be transferred to us. We have filed a complaint to obtain the licenses. The complaint expresses the impact this delay has caused us and the damages we seek, the complaint is discussed under “Legal Proceedings” and is public record.

 

To augment additional impacts this transfer may have, our subsidiary, PDA Services, Inc., has applied for and been granted a prescription drug distribution license in the state of North Dakota (License No. 463, Wholesale Drug (Device) Manufacturing (Reverse) Distributor/Warehouse License, expiring on June 30, 2006). In addition, our subsidiary Pharma Tech Solutions, Inc. has applied for and been granted a retail prescription drug fulfillment license in the state of Arizona (Permit No. 4374).

 

HOTEL AND MEDICAL IT PRODUCTS -- PDA SERVICES, INC.

 

On June 7, 2005, we and our subsidiary PDA Services, Inc. entered into an Intangible Property, License Acquisition Agreement with Colonia Natural Pharmacy, Inc., a New Jersey corporation (Colonia), also known as CN Pharmacy, and individuals Mr. Svetislav Milic and Mr. Nathan Kaplan. There are no material relationships between us or our affiliates and any of the parties, other than in respect of the material definitive agreement.

 

Under the terms of the Intangible Property License Acquisition Agreement, Mr. Milic, will transfer, register and convey, and we shall receive, free and clear of all liens, encumbrances and liabilities, the wholesale drug distribution license (License Number 5003178) granted to Mr. Milic by the State of New Jersey, and all rights and benefits thereto, plus the goodwill and know-how of Mr. Milic, and other related rights granted the Licensee by virtue of this conveyance. Unless otherwise agreed to, Mr. Milic shall remain the control party of the transferred license for a period of three years after transfer, registration and conveyance.

 

As consideration for the conveyance, we agreed to issue to Colonia and/or Mr. Milic and Mr. Kaplan 50,000 shares of our restricted common stock, plus 20% of PDA Services’ ownership.

 

7

 



In addition, on each anniversary date after the conveyance, we well issue to Colonia and/or Mr. Milic and Mr. Kaplan an additional 12,500 shares of our restricted common stock.

 

In tandem with the Intangible Property License Acquisition Agreement, the parties entered into an Exclusive Agreement Regarding Wholesale Drug Distribution License and Wholesale Drug Distribution Operations wherein the conveyance included the rights to the use of Colonia Natural Pharmacy Inc.’s office and warehouse facility approved for the storage and delivery of pharmaceuticals, and Colonia will have no role, and thus, no responsibility or liability, in the conduct of the “d/b/a” business, including ordering, distribution, or business management of the wholesale business conducted by us or our subsidiaries.

 

Medical Field Applications

 

Our medical technologies are grounded in the central need/desire to furnish the practicing physician with crucial point-of-care patient information rapidly and reliably via a PDA. The technologies utilize the power of the Internet to move large amounts of data to and from a variety of platforms securely via a powerful Windows CE based PDA designed for portability and upgradability. Compliant with the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and the regulations that have since been promulgated, this PDA technology offers real-time point of care applications.

 

Our software is designed to integrate point of service applications. The medical appliance, the longest available product, monitors treatment protocols and up to the moment patient histories coupled with real-time on-line medical insurance claims submission. Our ultimate key to success resides in providing the private practice physician with the capability to, sequentially, learn about the history of the patient during, or prior to, entering the examining room, treat the patient and update the insurer of the episode of care. Accomplishing these objectives resolves a major dilemma for the health care provider; instantaneous communication of vital patient related information at or before the patient encounter.

 

Medical field distribution methods

 

Since inception, we have and will continue to focus our marketing efforts towards general medical and pharmaceutical medical applications through our E-Health handheld information appliance (PDA) software application package, and a permanently affixed handheld information appliance and Wi-Fi (wireless) network. Specifically we have marketed our line of MD@Hand PDA-based medical communication network products to the medical insurance and pharmacy benefits management segments of the healthcare markets.

 

We have implemented a targeted marketing campaign to educate healthcare providers about our medical technology solutions; targeting the physician providers who specialize in care for the indigent through the provision of technology, products and services that specifically respond to the needs and requirements of that market. We market our suite of medical software products by emphasizing their simplicity, portability, convenience and ease of use. We have chosen this focus due in part that State Medicaid and state and local welfare service providers are agencies who do not typically participate in electronic services networks. This is primarily because care for the poor and indigent is logistically and financially burdensome due to a lack of resources at administrative levels. Put another way, there is usually no shortage of volunteer physicians but there is a shortage of program administrators, clinics, medical supplies and patient access. Additionally, we believe that a company that enters this loop to complete the link by providing utility and value to participants will be embraced. It is incumbent on us to therefore extend our marketing strategy to facilitate this reality.

 

8

 



Implicit to our medical marketing strategy is the contracting of state Medicaid and welfare programs, pharmacy benefit management entities, and medical case management entities within a targeted region that provides for system integration to our products and services. Once the network has been established our IT driven mail order pharmacy services will be distributed to those physicians included within the Medicaid or welfare agency Provider Network. We will rely on those contracted agencies to support and assist in the distribution of the product to the physicians

 

Medical field competition

 

The medical industry is highly competitive in the attraction and retention of physician customers, insurers, government agency payors/sponsors and other medical providers. The number of competing companies and the size of such companies vary in different geographic areas. Generally, we are in competition with other PDA technology companies that offer medically related software suites, with the most effective competition coming from companies that possess greater capital resources, have longer operating histories, larger customer bases, greater name recognition and significantly greater financial, marketing and other resources than do we.

 

There are a number of small and large companies that provide some type of IT services at the point of care tying physicians to the healthcare systems. There is substantial turnover and business failure in this industry as well as substantial consolidation:

 

 

1.

Large publicly traded companies:

 

a.

WebMD, formerly known as Healtheon (HLTH);

 

b.

The former MedicaLogic/Medscape (merged into HLTH);

 

c.

Cerner/Citation (CERN);

 

d.

IDX Corporation (IDXC) and

 

e.

Venerable Shared Medical Corp. (acquired by Seimens).

 

These companies, and others, are involved in healthcare based services including consumer services, E-commerce and connectivity

 

 

2.

PDA-based companies:

 

a.

PatientKeeper Corp’s. (formerly Virtmed) product allows physicians to capture billing information for hospital-based accounts and purports to manage receivable transactions (a mix of a 1st generation feature on a 3 rd generation technology);

 

b.

ePhysician, which less than three years ago was acquired in an asset sale by Ramp Corp. (RCO), recently filed for bankruptcy protection;

 

9

 



 

c.

iScribe, which less than two years ago was reorganized and then merged into AdvacePCS, has announced products that reside on 3-Com's Palm PC;

 

d.

AllScripts (MDRX) employs a "pull-through" business model whereby their technology is employed at the physician's point of care in an effort to provide medical utility and medical content to that physician, but with the greater goal of selling that physician bulk pharmaceuticals. MDRX appears to be positioned to advance to a market leadership position with a product distribution channel of approximately 5000 physicians' office sites (2% of the total market); and

 

e.

PocketScripts ("PS") is another market entrant that specializes in the electronic prescriptions. Zixcorp (ZIXI) acquired PS in 2003.

 

These companies, and others, offer products and services similar to ours: delivering PDA based data management to physicians.

 

There can be no assurance that we will be able to compete successfully against current and future competitors, and competitive pressures faced by us may have a material adverse effect on our business, prospects, financial condition and results of operations. Further, as a strategic response to changes in the competitive environment, management may from time to time make certain pricing, service or marketing decisions or acquisitions that could have a material adverse effect on our business, prospects, financial condition and results of operations.

 

Advancing the Practice of Medicine at the Point of Care

 

We are also a developer of products that offer unique solutions in medical care and management by providing physicians with essential information instantaneously as they meet with their patients.  Unlike other medical information systems using standard computer terminals, we use palm-sized computers (PDA's) that allow physicians to carry, access and update their patients' histories, medication data, and best care guidelines – all at the point of care – streamlining and revolutionizing the practice of medicine.

 

In addition, we market our MD@Hand™ software application, which also leverages the connectivity of handheld devices via the Internet. This first-in-class PDA software application offers the user access to job specific information (I.E. patient histories or databases), instant messaging, and prescription fulfillment for pharmacists. Our versatile, PDA-based software application is also used in other, information-intensive industries.  Our proprietary ResidenceWare™ is a similar collection of Internet-enhanced communication, integration, and networking tools developed for the real estate marketplace in cooperation with prominent commercial and residential real estate management companies.  Numerous sales professionals, lodging managers and hoteliers currently use the software to access such information as tenant histories and property databases, as well as for instant messaging directly with occupying tenants.

 

MD@Hand

 

Information supplied to and from the physician via the handheld device includes:

 

 

10

 



Case/Episode diagnosis and Treatment Information:

 

 

Episode by episode multiple diagnosis and physician chosen treatment pathways

 

Patient cumulative treatment (electronic medical record) histories, including hospitalizations and histories from patient encounters with other physicians

 

Eight levels best care medical protocols 

 

Tentacle links to the physician desktop reference (PDR) and prescription drug databases

 

Medical Order Entry and Fulfillment:

 

 

Full Pharmacy Benefits Management programs with electronic script writing with drug formulary and drug to drug interaction checks prior to script transmission 

 

Lab Order Entry with complete reporting including results, pending, ticklers, out of limits, historical, summary, etc.

 

Accident/Worker's Compensation intervention modules. In addition, instaCare software applications provide both on-line and off-line (fax) order entry.

 

Payor-Related Applications

 

 

Plan and Procedure Eligibility  

 

Procedure/Drug Authorization  

 

Patient Referral  

 

Hospitalization Admit Decision Tree and schema.

 

Benefit for Physicians

 

 

All access to medication and drug data, interaction databases and formulary information is provided free of charge to all participating physicians via the PDA through instaCare's network  

 

Lowers office costs by centralizing all formulary and prescription medicine data on one or multiple PDAs and by reducing paperwork and phone time  

 

Improves quality of care by providing timely information including Best Care Guidelines to help assure an excellent standard of care   

 

Improves office workflow by providing a compendium of prescription, lab results, referable physicians  

 

Reduces time pulling and refilling charts reduces errors by offering immediate access to drug data, current formulary tables, lab results and Best Care Guidelines

 

Benefit For Health Plans

 

 

High degree of formulary compliance  

 

Expedites claims and Improves outcomes 

 

Helps in creating excellent standard for quality healthcare for all patients  

 

Reduces cost of operations in many ways (i.e: cutting down paperwork and phone support)  

 

11

 



 

Reduces errors

 

Assures correct utilization of resources

 

How Does it Work

 


The following diagram shows how the PDA's communicate with remote host systems:

 

Real Estate and Hotel/Motel

 

In February 2003, we introduced ResidenceWare, a collection of Internet-enhanced communication, integration, and networking software systems and applications that reside on and function through a Windows CE-based PDA. ResidenceWare was developed to service the need for a communication tool that could capitalize on recent technological advances

 

12

 



to facilitate the relay of vital information directly and instantaneously to occupying tenants/guests. The systems were further augmented with the addition of advertising and e-commerce transactional features allowing merchants and service providers local to a ResidenceWare installation to electronically advertise and accept electronic orders for their products and services designed to benefit the tenants or guests as well as provide a potential alternate revenue stream for the commercial and residential real estate management companies, and hotel owners

 

Our technologies and products for the hotel/motel marketplace are designed to furnish hotel and motel guests with a menu of food service, office services and other remote service (dry cleaning for instance) choices that can be electronically ordered through our PDA-based information appliance for delivery directly to the hotel/motel guest. Employing commercially available Wi-Fi technology, we wrapped the time and volume tested commercial technologies into our patent pending PDA communication networking technologies, allowing us to offer complex and real-time point of sale applications through a totally wireless (PDA) appliance.

 

Real estate and hotel/motel distribution methods

 

Historically, hotels and motels have adopted specific technology that enhances the utility of either the in-room telephone(s) or the in-room cable linked television. Thus, most of the innovations in hotels and motels have leveraged devices where innovation is waning. The electronics in telephones and telephone systems are limited and, and the television's design tends to limit its utility to one-way communication directed at the person watching. Even add-on devices such as satellite boxes for televisions and streaming LCDs for telephones add only limited functionality. The person operating the telephone or television must do something away from that device should something of interest catch their eye. Thus local merchants who may opt to advertise their products and services via closed circuit television or a streaming LCD on a telephone hope that the person watching will remember their message and visit their establishment or call for service.

 

Since mid-2003, we began focusing acutely on the marketing of our applications to the lodging sector through our ResidenceWare hotel/motel products and technologies. We also changed our products to reflect regional differences in the lodging sector, and by creating brochures and marketing materials.

 

Our products for hotels and motels are two-way devices. Local merchants who opt to advertise via our wireless networks through the use of our wireless ResidenceWare devices are assured that if the person viewing the advertisements sees something of interest, commerce can immediately be initiated at the device.

 

Our hotel/motel marketing strategy targets hotel/motel owners through the provision of technology and services that specifically respond to their needs and requirements. We have designed products to furnish hotel and motel guests with a menu of food service, office services and other remote services that include those features that specifically respond to the requirements of the hotel/motel owner. We believe that the combination of unique and responsive benefits derived from our system coupled with its simplicity, portability, convenience and ease of use will initiate and propel its implementation throughout the industry.

 

13

 



We concentrate each of our marketing efforts in specific target geographic locations that permit the completion of our density strategy crucial to sustained penetration and long-term success. The creation of such networks will be conducted in multiple geographic locations simultaneously. Upon their completion the process employed will be introduced and replicated in other locations targeted for access. We believe that the products we market to hotels and motels are unique.

 

In July 2003, we entered into an informal agreement with PCHertz.com, Inc. of Fargo, ND for the sales and installation of our ResidenceWare networks and guest units. Under this informal agreement, which can be terminated by either party at any time, we pay PCHertz.com, Inc. of Fargo, ND $1,000 per month for installations at end-user sites (i.e. the hotel, motel) and for the training of hotel/motel staff (property manager or appropriate property staff) on our installed product. PCHertz.com is not paid referral or sales fees on sales made of our ResidenceWare products. They are, however, authorized to negotiate directly with the property’s representative for a percentage of up to twenty percent (20%) of the fees generated by our products after installation that accrue to the property manager/owner. These fees are paid or shared between PCHertz.com and the individual properties. To date, PCHertz.com, Inc. has forwarded orders for approximately 3,150 units of our ResidenceWare product from hotels and motels across the United States. We reserve the right to accept or reject these orders based on industry standard criteria such as the credit rating and past payments history of the individual properties. Through the contacts and efforts of PCHertz.com, Inc. we have to date placed 1,319 of these units in hotels. An additional 744 units are in the process of installation.

 

PCHertz.com provides after-sales support and marketing in those regions where we have installed our ResidenceWare networks and guest units. The relationship with PCHertz is advantageous for the company because PCHertz is primarily in the business of providing wireless environments and hotspots to hotels and motels. Our products are one of several PCHertz represents. When a lead is received from PCHertz we are responsible for the closing of the sale, and the eventual billing and customer support.

 

In the summer of 2003, we began discussions for a possible acquisition of MDU Services, Inc. (MDU), a Texas based company that was in several businesses, but of particular interest was MDU's business of providing kiosk-style access to the Internet at hotels and apartment buildings. Envisioning a more robust line of Internet connectivity products for the lodging and apartment management marketplaces, we made an initial offer to acquire MDU in the late fall of 2003. This acquisition has never progressed past the Due Diligence phase, even after we revised our offer in February 2004. Given the time that has passed and the lack of materials provided by MDU for our review, it is questionable whether this acquisition will close, although there are no penalties associated with a delayed closure. We remain interested in MDU's businesses.

 

 

 

14

 



Real estate and hotel/motel competition

 

We have yet to experience any substantial competition for our ResidenceWare products in the motel and apartment market segments, although we expect as this market niche expands we will see products from other software device companies adapt their product lines to enter into this marketplace.

 

With the increasing use of internet connections in hotels cable companies, Wi-Fi connectivity providers, and kiosks will continue to be our strongest form of competition within this market segment.

 

SateLink

 

The development SateLink launched us into an industry previously unexplored by us. Its creation, however, is wholly consistent with our corporate mission of introducing innovative technologies that resolve electronic communication barriers within multiple and diverse markets. We remain in discussions about potential sale or license of our SateLink product. Although we are optimistic, we have yet to sell any license agreement or have any service order placed for SateLink.

 

SateLink is our palm computer based product system designed to facilitate wireless process control, calibration, key coding and communications within the cable and media re-broadcast industries. SateLink seeks to resolve electronic communication barriers that inhibit customer communications and service and furnishes controls over the delivery of their products.

 

SateLink is a collection of communication, integration, and networking software systems that reside on a Windows CE-based PDA that communicates via Wi-Fi wired or satellite network connections. We believe SateLink will capitalize on recent innovations with PDA-sized GPS receivers to consolidate one or multiple GPS channels into a Wi-Fi network to empower real-time satellite communications between a sponsoring corporation and virtual PDA's.

 

Source of Principal Suppliers

 

Our suite of software-both medical and real estate and hotel/motel related- is proprietary code and does not require raw materials or principal suppliers. Our software is utilized through over-the-counter PDA's and computer products, as previously discussed. However, our ResidenceWare product is manufactured by third parities. Of the units placed, approximately one half (1/2) are units manufactured and/or distributed by companies such as ASUS, Casio and Viewsonic. The remaining units were manufactured by Dell Computer, Inc. (Dell). Since October 1, 2004, all units placed have been Dell units. However, since we are now in the process of installing units at hotels that were referrals from existing customers we have recently placed an order for additional ASUS units. We do not foresee any additional change or additions of in PDA manufacturers in the near future.

 

 

 

15

 



Dependence on a Few Major Customers

 

Beginning with the first quarter 2005 we generated revenues primarily through our medical and retail pharmaceutical distributions from two companies: Purity Wholesale Grocers, Inc. (46.65%) and Novex International (44.35%). We still maintain relationships with these resellers but have also added additional customers and books of business with institutional care clients whereby we sell product and then receive revenues form the direct filing of reimbursement claims with medical insurance companies. In the future we expect the majority of the growth in our business to come as a direct result of our direct to patient distribution.

 

Government Approval and Effect on Us

 

Medical applications

 

Recent government and industry legislation and rulemaking, especially the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), and industry groups such as the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO"), require the use of standard transactions, standard identifiers, security and other standards and requirements for the transmission of certain electronic health information. New national standards and procedures under HIPAA include the "Standards for Electronic Transactions and Code Sets" (the "Transaction Standards"); the "Security Standards" (the "Security Standards"); and "Standards for Privacy of Individually Identifiable Health Information" (the "Privacy Standards"). The Transaction Standards require the use of specified data coding, formatting and content in all specified "Health Care Transactions" conducted electronically.  However, because all HIPAA Standards are subject to change or interpretation and because certain other HIPAA Standards, not discussed above, are not yet published, we cannot predict the future impact of HIPAA on our business and operations. Additionally, certain state laws are not pre-empted by the HIPAA Standards and may impose independent obligations upon our customers or us.

 

Failure to comply with HIPAA, as well as other government organizations, may have a material adverse effect on our business. Government regulation of healthcare and healthcare information technology, are in a period of ongoing change and uncertainty and creates risks and challenges with respect to our compliance efforts and our business strategies. The healthcare industry is highly regulated and is subject to changing political, regulatory and other influences. Federal and state legislatures and agencies periodically consider programs to reform or revise the United States healthcare system. These programs may contain proposals to increase governmental involvement in healthcare or otherwise change the environment in which healthcare industry participants operate. Particularly, compliance with HIPAA and related regulations are causing the healthcare industry to incur substantial cost to change its procedures. Healthcare industry participants may respond by reducing their investments or postponing investment decisions, including investments in our products and services. Although we expect these regulations to have the beneficial effect of spurring adoption of our software products, we cannot predict with any certainty what impact, if any, these and future healthcare reforms might have on our business. Existing laws and regulations also could create liability, cause us to incur additional cost or restrict our operations.

 

Specific risks include, but are not limited to, risks relating to:

 

16

 



Electronic Prescribing : The use of our software by physicians to perform a variety of functions, including electronic prescribing, electronic routing of prescriptions to pharmacies and dispensing, is governed by state and federal law. States have differing prescription format requirements, which we have programmed into our software. Many existing laws and regulations, when enacted, did not anticipate methods of e-commerce now being developed. While federal law and the laws of many states permit the electronic transmission of prescription orders, the laws of several states neither specifically permit nor specifically prohibit the practice. Given the rapid growth of electronic transactions in healthcare, and particularly the growth of the Internet, we expect the remaining states to directly address these areas with regulation in the near future. It is possible that aspects of our MD@Hand software tools could become subject to government regulation. Compliance with these regulations could be burdensome, time-consuming and expensive. We also could become subject to future legislation and regulations concerning the development and marketing of healthcare software systems. These could increase the cost and time necessary to market new services and could affect us in other respects not presently foreseeable. We cannot predict the effect of possible future legislation and regulation; and,

 

Medical Devices: The United States Food and Drug Administration (the "FDA") has promulgated a draft policy for the regulation of computer software products as medical devices under the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic Act. To the extent that computer software is a medical device under the policy, we, as a manufacturer of such products, could be required, depending on the product, to:

 

 

register and list our products with the FDA;

 

notify the FDA and demonstrate substantial equivalence to other products on the market before marketing such products; or

 

obtain FDA approval by demonstrating safety and effectiveness before marketing a product.

 

Depending on the intended use of a device, the FDA could require us to obtain extensive data from clinical studies to demonstrate safety or effectiveness, or substantial equivalence. If the FDA requires this data, we would be required to obtain approval of an investigational device exemption before undertaking clinical trials. Clinical trials can take extended periods of time to complete. We cannot provide assurances that the FDA will approve or clear a device after the completion of such trials. In addition, these products would be subject to the Federal Food, Drug and Cosmetic Act's general controls, including those relating to good manufacturing practices and adverse experience reporting. Although it is not possible to anticipate the final form of the FDA's policy with regard to computer software, we expect that the FDA is likely to become increasingly active in regulating computer software intended for use in healthcare settings.

 

Anti-Kickback Regulation : As a distributor of prescription drugs along the distribution chain that ultimately supply physicians, we are subject to the federal anti-kickback statute, which applies to Medicare, Medicaid and other state and federal programs. The statute prohibits the solicitation, offer, payment or receipt of remuneration in return for referrals or the purchase, or in return for recommending or arranging for the referral or purchase, of goods, including drugs, covered by the programs.

 

17

 



Licensure and Prescription Drug Distribution : As a distributor of drugs, we are subject to regulation by and licensure with the Food and Drug Administration (FDA), the Drug Enforcement Agency (DEA) and various state agencies that regulate wholesalers or distributors. We are subject to periodic inspections of our facilities by regulatory authorities, and adherence to policies and procedures for compliance with applicable legal requirements.

 

Currently, we do not bear any costs or any effects regarding compliance with environmental laws (federal, state, and local).

 

Seasonality

 

Although we have only operated our prescription drug and diabetes diagnostics business for a period just over a year, our first year experiences point to a business that displays certain seasonal trends. We believe that sales will be concentrated in the first and fourth fiscal quarters. One explanation is that these periods correspond with the beginning of a prescription drug plan year where new prescription drug cards are distributed by insurers to their insureds in January along with new plan formularies (price schedules), and the end of a prescription drug plan year where formulary reimbursement for the upcoming year is not yet known, and which in turn trends to influence “stocking up” buying/ordering behavior.

 

Research and Development Expenditures

 

We acquired much of our software technology and intellectual properties as a result of our merger with Medicius, Inc. in 2002, and have expensed all of the on-going development of those technologies and properties. Additional software research and development has subsequently occurred as part of our development of our ResidenceWare software systems. From inception through December 31, 2005, our software research and development cost was $309,611.

 

Personnel

 

We currently employ 14 employees, of which 8 are full time employees and 1 sales representative. No full time employees are covered by labor agreements or employment contracts. We do not expect a significant change in the number of full time employees over the next 12 months.

Consultants

 

Steven Bayern. On January 16, 2005, we entered into a business advisory and consulting services agreement with Steven Bayern, wherein he agreed to source, develop, structure, negotiate, advise and execute upon appropriate joint ventures, strategic alliances, license agreements or partnership agreements relating to our prescription drug distribution business or the like, and the expansion thereof. The term of the agreement was for 120 days from January 16, 2005 expiring on May 31, 2005. We agreed to compensate Mr. Bayern 62,500 shares of our common stock. On February 2, 2005, we issued Mr. Bayern 31,250 shares of our common stock. We subsequently terminated our agreement with Mr. Bayern and no additional compensation was paid.

 

18

 



Pylon Management, Inc. On February 1, 2005, we entered into a consulting agreement with Pylon Management, Inc., wherein Pylon agreed to provide us with acquisition and financial consultative services, performed on a best efforts basis that included assistance in mergers, acquisitions and internal capital structuring, as well as developing and acquisition strategy and criteria. The term of the agreement began on February 1, 2005 and was to terminate on December 31, 2005. In exchange for the services in the agreement we agreed to compensate Pylon with 25,000 stock options under our 2005 Employee Stock Option Plan and an additional 18,750 stock options under the 2005 Employee Stock Option Plan each month through the term of the agreement. We granted 43,750 stock options to Pylon through May 31, 2005. On June 14, 2005 we issued 28,125 shares of our common stock to Pylon in exchange for the 43,750 stock options. On June 14, 2005, we granted 31,250 new stock options to Jeffrey Raymond, President of Pylon and terminated the agreement. Upon termination of the agreement no additional options were granted to Pylon.

 

Victor Pallante: On February 10, 2005, we executed a consulting agreement with Victor Pallante, wherein Mr. Pallante agreed to assist us in financial advisory, strategic business planning, and investor and public relations services designed to make the investing public knowledgeable about the benefits of stock ownership in the Company. The term of the agreement began on February 10, 2005 and was to terminate on August 10, 2005. In consideration for the services provided we agreed to pay Mr. Pallante $50,000 and we agreed to issue 62,500 shares of our common stock to him. On May 4, 2005, we issued 25,000 shares of our common stock and on April 5, 2005, we issued 12,500 shares of our common stock to Mr. Pallante. On June 1, 2005, the agreement was placed in suspense pending an agreed upon resumption date. This agreement remains in suspense.

 

Svetislav Milic. On June 1, 2005, we entered into a personal services agreement with Svetislav Milic, wherein Mr. Milic agreed to provide us with services in the area of pharmaceutical distribution, both wholesale and retail, and pharmaceutical marketing consulting. The term of the agreement began on June 15, 2005 and will continue until June 14, 2006. We agreed to pay Mr. Milic compensation at a rate of $50.00 per hour worked to a maximum of $4,000 per month. Additionally, we agreed to grant Mr. Milic 12,500 options for the first two quarters under the agreement.

 

Lippert/Heilshorn & Associates, Inc. Effective July 1, 2005, we entered into a letter agreement with Lippert/Heilshorn & Associates, Inc. (“LHA”), wherein LHA agreed to provide us with services for implementation of our financial communications program. The term of the agreement began on July 1, 2005 and terminated on December 31, 2005. Pursuant to the agreement we agreed to pay LHA monthly installments as follows: a) July 1, 2005 through December 31, 2005: $15,000 per month, $10,000 cash and $5,000 in shares of common stock. b) Initial $20,000 payment to cover the first two months of the contract. On August 8, 2005, we issued 12,626 shares of our common stock to LHA as payment in lieu of cash for July and August. On January 12, 2006, we issued 23,125 shares of our common stock to LHA as payment in lieu of cash for October, November and December. All compensation called for under this agreement has been paid.

 

 

19

 



Diamond Hills Associates. On August 1, 2005, we entered into a consulting agreement with Diamond Hills Associates, wherein Diamond Hills agreed to provide us with healthcare business and medical IT consulting, plus medical pharmaceutical licensing, programs and entity acquisition planning and introductions consulting. Diamond Hills contracted to devote at least twenty hours of professional time and attention to the Company per week, to use its best efforts to advance the business and welfare of the Company. The term of the agreement began on August 1, 2005 and will continue until December 31, 2006. We agreed to compensate Diamond Hills a consultancy fee of $3,000 per month, payable in installments twice per month.

 

Anthony Quintiliana. On October 1, 2005, we entered into a consulting agreement with Mr. Anthony Quintiliana, wherein Mr. Quinitiliana agreed to provide us with assistance to increase corporate awareness within the hotel, motel and lodging industry. The term of the agreement began on October 1, 2005 and terminated on December 31, 2005. We agreed to pay Mr. Quintiliana a consulting fee of $72,500. In lieu of cash payment, the parties agreed that the monies due to Mr. Quintiliana will be applied to the exercise of an option granted to him pursuant to a stock option agreement to purchase 109,375 shares of our common stock. On October 3, 2005, the 109,375 shares were issued to Mr. Quintiliana.

 

Barbara Asbell. On October 1, 2005, we entered into a consulting agreement with Ms. Barbara Asbell, wherein Ms. Asbell agreed to provide us with assistance to increase corporate awareness within the medical industry. The term of the agreement began on October 1, 2005 and terminated on December 31, 2005. We agreed to pay Ms. Asbell a consulting fee of $70,000. In lieu of cash payment, the parties agreed that the monies due to Ms. Asbell will be applied to the exercise of an option granted to her pursuant to a stock option agreement to purchase 106,250 shares of our common. On October 1, 2005, Ms. Asbell exercised the 106,250 options and on October 3, 2005 the 106,250 shares were issued.

 

Michelle-Thais Abraham. On November 1, 2005, we entered into a consulting agreement with Ms. Abraham, wherein Ms. Abraham agreed to provide us with general pharmaceutical consulting, and sales and marketing consulting. The term of the agreement began on November 1, 2005 and terminated on December 31, 2005. We granted 43,750 options to purchase our common stock at $0.88 per share to Ms. Abraham as compensation. On November 17, 2005, the 43,750 shares were issued to Ms. Abraham.

Dr. Joseph Wolf. On November 15, 2005, we entered into a consulting agreement with Dr. Joseph Wolf, wherein Dr. Wolf agreed to provide us with medical information technology consulting relating to our retail pharmacy market. The term of the agreement began on November 15, 2005 and terminated on January 31, 2006. We granted 93,750 options to purchase our common stock at $0.80 per share to Dr. Wolf as compensation. On November 17, 2005, the 93,750 shares were issued to Mr. Wolf.

 

Leslie-Michelle Abraham (Wolf). On November 15, 2005, we entered into a consulting agreement with Leslie-Michelle Abraham (Wolf), wherein Ms. Abraham agreed to provide us with medical information technology consulting relating to our retail pharmacy market. The term of the agreement began on November 15, 2005 and terminated on January 31, 2006. We granted 93,750 options to purchase our common stock at $0.80 per share to Ms. Abraham as compensation. On November 17, 2005, the 93,750 shares were issued to Ms. Abraham.

 

20

 



Punchbuggy Inc. On December 1, 2005, we entered into a consulting agreement with Punchbuggy, Inc and its designee, Scott Alix, wherein Punchbuggy/Alix agreed to provide us with worker’s compensation technology consulting and sales marketing consulting. The term of the agreement began on December 1, 2005 and terminated on January 7, 2006. We agreed to compensate Punchbuggy/Alix with 37,500 options to purchase our common stock at $0.72 per share. In consideration for the above, Mr. Alix agreed to rescind 32,894 shares he owned of our common stock and we agreed to allow Mr. Alix to exercise the 37,500 options as full payment for the services. The 37,500 shares were issued to Mr. Alix on January 31, 2006.

 

Sales Representative Agreement

 

On October 1, 2005, we entered into a sales representative agreement with E. Richard Milde, wherein Mr. Milde agreed to solicit orders for our products. We agreed to compensate Mr. Milde based on a draw against commission. The commission will be computed as follows: (a) 5% of net invoiced sales; (b) draw against commission will be paid bi-monthly at a rate of $750 per payment; and (c) social security will be withheld from said draw against commission. The commission will apply to all orders solicited by Mr. Milde or an agent of Mr. Milde and for which shipment has occurred. The term of the agreement began on October 1, 2005 and was to continue until March 31, 2006. This agreement was terminated on February 6, 2006.

 

Patents, Proprietary Rights and Licenses

 

In February 2001, a broad based patent application was filed covering the methods and apparatus of our software technology and the integration of our software technology into commercial computer networks and commercial personal digital assistant (PDA) devices. In May 2001, the inventors of the technology, methods and apparatus covered by the patent application sold the technology and assigned the intellectual property rights to Medicius, Inc. In July 2002, we prepared an additional derivative patent application that added additional patent claims to our claim portfolio. It was our intent to file derivative patent applications as needed covering the processes, use and functionality of our technologies and products as we further developed our methods and processes.

 

Through our merger with Medicius, Inc. in 2002 we gained assignment of proprietary systems covered by a portfolio of pending utility patent applications that make claim to methods and systems for managing medical patient-specific information and concurrently implementing fulfillment of this information by multiple health-services related providers for medically-related services for use over a computer network. The proprietary systems allow for patient information to be gathered from multiple authorized sources and then this information is provided at the point-of-care, and coordinated and compared with prescription formulary compliance, medical services providers and their payors, and multiple-rules based treatment plans provided by various sources (content). Patient case and episode information and care management, in coordination with the implementation of substantially paperless ordering and fulfillment of lab tests, prescriptions and referrals, is made available to attending health care professionals and support personnel via networked computer systems and PDA systems running our proprietary software methods. The inventive system includes, in seamless essentially real-time communication over

 

21

 



the Internet, a network of fully secure private sub-networks among the participants in the system, anchored by a PC as the client-server link to the Internet, with each of a plurality of PDA’s either docked to it or connected by commercially available wireless communications protocols. A suite of software applications, including medical, communications and database applications are resident on each PDA, and communications modules resident in the system automatically link to the PC via an available ISP to update those databases by a novel packet transmission method to maintain confidentiality of the transmitted information. Data is transferred by wireless link, such as radio frequency links among and between servers and PDA’s used in connection with the system.

 

The original patent application, Patent Application 09776544, Information Management and Communications System and Method, Attorney Docket 0444.002, consisting of forty-eight separate claims was filed on February 2, 2001. This application encompassed the method, system and apparatus of the invention described above. In July 2002, we completed a derivative application that added seventeen additional claims to the application. These claims specifically augmented the original methods and apparatus to include methods surrounding a proprietary use of what is commonly known as Wi-Fi to transmit the packet data and databases described above.

 

During a follow-up with the USPTO, our CFO and the Inventor of the above described methods and processes was informed by a representative of the USPTO that Patent Application 09776544 had been abandoned due to a non-timely filing of a fee and response by patent counsel. Unable to discuss these issues with counsel due to his lingering illness, the Inventor has subsequently petitioned the USPTO to re-activate the application. We intend to engage new patent counsel to prosecute the applications.

 

In July 2002, we began application and received provisional approval for a family of trademarks making use of the mark MD@. The provisional approval applied to the first six individual marks applied for by us. At that time management was unsure whether to pursue these applications given the changes to our business focus. In early 2003, we abandoned these marks given our changed business focus.

 

 

ITEM 2.

DESCRIPTION OF PROPERTY

 

We currently maintain an executive office at 2660 Townsgate Road, Suite 300, Westlake Village, CA 91361. The space consists of approximately 2,300 square feet. The monthly rental for the space is $3,750 on a month to month lease basis. We also maintain an office for Mr. Robert Cox, CEO of the Company, on a month to month basis in Melville, NY. We pay rent of $1,565.00 per month for this facility.

 

On June 7, 2005, we entered into an agreement for the right to use office, warehouse and shipping facilities for the storage and shipping of pharmaceuticals located at 515 Inman Avenue, Colonia, NJ 07067 for a monthly rental fee of $1,500.

 

 

22

 



We are currently in negotiations to lease a 2,200 square foot store front at $1,750 per month in Phoenix, Arizona to use as our fulfillment center.

 

ITEM 3.

LEGAL PROCEEDINGS

 

Ronald Kelly and Kelly Company World Group

 

Ronald Kelly was the President and CEO of CareGeneration, which was merged with Pharma Tech Solutions, a subsidiary instaCare, in February 2005.  As a result of the merger, Ronald Kelly was appointed to the Board of Directors of instaCare.  Mr. Kelly was removed from the Board of Directors for cause on June 2, 2005 and approximately 6 days later we received Mr. Kelly’s resignation without explanation.   As a further result of the events that led to the removal of Mr. Kelly, we have brought a lawsuit against Mr. Kelly and Kelly Company World Group, Inc. et al.

 

On July 6, 2005, instaCare filed a complaint in the United States District Court, for the Central District of California (Case Number CV 05-4932-RSWL), against Ronald Kelly, Kelly Company World Group, Inc. et al., seeking damages for:

 

1. Fraud;

2. Declaratory Relief;

3. Breach of Fiduciary Duty;

4. RICO violations;

5. Injunctive Relief;

6. Conversion;

7. Breach of Contract/Breach of Corporate Merger Agreement; and

8. Accounting and Ancillary Relief.

 

Mr. Kelly has filed his answer to this complaint and this action has progressed to the discovery stage.

 

 

Investor Relations Services

 

On August 9, 2005, we filed suit against Investor Relations Services, Inc., a Florida corporation; Summit Trading Limited, a foreign corporation incorporated under the laws of the Bahamas; Charles Arnold (“Arnold”), an individual, and Does 1 through 20 inclusive. This suit seeks judgment for Declaratory Relief; and recession for the alleged agreements between instaCare and the defendants. In addition, the complaint seeks damages for Intentional Interference with an Advantageous Business Relationship as a result of actions taken by the defendants. This case is filed in the Los Angeles Superior Court, and bears case number BC337976. Subsequently, counsel for the defendants filed a Motion to remand the suit to an arbitrator. The trial judge in this matter denied this motion. In December 2005 defendant Arnold filed a Motion for Reconsideration and a cross complaint against instaCare and its Secretary and CFO Keith Berman. In January 2006 Arnold’s Motion for Reconsideration was denied. This action is now progressing through the discovery stage.

 

23

 



Neither our subsidiaries nor the Company are named defendants in any legal proceedings except for the actions described above.

 

In April 2004 we entered into an agreement with DataFuzion, Inc. ("Fuzion"), a Colorado based medical software and medical systems company. Among other things, this agreement called for us to provide a license to DataFuzion which would authorize DataFuzion to utilize certain proprietary software systems, in addition to providing introduction to experts, agents and consulting service organizations that were capable of assisting Fuzion's stated desire to become a fully reporting public company. The agreement called for Fuzion to render 10% of its capital stock as consideration. As a portion of its consideration, we also agreed to advance certain monies to Fuzion's chosen experts for these services. We completed the introductions and advanced the funds called for under the agreement. In December 2004, after several attempts to compel Fuzion to render the shares called for under the agreement, we discovered that Fuzion was in fact holding merger discussions with Omni Medical Holdings Inc., a South Dakota based company. On March 1, 2005, we received notice that this merger had been completed. On March 8, 2005, we made claim for the shares called for under the agreement through written correspondence to both DataFuzion, Inc. and Omni Medical Holdings Inc. We have not yet resolved our claims against DataFuzion, Inc. or its successor.

 

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

No matters were submitted to the vote of security holders during the fourth quarter of the fiscal year ended December 31, 2005.

 

PART II

 

ITEM 5.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

(a) Market Information

 

Our common stock is quoted under the symbol “ISCR” on the OTC Bulletin Board which is sponsored by the National Association of Securities Dealers (NASD). The OTC Bulletin Board is a network of security dealers who buy and sell stock. The dealers are connected by a computer network which provides information on current “bids” and “asks” as well as volume information. The OTC Bulletin Board is not considered a “national exchange.” Our common shares commenced trading on the OTC Bulletin Board on February 4, 2002. The following table sets forth the quarterly high and low bid prices for our common stock during our last two fiscal years as reported by the National Quotations Bureau. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

 

24

 



 

2005

2004

 

High

Low

High

Low

1 st Quarter

2.16

1.04

9.52

2.24

2 nd Quarter

1.98

0.60

6.64

1.84

3 rd Quarter

6.96

0.48

4.56

1.52

4 th Quarter

1.45

0.56

2.40

1.20

 

* On February 3, 2006, the Company enacted a 80:1 reverse stock split on all the Company’s issued and outstanding shares of common stock as of February 3, 2006. In connection with the reverse stock split, our OTC:BB symbol changed from “INCA” to “ISCR”. The prices stated above have been retroactively restated to reflect the reverse split.

 

(b) Holders of Common Stock

 

As of March 31, 2006, we had approximately 412 stockholders of record of the 7,304,200 shares outstanding. Our closing stock price on March 31, 2006 was $0.42.

 

(c) Dividends

 

The Board of Directors did not declare any dividends in the last two fiscal years or any subsequent period due to the following reasons:

 

 

1.

The Company has not yet adopted a policy regarding payment of dividends;

 

2.

The Company does not have any money to pay dividends at this time;

 

3.

The declaration of a cash dividend would result in an impairment of future working capital; and

 

4.

The Board of Directors will not approve the issuance of a stock dividend.

 

(d) Securities Authorized for Issuance under Equity Compensation Plans

 

2003 Stock Option Plan

 

Effective January 1, 2003, we adopted the 2003 Stock Option Plan. The maximum number of shares that may be issued pursuant to the plan is 312,500 shares. As of December 31, 2005, 246,875 shares have been granted under this plan.

2004 Stock Option Plan

 

Effective April 21, 2004, we adopted the 2004 Stock Option Plan, as amended, with a maximum number of 1,562,500 shares that may be issued. As of December 31, 2005, 668,750 shares have been granted under this plan.

 

2005 Merger Consolidated Stock Option Plan

 

Effective February 5, 2005, we adopted the 2005 Merger Consolidated Stock Option Plan. The maximum number of shares that may be issued pursuant to the plan is 1,125,000 shares. As of December 31, 2005, 862,500 shares have been granted under this plan.

 

25

 



All of our Stock Option Plans are intended to encourage directors, officers, employees and consultants to acquire ownership of common stock. The opportunity so provided is intended to foster in participants a strong incentive to put forth maximum effort for our continued success and growth, to aid in retaining individuals who put forth such efforts, and to assist in attracting the best available individuals to the Company in the future. As of December 31, 2005, 1,221,875 options remain available for issuance.

 

Officers (including officers who are members of the board of directors), directors (other than members of the stock option committee to be established to administer the stock option plans) and other employees and consultants and its subsidiaries (if established) will be eligible to receive options under the stock option plans. The committee will administer the stock option plans and will determine those persons to whom options will be granted, the number of options to be granted, the provisions applicable to each grant and the time periods during which the options may be exercised. No options may be granted more than ten years after the date of the adoption of the stock option plans.

 

Non-qualified stock options will be granted by the committee with an option price equal to the fair market value of the shares of common stock to which the non-qualified stock option relates on the date of grant. The committee may, in its discretion, determine to price the non-qualified option at a different price. In no event may the option price with respect to an incentive stock option granted under the stock option plans be less than the fair market value of such common stock to which the incentive stock option relates on the date the incentive stock option is granted.

 

Each option granted under the stock option plans will be exercisable for a term of not more than ten years after the date of grant. Certain other restrictions will apply in connection with the plans when some awards may be exercised. In the event of a change of control (as defined in the stock option plans), the date on which all options outstanding under the stock option plans may first be exercised will be accelerated. Generally, all options terminate 90 days after a change of control.

 

The following table sets forth information as of December 31, 2005 regarding outstanding options granted under the plans, warrants issued to consultants and options reserved for future grant under the plan.

 

Plan Category

 

Number

of shares to be issued upon exercise of outstanding options, warrants and rights

(a)

 

Weighted-average exercise price of outstanding options, warrants and rights

(b)

 

Number of shares remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a))

(c)

 

 

 

 

 

 

 

Equity compensation plans approved by stockholders

 

 

--

 

 

$--

 

--

 

 

 

 

 

 

 

 

 

26

 



Equity compensation plans not approved by stockholders

 

 

1,272,152

 

 

$2.31

 

1,221,875

 

 

 

 

 

 

 

Total

 

1,272,152

 

$2.31

 

1,221,875

 

 

 

 

 

 

 

 

(1)

Includes 65,625 options remaining for issuance under the 2003 Option Plan, 893,750 options remaining for issuance under the 2004 Option Plan, and 262,500 options remaining for issuance under the 2005 Option Plan.

 

Recent Sales of Unregistered Securities

 

During the fourth quarter of 2005 we issued options to purchase shares of common stock to various consultants under our 2004 Stock Option Plan, as amended. The following shares issued were registered in a Registration Statement on Form S-8POS filed on September 26, 2005.

 

Person Issued to

Date of Issuance

Number

of Shares*

Barbara Asbell, consultant

October 3, 2005

106,250

Anthony Quintiliana, consultant

October 3, 2005

109,375

Dr. Joseph Wolf, consultant

November 17, 2005

93,750

Leslie-Michelle Abraham Wolf, consultant

November 17, 2005

93,750

Michelle-Thais Abraham, consultant

November 17, 2005

43,750

Shabnam Shahrabi, employee

November 17, 2005

3,750

Dale Richter, employee

November 17, 2005

3,750

Alan Binder, employee

November 17, 2005

3,750

Tom Poff, employee

November 17, 2005

3,750

Frank Schwenden, employee

November 17, 2005

2,500

Salena Midden, employee

November 17, 2005

1,250

Don Varney, consultant

November 18, 2005

6,875

 

 

 

* All of the shares referenced in the table have been retroactively restated to reflect the 80:1 reverse split enacted by the Company effective February 3, 2006.

 

On October 31, 2005, we agreed to issue Dr. Joel Brill 25,000 shares of our unrestricted common stock and 25,000 stock options to purchase shares of our common stock at $0.64 per share as a signing bonus for serving as a Director of the Company. As of the date of this filing the shares have not been issued. We believe that the grant of options and issuance of the shares was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).

 

On November 18, 2005, we issued 400,000 shares of our common stock to Pinnacle Investment Partners LP pursuant to the Note Extension Agreement dated October 24, 2005. 337,500 of the shares were issued to escrow pursuant to the escrow clauses in the note extension and the remaining 62,500 shares were issued as consideration for extending the note. We believe that the issuance of the shares was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).

 

27

 



On November 18, 2005, we issued 25,000 shares of our common stock to CJR Capital, LLC for due diligence related to the Note Extension Agreement. We believe that the issuance of the shares was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).

 

Subsequent Issuances

 

On December 26, 2005, our board of directors approved a 1 for 80 reverse stock split. Prior to the board of directors approval, the board of directors obtained required approval of a majority of out stockholders (52% of the total number of shares issued) to effectuate the reverse stock split. On February 3, 2006, we had 583,981,014 shares outstanding and after the reverse split, there were approximately 7,299,763 shares outstanding.

 

On January 12, 2006, we issued 23,125 shares of our common stock to Lippert Heilshorn & Associates as payment for the months of October, November and December 2005 pursuant to its consulting agreement dated July 1, 2005. We believe that the issuance of the shares was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).

 

On January 12, 2006, we issued 40,625 shares of our common stock to Dorsey Tague III for services rendered to the Company relating to the acquisition of CareGeneration, Inc. We believe that the issuance of the shares was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).

 

On January 31, 2006, Scott Alix of Punchbuggy, Inc. rescinded 32,895 shares of our common stock to exercise the 37,500 options we granted to him pursuant to the consulting agreement with Punchbuggy, Inc. and Scott Alix dated December 1, 2005. The 37,500 shares were issued on January 31, 2006. The shares issued were unrestricted pursuant to the S-8 Registration filed with the SEC on September 26, 2005.

 

ITEM 6.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This report contains forward-looking statements. Actual results and events could differ materially from those projected, anticipated, or implicit, in the forward-looking statements as a result of the risk factors set forth below and elsewhere in this report.

 

With the exception of historical matters, the matters discussed herein are forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning anticipated trends in revenues and net income, the date of introduction or completion of our products, projections concerning operations and available cash flow. Our actual results could differ materially from the results discussed in such forward-looking statements. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto appearing elsewhere herein.

 

28

 



OVERVIEW AND OUTLOOK

 

We are a Wi-Fi PDA technology provider to the lodging and satellite media industries, a developer of patent-pending technologies for e-health and EMR applications and a distributor of life-saving prescription drugs. Our proprietary ResidenceWare, MD@Hand and Satelink technologies manage critical data, enhance productivity and e-commerce, and facilitate communication with applications in the healthcare, apartment, hotel/motel and satellite rebroadcast industries.

 

We intend to focus our business attention towards providing prescription drugs through several medical distribution channels. Our secondary focus is to provide information technology (IT) for use with Internet-based communication, and network software systems and applications, that reside and function through a Windows CE-Based PDA- available from most major computer brands such as Sony, Dell, IBM and Palm –to the medical fields and the lodging and time-share real estate industries.

 

Restatement of Prior Periods

 

During the year-end evaluation process conducted by our Chief Executive and Chief Financial Officers, we evaluated the carrying values of our intangible assets and determined an impairment of 100% of our investment in Pharma Tech Solutions, amounting to $1,167,717, should have been made during the three-months ended March 31, 2005. We are in the process of preparing amended Forms 10-QSB for the three-months ended March 31, 2005, June 30, 2005 and September 30, 2005 to reflect the restatement. Based upon management's review it has been determined that this error was inadvertent and unintentional.

 

As a result of the impairment, our first quarter expenses will be increased by $1,167,717 (98%) to $2,363,023 and our first quarter net operating loss will increase to $2,166,374. The restatement will also impact our second and third quarter financial statements.

 

Results of Operations

 

The Following table illustrates our 2005 quarter-by-quarter operating results:

 

 

Q1 - 2005*

 

Q2 - 2005

 

Q3 - 2005

 

Q4 - 2005

 

 

 

 

 

 

 

 

 

 

 

 

Revenue, net

$

2,099,390

 

$

1,070,848

 

$

1,007,216

 

$

1,436,859

Cost of sales

 

1,902,741

 

 

861,152

 

 

953,391

 

 

1,395,345

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

196,649

 

 

209,696

 

 

53,826

 

 

41,513

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

 

2,363,023

 

 

565,188

 

 

514,139

 

 

508,641

 

 

 

 

 

 

 

 

 

 

 

 

Net operating (loss)

$

(2,166,374)

 

$

(355,492)

 

$

(460,313)

 

$

(467,128)

 

* As restated to reflect an impairment charge to total expenses of $1,167,717.

 

 

29

 



The following overview provides a summary of key information concerning our financial results for the years ended December 31, 2005 and 2004.

 

For the year ended

 

 

 

 

December 31,

 

Increase / (Decrease)

 

2005

 

2004

 

$

%

 

 

 

 

 

 

 

 

 

 

Revenue, net

$

5,614,313

 

$

182,112

 

$

5,432,201

2,982%

Cost of sales

 

5,112,629

 

 

-

 

 

5,112,629

--

 

 

 

 

 

 

 

 

 

 

Gross profit

 

501,684

 

 

182,112

 

 

319,572

175%

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

General & administrative expenses

 

386,037

 

 

396,078

 

 

(10,041)

(2%)

Payroll expense

 

824,098

 

 

369,448

 

 

454,650

123%

Consulting expense

 

38,000

 

 

-

 

 

38,000

--

Professional fees

 

353,887

 

 

-

 

 

353,887

--

Share-based compensation

 

1,128,706

 

 

2,086,469

 

 

(957,763)

(46%)

Software development

 

-

 

 

119,640

 

 

(119,640)

--

Impairment loss on operating assets

 

1,167,717

 

 

415,078

 

 

752,639

181%

Depreciation

 

52,546

 

 

99,910

 

 

(47,364)

(47%)

Total expenses

 

3,950,991

 

 

3,486,623

 

 

464,368

13%

 

 

 

 

 

 

 

 

 

 

Net operating (loss)

 

(3,449,307)

 

 

(3,304,511)

 

 

144,796

4%

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Loss on debt settlement

 

(19,838)

 

 

-

 

 

19,838

--

Loss - related party

 

(377,778)

 

 

(377,136)

 

 

642

--

Interest income

 

16,112

 

 

3,527

 

 

12,585

357%

Merger expenses

 

-

 

 

(304,750)

 

 

(304,750)

--

Financing costs

 

(562,973)

 

 

(481,700)

 

 

81,272

17%

Interest expense

 

(429,524)

 

 

(86,456)

 

 

343,068

397%

 

 

 

 

 

 

 

 

 

 

Net (loss)

$

(4,823,308)

 

$

(4,551,026)

 

$

272,282

6%

 

Year ended December 31, 2005 compared to December 31, 2004

 

Revenue : Total revenue was $5,614,313 and $182,112 for the fiscal years ended December 31, 2005 and 2004, respectively. Historically, we have been in development stage. Our increase in revenue of $5,432,201 is due to commencement of operations in 2005. We cannot guarantee with certainty when we will generate revenue sufficient to fund ongoing operations. Our future revenues will be reliant on the acceptance of our software systems, communication tools and suite of software applications as well as our growth in pharmaceutical sales.

 

Cost of sales : Consists of our cost of products held for resale. Cost of sales totaled $5,112,629 and $-0- for the fiscal years ended December 31, 2005 and 2004, respectively. The increase of $5,112,629 is also a result of our commenced operations in 2005.

 

30

 



EXPENSES  

 

General and administrative: Our general and administrative expenses relate to the overhead costs of our corporate office. General and administrative expenses for the fiscal year ended December 31, 2005 were $386,037 compared to $396,078 for the fiscal year ended December 31, 2004 for a decrease of $10,041. This decrease is primarily attributable to a reduction in costs incurred in connection with our advertising and marketing plan.

 

Payroll expenses were $824,098 and $369,448 for the fiscal years ended December 31, 2005 and 2004, respectively. Payroll expense consists of management and employee salaries and has increased $454,650. The increase is due to the addition of new employees and management to oversee the launch of our prescription drug and diagnostics channel business and our software systems, communication tools and suite of software applications.

 

Professional fees were $353,887 and $-0- for the fiscal years ended December 31, 2005 and 2004, respectively resulting in an increase of $353,887. The increase is a result of additional legal fees incurred in connection with our financing activities during the year ended December 31, 2005 compared to 2004.

 

Share-based compensation was $1,128,706 and $2,086,469 for the fiscal years ended December 31, 2005 and 2004 respectively. The decrease of was the result of our prior efforts to conserve our cash resources during fiscal, 2004 whereby we retained the services of outside consultants and specialty service providers who agreed to provide services in exchange for our common stock in lieu of cash.

 

Software development costs were $-0- and $119,640 for the fiscal years ended December 31, 2005 and 2004, respectively. The decrease is a result of our completion of prior development efforts. We will continue to maintain and enhance our existing software as well as continue to focus on integrating our software systems, communication tools and suite of software applications with those of our partners.

 

Impairment loss on operating assets was $1,167,717 and $415,078 for the fiscal years ended December 31, 2005 and 2004 respectively. It is our company policy to periodically review all assets for impairment. Impairments are recognized in operating results to the extent that carrying values exceeds discounted cash flows of future operations. Accordingly, the Company has determined that it should write down 100% of its investment in Pharma Tech Solutions, Inc., effective in the first quarter of 2005. During the first quarter of 2005, an impairment was identified totaling $1,167,717.

 

Depreciation expense totaled $52,546 and $99,910 for the fiscal years ended December 31, 2005 and 2004 respectively. Our decrease is a result of the previous impairment of assets.

 

 

31

 



Operating expenses totaled $3,950,991 and $3,486,623 for the fiscal years ended December 31, 2005 and 2004, respectively resulting in an overall increase in expense of $464,368. The increase was primarily the result of our increase in payroll expenses due to the commencement of operations.

 

Net operating loss was $3,449,307 and $3,304,511 for the fiscal years ended December 31, 2005 and 2004, respectively. Our net operating loss increased in the amount of $144,796 primarily as a result of impairment of operating assets and increased payroll expenses incurred from operations which was substantially offset by our increase in gross profit.

 

Loss on debt settlement: we retired past debts valued at $19,838 and $-0- for the fiscal years ended December 31, 2005 and 2004, respectively. We periodically review the collectibility of all outstanding debts and when it is determined that the potential for collection is limited, we record a write-off of the outstanding balance. As of December 31, 2005, our write-down increased in the amount of $19,838.

 

Interest income was $16,112 and $3,527 for the fiscal years ended December 31, 2005 and 2004, respectively resulting in an increase of $12,585. The increase was a result of our increased cash from operations available for deposit to interest bearing accounts.

 

Financing costs totaled $562,973 and $481,700 for the fiscal years ended December 31, 2005 and 2004 respectively for a increase of $81,272. The increase was the result of our financing arrangements entered into in the current year.

 

Interest expense was $429,524 and $86,456 for the fiscal years ended December 31, 2005 and 2004, respectively resulting in an increase of $343,068. The increase is a result of additional interest incurred on current debt obligations primarily the result of our inability to comply with all terms of the agreements.

 

Net(loss) from operations was $4,823,308 and $4,551,026 for the fiscal years ended December 31, 2005 and 2004. Our increase in net loss of $272,282 is the result of an increase in overall expenses which could not be satisfactorily offset by our increased gross profit. We expect to continue to incur losses from operations until such time as sufficient revenues can be generated to cover all overhead and financing costs.

 

Operation Plan

 

During the next 12 months we plan to continue to focus our efforts on the following primary businesses:

 

 

Providing medical communication devices based on networks of personal digital assistants (PDA). These products are believed to provide benefits of on demand medical information to private practice physicians, licensed medical service providers such as diagnostic testing laboratories, and medical insurers;

 

The distribution of medical diagnostic products primarily aimed at institutions that service patients with diabetic and asthma related diseases and ailments. Our current market focus for these products is the long term care sector of the larger healthcare market, however we plan to expand into additional sectors;

 

32

 



 

The distribution and fulfillment of prescriptions for ethical pharmaceuticals primarily aimed at the indigent and uninsured sectors of the greater medical service markets. Our first market focus for these products will be those state Medicaid and Federally chartered clinics (and initiatives) where funding for pharmaceutical fulfillment enterprises exists;

 

Building electronic commerce networks based on personal digital assistants (PDA) to the hotels, motels and single building, multi-unit apartment buildings with a desire to offer local advertising and electronic services to their tenants/guests; and

 

Providing the cable and wireless communication industries and media enterprises with networks of personal digital assistant (PDA) technologies that link field-based installation and repair personnel with central offices for the exchange of customer order and subscription information.

 

Past and Future Projected Budget Expenses and Projected Milestones

 

Our forecasted use of funds through March 31, 2006:

 

Use of Funds

Expenditure

Rationale

Anticipated Licensing and physical plant for of Retail Pharmacy

$150,000

In June 2005 the Company was contacted by an Economic Development Commission nearby Fargo, ND. The EDC made a proposal, which we have accepted. We are now in the process of completing plans to build a mail order pharmacy nearby Fargo, ND and to hire an attending pharmacist to oversee this operation.

General and Administrative

$150,000

As the Company's prescription drug business has expanded we have found it necessary to place management talent in those regions where our major business growth is taking place. We have budgeted $150,000 to hire, train and place regional management.

Sales and Marketing Retail Pharmacy

$275,000

We will require marketing materials, mailing materials, an advertising agency and regional promotion of our retail pharmacy geared toward the uninsured and underinsured. We intend to execute these activities in phases. Phase 1 is anticipated to cost $275,000 and has been so budgeted.

Technology Implementation (MD@Hand)

$250,000

The key to our entry into the provision of medications for the poor and underinsured is a vehicle that will deliver prescriptions to our mail order pharmacy in North Dakota. The cost to implement the company's MD@Hand technology and the cost of the people to implement our plans in this area is budgeted at $250,000.

Prescription Drug Inventory

$275,000

We anticipate a prescription drug inventory of $275,000 for our mail order pharmacy in North Dakota.

 

 

33

 



 

 

 

Education/Field Training

$120,000

The initial cost of training the pilot clinics to use our MD@Hand technology is estimated to be $120,000. We expect training and education costs to entail 4,250 man hours.

Sales and Marketing Wholesale Drug Line

$225,000

The company has made inroads in the distribution of wholesale prescription drugs. We have a presence in Southern California, New York/New Jersey and South Florida. The company plans to expand its operations into Texas and the heart of the Midwest. We budget $225,000 for these expansion activities.

Cash anticipated CareGen acquisition

$95,000

We have expended $95,000 since our acquisition of CareGeneration, Inc. for the consolidation of activities. We do not expect additional expenditures.

Total

$1,540,000

 

 

Our anticipated milestones through March 31, 2006:

 

Activity

Anticipated Completion Date

Completion Date

Close Acquisition of CareGeneration, Inc.

March, 2005

Acquisition Closed (pending Complaint)

File for Retail Pharmacy license (AZ)

April, 2005

Completed, November, 2005

File for additional wholesale license (NJ)

May, 2005

Completed, July, 2005

Receive Retail license

June, 2005

Granted license from New Jersey.

Receive additional wholesale license

June 2005

Granted license from North Dakota on July 6, 2005

Secure supplier agreements (retail pharmacy)

June, 2005

Completed, July 7, 2005

Secure mail order pharmacy space, build inventory

July 2005

Completed, July 7, 2005; awaiting build-out

Add sales and marketing staff

August, 2005

We have increased our staff throughout 2005

Begin marketing HUD pilot

October 2005

Begun October 17, 2005

Receive Retail license from Arizona and North Dakota

November, 2005

Permit Number 4374 was granted by the Arizona State Board of Pharmacy to our subsidiary Pharma Tech Solutions, Inc. on November 16, 2005.

Initiate marketing to Medicaid clinics

January 2006

Initiated and in progress.

 

Liquidity and Capital Resources

 

Liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through the issuance of stock and by borrowings.

 

34

 



In the future we believe we will be able to provide the necessary liquidity we need by the revenues generated from the sales of our products.

 

Internal and External Sources of Liquidity

 

On February 7, 2005, we entered into agreements with Mercator Momentum Fund, LP and Monarch Pointe Fund, Ltd. (collectively, the “Purchasers”) and Mercator Advisory Group, LLC (“MAG”). Under the terms of the agreement, we agreed to issue and sell to the Purchasers, and the Purchasers agreed to purchase from the Company, 20,000 shares of Series “C” Convertible Preferred Stock at $100.00 per share (total investment of $2,000,000, all of which was received as of February 22, 2005). Additionally, we issued the following warrants: 103,125 warrants to purchase share of our common stock at $1.60 per share and 103,125 warrants to purchase shares of our common stock at $2.40 to Mercator Momentum Fund, LP; 209,375 warrants to purchase shares of our common stock at $1.60 per share and 209,375 warrants to purchase shares of our common stock at $2.40 per share to Monarch Pointe Fund, Ltd.; and 312,500 warrants to purchase shares of our common stock at $1.60 per share and 312,500 warrants to purchase shares of our common stock at $2.40 per share to MAG. All of the warrants expire on February 7, 2008.

 

Holders of series "C": convertible stock shall not have the right to vote on matters that come before the stockholders. Series "C" convertible preferred stock may be converted, the number of shares into which one share of Series "C" Preferred Stock shall be convertible shall be determined by dividing the Series "C" Purchase price by the existing conversion price which shall be equal to eighty percent of the market price rounded to the nearest thousandth, not to exceed $1.60 per share. Series "C" convertible stock shall rank senior to common stock in the event of liquidation. Holders' of Series "C" convertible stock shall be entitled to a mandatory monthly dividend equal to the share price multiplied by the prime interest rate plus five tenths percent. Series "C" convertible stock shall have a redemptions price of $100 per share, subject to adjustments resulting from stock splits, recapitalization, or share combination.

 

The number of shares the Purchasers wish to convert and those warrant shares that any of the Purchasers and MAG may acquire at any time are subject so that the aggregate number of shares of common stock of which such Purchasers and MAG and all persons affiliated with the Purchasers and MAG have beneficial ownership (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) remains less than ten percent of our then outstanding common stock.

 

Pinnacle Investment Partners, LP Promissory Note

 

On March 24, 2004, we entered into a Secured Convertible Promissory Note with Pinnacle Investment Partners, LP for the principal amount of $700,000 with an interest rate of 12% per annum. The note was secured by 212,500 shares of our common stock. Pinnacle may, at its option, at any time from time to time, elect to convert some or all of the then-outstanding principal of the Note into shares of our common stock at a conversion price of $6.40 per share, unless such conversion would result in Pinnacle being deemed the “beneficial owner” of 4.99% or more of the then-outstanding common shares within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended. In the event we fail to pay any installment or principal or interest when due, the interest rate will then accrue at a rate of 24% per annum on the unpaid balance until the payment default is cured.

 

35

 



On October 19, 2004, the Pinnacle Note was extended by the parties by virtue of a renewal and settlement agreement through January 24, 2005, and under certain conditions until March 24, 2005. We met those conditions by executing the definitive agreement to acquire CareGen, Inc. As a condition of renewal we were required to provide additional security of 25,000 shares of our common stock, and Pinnacle was provided with a new election to convert some or all of the then-outstanding principal of the Note into shares of our common stock at a conversion price of $3.60 per share. In addition, it was agreed that if we completed a merger or similar transaction prior to January 24, 2005; the Note will automatically be extended through March 24, 2005 with additional security due.

 

On February 10, 2005, we entered into a Note Extension Agreement with Pinnacle Investment Partners, LP. Subject to the terms of this new agreement; on March 24, 2005, Pinnacle agreed to pay us $340,000 and (2) pay to Pinnacle's designee, CJR Capital, LLC, $60,000 towards Pinnacle's due diligence and legal expenses related to this new agreement. This new agreement has the following consequences: (1) the principal amount due under the Note automatically increases by $400,000 to $1,100,000; (2) the Maturity Date of the newly revised Note has been extended to April 24, 2006; and (3) the conversion price for those shares that underlie the Note was changed to $2.00.

 

In addition to the above, we agreed: (1) to deliver to Pinnacle's counsel an additional 1,037,500 shares of our common stock as additional escrow security, (2) issue to Pinnacle's designee, CJR Capital, LLC, 50,000 shares of our common stock towards Pinnacle's due diligence and legal expenses related to the revision of the Note; (3) issue to Pinnacle 112,500 shares of instaCare's common stock as a loan re-initiation fee; and (4) upon receipt of any properly crafted Seller's Representation Letter, deliver to Pinnacle an opinion of counsel to the effect that commencing March 24, 2005, Pinnacle may sell under Rule 144 promulgated under the Securities Act of 1933, as amended, shares surrendered to Pinnacle in accordance with this agreement, on condition that (1) Pinnacle uses the proceeds to pay down the indebtedness under the Note as of immediately prior to effectiveness of this agreement and (2) ceases to sell any of those Shares once that indebtedness has been paid off in full. We have recorded a financing expense in the amount of $227,500, the fair market value of the underlying shares. All of the shares required under the Note were delivered.

 

MAG Entities Agreement

 

On August 25, 2005, we formalized an agreement with Mercator Momentum Fund, LP, Monarch Pointe Fund, Ltd., and M.A.G., Capital, LLC, (collectively, the “MAG entities”) with respect to the registration default under Paragraph 8 of that certain Subscription Agreement dated February 7, 2005 by and between the parties (the “Subscription Agreement”). In consideration for the payment of the aggregate sum of $10,000 cash plus execution of the Secured Promissory Notes and Security Agreement attached as exhibits to the 8-K filed on October 21, 2005, the MAG entities agreed to waive the liquidated damages provision of Paragraph 10 with respect to any additional liquidated damages which may accrue after August 23, 2005, with the understanding that such waiver shall not be deemed a waiver of any other rights to which the MAG entities may have at law or equity.

 

36

 



M and E Equities, LLC Renegotiated Note  

 

Based on terms negotiated on March 4, 2002, and after a further documentation process that was completed on April 23, 2003, Medicius, Inc. our merger partner in our June 2002 merger was loaned $475,000 from M and E Equities, LLC (M&E). A condition of the loan it was stipulated that Medicius, Inc. would complete its merger with us and become a fully reporting public company. As of December 31, 2003, after partial payment of interest and principal and a settlement of a legal dispute that arose over this note and other issues, the remaining value of the note and accrued interest was $522,208. On March 2, 2004, we renegotiated our debt with M&E. the terms of the agreement are stipulated as follows:

 

 

1.

$320,000 is paid to M&E by Wells & Company, Inc., Lima Capital, Inc., JC Financial and Corporate Architects, Inc. to satisfy a remaining principal amount of $400,000. We were informed that theses four entities purchased the note from M&E for investment purposes. At the time of the M&E Note transaction Wells & Company was a consultant to us providing merger and acquisition and strategic planning consultation to the officers of instaCare. Subsequently Wells & Company and Corporate Architects, Inc. have from time to time provided consulting services to us in the area of mergers, acquisitions consulting and introductory services to potential merger partners. We have no relationship with either Lima Capital, Inc. or JC Financial.

 

2.

M&E agreed to transfer 125,000 of the Class A Warrants, formerly issued by Medicius, Inc. with an expiration date of January 5, 2005 to Empyreon.net for $30,000 and 25,000 Class A Warrants to Mr. Moshe Mendlowitz for $20,000. We incurred financing costs during the year ended December 31, 2004 totaling $405,700, the deemed value of the Warrants on the transfer date based on the Black-Scholes Valuation Model.

 

3.

The outstanding note balance of $207,526 was recapitalized into 207,526 shares of our $0.001 par value Class A Convertible Preferred Stock and registered in M&E's name. Each share of Class A 2002 Convertible Preferred Stock is convertible into 0.225 shares (46,694 total) of our $0.001 par value common stock at $4.44448 per share. M&E agrees to hold the Preferred Shares for a minimum of one year, pursuant to Rule 144, with no conversions allowed during that period of time. After one year, M&E may convert and sell only 6,250 shares of our $0.001 par value common stock every 60 days as permissible by Rule 144.

 

The February 2005 investment by Mercator Momentum Fund, LP and Monarch Pointe Fund, Ltd. and the additional investment by Pinnacle Investment Partners, LP raised a total of $2,400,000. These funds were raised to facilitate our acquisition of CareGeneration, Inc., which was accomplished on February 25, 2005, and the investment required to plan, acquire and market the anticipated "closed door" internet pharmacy.

 

 

37

 



Since inception, we have financed our cash flow requirements through the issuance of common stock and through the issuance of notes. During our normal course of business, we will experience net negative cash flows from operations, pending receipt of revenues. Further, we may be required to obtain financing to fund operations through additional common stock offerings and bank borrowings, to the extent available, or to obtain additional financing to the extent necessary to augment our available working capital.

 

Satisfaction of our cash obligations for the next 12 months.

 

As of December 31, 2005, our cash balance was $709,295. We believe that this amount will provide sufficient cash for the next 4 months from December 31, 2005. Our plan for satisfying our cash requirements for the next twelve months is through additional equity, third party financing, and/or traditional bank financing. We anticipate sales-generated income during that same period of time, but do not anticipate generating sufficient amounts of revenues to meet our working capital requirements. Consequently, we intend to make appropriate plans to insure sources of additional capital in the future to fund growth and expansion through additional equity or debt financing or credit facilities.

 

Since inception, we have financed cash flow requirements through debt financing and the issuance of common stock for cash and services. As we expand operational activities, we may continue to experience net negative cash flows from operations, pending receipt of sales or development fees, and will be required to obtain additional financing to fund operations through common stock offerings and debt borrowings to the extent necessary to provide working capital.

 

We anticipate incurring operating losses over the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving technology markets. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks we must, among other things, implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, respond to competitive developments, and continue to attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

 

Going Concern

 

The financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of the Company as a going concern. The Company's cash position may be inadequate to pay all of the costs associated with testing, production and marketing of products. Management intends to use borrowings and security sales to mitigate the effects of its cash position, however no assurance can be given that debt or equity financing, if and when required will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue existence.

 

38

 



Summary of product and research and development that we have accomplished and that we will continue to perform for the term of our plan.

 

Hotel/Motel Convenience Products

 

Historically hotels and motels have adopted specific technology that enhances the utility of either the in-room telephone(s) or the in-room cable linked television. Thus, most of the innovations in hotels and motels have leveraged devices where innovation is waning. The electronics in telephones and telephone systems are limited and, and the television's design tends to limit its utility to one-way communication directed at the person watching. Even add-on devices such as satellite boxes for televisions and streaming LCD's for telephones add only limited functionality. The person operating the telephone or television must do something away from that device should something of interest catch their eye. Thus local merchants who may opt to advertise their products and services via closed circuit television or a streaming LCD on a telephone hope that the person watching will remember their message and visit their establishment or call for service.

 

Our products for hotels and motels are two-way devices. Local merchants who opt to advertise via our wireless networks through the use of our wireless ResidenceWare devices are assured that if the person viewing the advertisements sees something of interest, commerce can immediately be initiated at the device.

 

Revenue and Sales Generation

 

We are focused on expanding our point-of-care software, and indigent patient care pharmaceutical fulfillment and electronic prescriptions processing system as well as our new ResidenceWare and SateLink product lines to increase revenues. With our recently acquired distribution and storage licenses granted from the state of New Jersey and North Dakota we have increased both revenue and sales.

 

Seasonality of Health Related Businesses

 

Although we have only operated our prescription drug and diabetes diagnostics business for a period just over a year, our first year experiences point to a business that displays certain seasonal trends. Much of our business results from sales of diagnostics and supplies to patients in residential and long term care settings. These (customers) appear to acquire product only several times each year, as they “stock up.” It remains to be seen if these trends continue. However, based on these trends the company believes that sales will be concentrated in the first and fourth fiscal quarters. One explanation is that these periods correspond with the beginning of a prescription drug plan year where new prescription drug cards are distributed by insurers in January along with new plan formularies (price schedules), and the end of a prescription drug plan year where formulary reimbursement for the upcoming year is not yet known, and which in turn tends to influence “stocking up.”

 

39

 



Prescription Drug Distribution and Delivery

 

The retail prescription business - often subsidized or funded by government benefits -- is a development stage enterprise moving to take advantage of the tremendous opportunity in retail pharmacy business via direct mail order distribution of prescriptions and related products. As part of our acquisition of CareGeneration, Inc. we also acquired a proprietary retail mail order methodology for the distribution of pharmaceutical and healthcare supplies. We are now in the early stages of marketing pharmaceutical and healthcare supplies through mail order to minority and citizen organizations (religious groups, unions, etc.). We have also begun the process of contracting to offer discounted pharmaceutical and healthcare supplies marketed by mail order to state Medicaid and the Federal Medicare plans.

 

Hotel/Motel Convenience Products

 

Our hotel/motel marketing strategy targets hotel/motel owners through the provision of technology and services that specifically respond to their needs and requirements. We have designed products to furnish hotel and motel guests with a menu of food service, office services and other remote services that include those features that specifically respond to the requirements of the hotel/motel owner. We believe that the combination of unique and responsive benefits derived from our system coupled with its simplicity, portability, convenience and ease of use will initiate and propel its implementation throughout the industry.

 

Primary Services and Product lines

 

With our new prescription drug distribution business now coming on-line, we have decided to begin the practice of specializing in the distribution of medical diagnostic and medical disposable products associated with the on-going care of diabetes inflicted patients. This decision was made because the treatment and care of diabetes patients is an on-going lifetime process. To date we have entered into verbal agreements with distribution arms of two major manufactures and distributors of competing diabetic diagnostic products. We hope to conclude these negotiations and enter prime distribution agreements with these manufacturers during the fourth quarter of 2005. We plan to add more of these diagnostic products as we further specialize into this medical niche.

 

Our point of care software, and indigent patient care pharmaceutical fulfillment and prescriptions processing system can improve patient safety and reduce avoidable health care costs by decreasing prescription errors due to hard-to-read physician handwriting and by automating the process of checking for drug interactions and allergies. E-prescribing can also help make sure that patients and health professionals have the best and latest medical information at hand when they make important decisions about choosing medicines and enabling beneficiaries to get the most benefits at the lowest cost.

 

We also market products that compete in the real-estate management, hotel/motel and lodging sector. Our real estate and hotel/motel objectives include building electronic commerce networks based on personal digital assistants (PDA) to the hotels, motels and single building, multi-unit apartment buildings with a desire to offer local advertising and electronic services to their tenants/guests.

 

40

 



Prescription Drug Distribution and Delivery

 

Our primary goals for our products to these markets are:

 

 

a.

Providing medical communication devices based on networks of personal digital assistants (PDA). These products are believed to provide benefits of on demand medical information to private practice physicians, licensed medical service providers such as diagnostic testing laboratories, and medical insurers. We have created PDA-centric products and a suite of Internet enhanced software applications that include those features that specifically respond to the requirements of the practicing physician.

 

b.

Provide, as an emerging Internet pharmacy, retail drug prescriptions fulfillment with the goal of delivering affordable, discounted prescriptions to the millions of uninsured and underinsured consumers in the United States.

 

c.

Combining our newly acquired wholesale and retail drug distribution with our PDA technologies, creating wholesale and retail ePharmacies similar in function to existing Internet pharmacies but directed to serving the large base of underinsured and uninsured Americans; and

 

d.

The practice of specializing in the distribution of medical diagnostic and medical disposable products associated with the on-going care of diabetes inflicted patients now that our new prescription drug distribution business is coming on-line.

 

On November 16, 2005 the company, through its Pharma Tech Solutions, Inc. subsidiary, was granted a retail pharmacy license by the Arizona State Board of Pharmacy. This license, Board of Pharmacy Permit Number 4374, is believed by management to be was a key ingredient to fulfilling company’s business plan. This license will allow the company to directly fill prescriptions, rendered by physicians for their patients using the company’s proprietary Wi-Fi technologies and its novel use of the Internet, to securely relay the prescriptions electronically.

 

Hotel/Motel Convenience Products

 

We concentrate each of our marketing efforts in specific target geographic locations that permit the completion of our density strategy crucial to sustained penetration and long-term success. The creation of such networks will be conducted in multiple geographic locations simultaneously. Upon their completion in a particular geographic area the process employed is then introduced and replicated in other locations targeted for access. We believe that the products we market to hotels and motels are unique.

 

Expected Purchase or sale of plant and significant equipment.

 

We do not anticipate the purchase or sale of any plant or significant equipment, as such items are not required by us at this time or anticipated to be needed in the next twelve months.

 

 

41

 



Significant changes in the number of employees.

 

We currently employ 14 employees, of which 8 are full time employees and 1 sales representative. No full time employees are covered by labor agreements or employment contracts. We do not expect a significant change in the number of full time employees over the next 12 months.

 

Critical Accounting Policy and Estimates

 

Our discussion of financial condition and results of operations is based upon information reported in our financial statements. The preparation of these statements requires us to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities at the date of our financial statements. We base our assumptions and estimates on historical experience and other sources that we believe to be reasonable at the time. Actual results may vary from our estimates due to changes in circumstances, politics, global economics, mechanical problems, general business conditions and other factors. Our significant accounting policies are detailed in Note 1 to our financial statements included in our Form 10-KSB for the fiscal year ended December 31, 2005. We have outlined below certain of these policies as being of particular importance to the portrayal of our financial position and results of operations, which require the application of significant judgment by our management.

 

Revenue recognition

 

The Company recognizes revenue on multi-deliverables in compliance with the requirements of EITF 00-21. As previously disclosed, the Company recognizes revenue based on contractual milestones achieved pursuant to terms outlined in each individual contract. Typical milestones would include completion of installation and functionality testing of hardware and/or software in the prescribed environment. Upon effective use, the client is invoiced, and the Company recognizes revenue. In addition, the company’s business model assumes several types of follow-on sales, such as paid advertising and additional hardware/software sales. Paid advertising consists of commercial use of the Company’s Residence Ware message management system whereby each company advertising on the Residence Ware pay a fee to the Company based on each sale generated through the advertisements. All revenue generated through the on-line adverting is recognized upon receipt of payment per SOP 97-2. Aftermarket sales and services are recognized upon shipment of product or completion of services.

 

Stock-based Compensation

 

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 123 (revised 2004) “Share-Based Payment” (“SFAS 123R), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123R is similar to the approach described in Statement 123.  However, Statement 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. We plan to adopt 123R no later than July 1, 2005.

 

42

 



Off-Balance Sheet Arrangements.

 

As of December 31, 2005, we did not have any off-balance sheet arrangements that had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

FACTORS THAT MAY AFFECT OUR PLAN OF OPERATION

 

Our limited operating history could delay our growth and result in the loss of your investment.

 

We were incorporated on March 2, 2001 and have previously been in the development stage and thus have had a limited operating history on which to base an evaluation of our business and prospects. Beginning in 2005, we have commenced operations and are no longer considered to be in the development stage. However, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks include, but are not limited to, dependence on the growth of use of electronic medical information and services, the adoption of PDA based Internet appliances for the transmission and display of medical information, the need to establish our brand name, the ability to establish a sufficient client base, the level of use of medical providers and the management of growth. To address these risks, we must maintain and increase our customer base, implement and successfully execute our business and marketing strategy, continue to develop and improve our point of care software and patient processing system, provide superior customer service, respond to competitive developments and attract, retain, and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so could lead to an inability to meet our financial obligations and therefore result in bankruptcy and the loss of your entire investment in our common shares.

 

We have historically lost money and losses are expected to continue in the near future, which means that we may not be able to continue operations unless we obtain additional funding.

 

We have historically lost money. We had an accumulated deficit as of December 31, 2005, and 2004 of $15,046,680 and $10,495,654, respectively. In addition, our development activities since inception have been financially sustained by capital contributions. Future losses are likely to occur. Accordingly, we may experience significant liquidity and cash flow problems if we are not able to raise additional capital as needed and on acceptable terms. From time to time we might need to turn to the capital markets to obtain additional financing to fund payment of obligations and to provide working capital for operations. No assurances can be given that we will be successful in reaching or maintaining profitable operations.

 

 

 

43

 



We are dependent on a small number of major customers.

 

Our two largest customers accounted for approximately 95% of our net sales. We expect that a small number of customers will continue to account for a substantial majority of our sales and that the relative dollar amount and mix of products sold to these customers can change significantly from year to year and how we are paid for business generated, assigned and referred by these customers can change as well. There can be no assurance that our major customers will continue to purchase products or refer business to us at current levels, or that the mix of products purchased will be in the same ratio. The loss of our largest customers, who not only buy product directly, but also refer substantial “direct to patient” business, or a decrease in product sales would have a material adverse effect on our business and financial condition.

 

We may not be able to retain our key personnel or attract additional personnel, which could affect our ability generate revenue sufficient to continue as a going concern diminishing your return on investment.

 

Our performance is substantially dependent on the services and on the performance of our Management. instaCare is, and will be, heavily dependent on the skill, acumen and services of our CEO Robert Cox, interim CFO, Secretary and Treasurer, Keith Berman. Our performance also depends on our ability to attract, hire, retain and motivate our officers and key employees. The loss of the services of our executives could result in lost revenue depending on the length of time and effort required to find a qualified replacement. We have not entered into long-term employment agreements with our key personnel and currently have no "Key Employee" life insurance policies.

 

Our future success may also depend on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing and customer service personnel. Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, assimilate or retain sufficiently qualified personnel. If we are unable to attract, retain, and train the necessary technical, managerial, marketing and customer service personnel, our expectations of increasing our clientele could be hindered, and the profitability of instaCare reduced.

 

Recent and possible future issuances of common stock will have a dilutive affect on existing shareholders.

 

instaCare is authorized to issue up to 1,750,000,000 Shares of common stock. As of March 31, 2006, there were 7,304,200 shares of common stock issued and outstanding. Additional issuances of common stock may be required to raise capital, to acquire stock or assets of other companies, to compensate employees or to undertake other activities without stockholder approval. These additional issuances of common stock will increase outstanding shares and further dilute stockholders' interests. Because our common stock is subject to the existing rules on penny stocks and thinly traded, a large sale of stock, such as the shares we seek to have registered via this registration statement, may result in a large drop in the market price of our securities and substantially reduce the value of your investment.

 

Our common stock has been relatively thinly traded, may experience high price volatility and we cannot predict the extent to which a trading market will develop.

 

Our common stock has traded on the Over-the-Counter Bulletin Board. Our common stock is thinly traded compared to larger more widely known companies in our industry. Thinly traded common stock can be more volatile than common stock trading in an active public market. We cannot predict the extent to which an active public market for the common stock will develop or be sustained after this offering.

 

44

 



Achieving market acceptance of new or newly integrated products and services is likely to require significant efforts and expenditures.

 

Achieving market acceptance for new or newly integrated products and services is likely to require substantial marketing efforts and expenditure of significant funds to create awareness and demand by participants in the healthcare industry. In addition, deployment of new or newly integrated products and services may require the use of additional resources for training our existing sales and customer service personnel and for hiring and training additional salespersons and customer service personnel. There can be no assurance that the revenue opportunities from new or newly integrated products and services will justify amounts spent for their development, marketing and rollout.

 

We could be subject to breach of warranty claims if our software products, information technology systems or transmission systems contain errors, experience failures or do not meet customer expectations.

 

We could face breach of warranty or other claims or additional development costs if the software and systems we sell or license to customers or use to provide services contain undetected errors, experience failures, do not perform in accordance with their documentation, or do not meet the expectations that our customers have for them. Undetected errors in the software and systems we provide or those we use to provide services could cause serious problems for which our customers may seek compensation from us. We attempt to limit, by contract, our liability for damages arising from negligence, errors or mistakes. However, contractual limitations on liability may not be enforceable in certain circumstances or may otherwise not provide sufficient protection to us from liability for damages.

 

If our systems or the Internet experience security breaches or are otherwise perceived to be insecure, we could lose existing clients and limit our ability to attract new clients.

 

A security breach could damage our reputation or result in liability. We retain and transmit confidential information, including patient health information. Despite the implementation of security measures, our infrastructure or other systems that we interface with, including the Internet, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, attacks by third parties or similar disruptive problems. Any compromise of our security, whether as a result of our own systems or systems that they interface with, could reduce demand for our services.

 

We do not have the financial resources to litigate actions involving our copyrights or patent applications.

 

We have applied to receive patent rights, and trademarks relating to our software. However, patent and intellectual property legal issues for software programs, such as our products, are complex and currently evolving. Patent applications are secret until patents are issued in the United States, or published in other countries, therefore, we cannot be sure that we are first to file any patent application for our technologies, primarily the technology that allows for the safe, secure and near seamless transmission of sensitive medical information from the point of care, directly to our mail order pharmacy. Should any of our patent claims be compromised or if, for example, one of our competitors has filed or obtained a patent before our claims have been prosecuted, or should a competitor with more resources desire to litigate and force us to defend or prosecute any patent rights, our ability to develop the market for our mail order pharmacy could be severely compromised, for we do not have the financial resources to litigate actions involving our patents and copyrights..

 

45

 



Our auditors have expressed substantial doubt as to our ability to continue as a going concern.

 

Due to our increasing deficit and our lack of revenue sufficient to support existing operations, there is substantial doubt about our ability to continue as a going concern. We may need to obtain additional financing in the event that we are unable to realize sufficient revenue. We may incur additional indebtedness from time to time to finance acquisitions, provide for working capital or capital expenditures or for other purposes There can be no assurance that we will have funds sufficient to continue operations, and the failure to do so could lead to an inability to meet our financial obligations and therefore result in bankruptcy and the loss of your entire investment in instaCare's common shares.

 

ITEM 7.

FINANCIAL STATEMENTS

 

See Index to Financial Statements and Financial Statement Schedules appearing on page F-1 through F-36 of this Form 10-KSB.

 

ITEM 8.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

We have had no disagreements with our independent auditors on accounting or financial disclosures.

 

ITEM 8A.

CONTROLS AND PROCEDURES

 

We maintain 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 and reported within the specified time periods.

 

As of the end of the period covered by this report, Robert Cox, our Chief Executive Officer, and Keith Berman, our Principal Financial Officer evaluated the effectiveness of our disclosure controls and procedures. Based upon their evaluation, Messrs. Cox and Berman concluded that our disclosure controls and procedures were not effective in timely alerting them to material information required to be included in our periodic SEC filings relating to our financial statement and other disclosures.  Our conclusions regarding the deficiencies were as follows:

 

46

 



Our controls relating to disclosure and related assertions in the financial statements, particularly in the area of assessing our intangible assets for impairment were not adequate.

 

 

We had particular difficulty in assessing whether certain of our intangible assets needed to be impaired as of March 31, 2005 and recording transactions related to stockholders' equity and tracking and recording related charges to operations.

 

 

We further found that while the controls over initiating and recording routine transactions were adequate, we had inadequate procedures to determine the need to impair our intangible asset related to the acquisition of Pharma Tech. The finding of this weakness resulted in the need to restate the financial statements in all of our quarterly filings on Form 10-QSB for 2005. We believe that we have corrected this deficiency and will continue to carefully monitor the proper application of this control.

 

Other than the deficiencies and weaknesses described above, Mr. Cox, our Chief Executive Officer and Mr. Berman, our Principal Financial Officer concluded that our disclosure controls and procedures are otherwise effective.

 

In an attempt to prevent further breakdowns in our internal control over financial reporting, we have engaged the services of an independent financial consultant to assist us in the preparation of our financial statements in accordance with GAAP and assist in the evaluation of our financial statement disclosures. This was our only change in our internal control over financial reporting for the most recent quarter ended December 31, 2005.

 

ITEM 8B.

OTHER INFORMATION

 

 

None.

 

PART III

 

ITEM 9.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

 

The members of our board of directors serve for one year terms and are elected at the next annual meeting of stockholders, or until their successors have been elected. The officers serve at the pleasure of the board of directors.

 

Effective June 10, 2005, Ronald R. Kelly was removed as a Director of the Company.

 

Effective December 6, 2005, Joel V. Brill, M.D. was elected as Director of the Company.

 

 

47

 



Information as to our current directors and executive officers is as follows:

 

Name

Age

Title

Term

 

 

 

 

Robert Cox

45

President, Director and Chief Executive Officer

Since 2001

Keith Berman

52

Secretary, Treasurer and Director

Since 2003

Robert Jagunich

58

Director

Since 2003

Joel V. Brill, M.D.

52

Director

Since 2005

 

Duties, Responsibilities and Experience

 

Robert L. Cox, President has served as Chairman and Director of the Company since June of 2001. Prior to joining instaCare, Mr. Cox was the Chief Executive Officer, President and Director of Tower Realty Trust, Inc., a publicly traded Real Estate Investment Trust ("REIT"). From March 1995 to October 1997 Mr. Cox served as the Executive Vice President and Chief Operating Officer of Tower Equities, when Tower Equities became a public company (Tower Realty Trust, Inc.). From March 1987 to March 1995, Mr. Cox served as Vice President of Development and Construction of Tower Equities, where his main responsibilities included supervising all development and construction projects. Mr. Cox graduated in 1983 with a BA from Florida State University. Mr. Cox does not hold any directorships of other reporting companies.

 

Keith Berman has served as Secretary, Treasurer and Director of the Company since January of 2003. For over the past 15 years, Mr. Berman has been involved in the development of healthcare software including Intranet and Internet systems. From July 1999 to present, Mr. Berman has held the position of President, founder and director of Caredecision.net, Inc. a private company engaged in e-health technology development. From March 2001 through June 2002 Mr. Berman also held the Position of President and Director or Medicius, Inc. From January 1996 to June 1999 Mr. Berman was the President and founder of Cymedix, the operating division of Medix Resources, Inc., now Ramp Corp. (RCO). Cymedix was a pioneer company in what was then known as i-health (Internet healthcare) now the e-health industry. Mr. Berman received a BA in 1975 and an MBA in 1977, from Indiana University.

 

Robert Jagunich has served as a Director of the Company since January of 2003. Mr. Jagunich has 27 years of experience in the medical systems and device industry. From August 1992 to present, he has held the position of President at New Abilities Systems, a privately held manufacturer of advanced electronic systems used in rehabilitation. He also provides consulting services to companies such as Johnson and Johnson and has served as a senior executive in such publicly held companies as Laserscope and Acuson. From April 1996 to December 1997 Mr. Jagunich acted as a director of Cymedix Corporation, the operating entity of Medix Resources, Inc., now Ramp Corp. (AMEX:RCO). He received his BS in 1969, and his MS and MBA in 1971, from the Univ. of Michigan.

 

48

 



Joel V. Brill, MD has served as a Director of the Company since December 6, 2005. Dr. Brill is Chief Medical Officer of Predictive Health, LLC, which performs predictive modeling analysis of medical and pharmaceutical claims data and implements proactive care management solutions for purchasers. His areas of focus include coding and reimbursement methodologies, quality improvement, disease management and pharmaceutical analysis.

 

Dr. Brill is Board Certified in Internal Medicine and Gastroenterology, and has practiced for two decades in California and Arizona. He is on the Editorial Advisory Board of Managed Healthcare Executive, Gastroenterology Coding Alert, Clinical Trial Insights and Internal Medicine Coding Alert, a reviewer for Formulary, and a consultant to the Health Services Advisory Group (HSAG). Dr. Brill has worked extensively with the Centers for Medicare and Medicaid Services (CMS) on coverage and reimbursement issues; and serves on the Blue Shield of California Pharmacy & Therapeutics and HealthNet Infusion Committees. He has held management positions with several managed care companies including Blue Shield of California and Prudential Health Care, and is on the Board of Directors of the American Board of Quality Assurance and Utilization Review Physicians (ABQAURP).

 

Dr. Brill is a member of the Clinical Practice and Economics Committee for the American Gastroenterological Association (AGA). Dr. Brill represents the AGA at the American Medical Association (AMA) RBRVS Update Committee (RUC), the CPT Editorial Panel, and the Practice Expense Review Committee (PERC). He is the AGA representative to the AMA Physician Consortium for Performance Improvement and the Ambulatory Care Quality Alliance, which are working with CMS to develop pay-for-performance measures. Dr. Brill was appointed to the AMA Work Group on Office-Based Surgery Regulation and the CPT Drug Infusion coding workgroup. In 2004, the AMA presented the Burgess L. Gordon Memorial Award to Dr. Brill for outstanding service to the CPT process. He represents the AGA at the Subspecialty Advisory Group on Socioeconomic Affairs (SAGSA) of the American College of Physicians (ACP) and the Physicians’ EHR Coalition Committee, is a member of the American Society for Gastrointestinal Endoscopy (ASGE) Practice Management Committee, and is a medical consultant to BearingPoint, which is contracted with CMS to develop medication measures for Part D.

 

Dr. Brill is an Assistant Clinical Professor of Medicine at the University of Arizona School of Medicine, an Adjunct Assistant Professor of Medicine at the Arizona College of Osteopathic Medicine, and a lecturer at the School of Health Management & Policy at the WP Carey School of Business at Arizona State University. Working with the Rural Health Office at the University of Arizona, he played a role in developing a model enabling American Indian tribes to privatize their health care system from the Indian Health Service. Dr. Brill was appointed by the Arizona Board of Regents to the Arizona Area Health Education Centers Commission, and is a member of the Arizona Health Care Cost Containment System (AHCCCS) task force on Health Care Coverage in Arizona.

 

 

49

 



Dr. Brill received his undergraduate A.B. Biology at the University of California, Los Angeles, and graduated from the Chicago Medical School. He completed his Internship and Residency in Internal Medicine at the UCLA – San Fernando Valley Program, and a fellowship in Gastroenterology at Los Angeles County – USC Medical Center. Dr. Brill completed the Management Program for Health Care Organizations at the UCLA School of Public Health.

 

Mr. Cox and Mr. Berman, the officers, devote their complete business time to the Company. Mr. Jagunich and Dr. Brill attend meetings of the board of directors when held.

 

Election of Directors and Officers .

 

Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders and until their successors have been elected and qualified.

 

No Executive Officer or Director of the Company has been the subject of any Order, Judgment, or Decree of any Court of competent jurisdiction, or any regulatory agency permanently or temporarily enjoining, barring suspending or otherwise limiting him from acting as an investment advisor, underwriter, broker or dealer in the securities industry, or as an affiliated person, director or employee of an investment company, bank, savings and loan association, or insurance company or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any securities.

 

No Executive Officer or Director of the Company has been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding which is currently pending.

 

No Executive Officer or Director of the Company is the subject of any pending legal proceedings.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who beneficially own more than ten percent of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater than ten percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based upon a review of the copies of such forms furnished to us and written representations from our executive officers and directors, we believe that as of the date of this filing they were not current in there filings.

 

Audit Committee and Financial Expert

 

We do not have an Audit Committee, our directors perform some of the same functions of an Audit Committee, such as: recommending a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditors independence, the financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls. The Company does not currently have a written audit committee charter or similar document.

 

50

 



We have no financial expert. However, from time to time, we engage financial experts to provide consultation in specific areas as needed. We believe the cost related to retaining a full-time financial expert at this time is prohibitive. Further, because of our start-up operations, we believe the services of a financial expert are not warranted.

 

Code of Ethics

 

A code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote:

 

 

(1)

Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

(2)

Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the Commission and in other public communications made by an issuer;

 

(3)

Compliance with applicable governmental laws, rules and regulations;

 

(4)

The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

 

(5)

Accountability for adherence to the code.

 

We have not adopted a corporate code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

 

Our decision to not adopt such a code of ethics results from our having only two officers operating as the management for the Company. We believe that as a result of the limited interaction which occurs having such a small management structure for the Company eliminates the current need for such a code, in that violations of such a code would be reported to the party generating the violation.

 

Nominating Committee

 

We do not have a Nominating Committee or Nominating Committee Charter. Our board of directors, perform some of the functions associated with a Nominating Committee. We have elected not to have a Nominating Committee in that we are a development stage company with limited operations and resources.

 

ITEM 10.

EXECUTIVE COMPENSATION

 

 

The following table sets forth the cash compensation of the Company’s chief executive officer and Secretary/Treasurer during the last two fiscal years of the Company.

 

51

 



Summary Compensation Table

Name and Principal Position

Year

Annual Compensation

Long Term Compensation

Salary

Bonus

Other Annual

Compen-

sation

Awards

Payouts

All other compensation

Restricted

Stock

Options

LTIP

payouts

Robert Cox,

President

 

2005

2004

2003

 

$71,000

$45,000

$30,000

 

$50,000

-0-

-0-

 

-0-

-0-

-0-

 

-0-

-0-

9,375

 

337,500(1)

-0-

9,375(2)

 

-0-

-0-

-0-

 

-0-

-0-

-0-

Keith Berman,

Secretary/ Treasurer

 

 

2005

2004

2003

 

 

$36,500

$16,600

$16,600

 

 

-0-

-0-

-0-

 

 

-0-

-0-

-0-

 

 

-0-

-0-

7,813

 

 

337,500(3)

-0-

7,813(4)

 

 

-0-

-0-

-0-

 

 

-0-

-0-

-0-

 

(1)

The options are exercisable at $1.28 per share, pursuant to his option agreement dated February 5, 2005.

(2)

As of December 31, 2005 these options expired.

(3)

The options are exercisable at $1.28 per share, pursuant to his option agreement dated February 5, 2005.

(4)

As of December 31, 2005 these options expired.

 

Director Compensation and Other Arrangements

 

All directors will be reimbursed for expenses incurred in attending Board or committee, when established, meetings. From time to time, certain directors who are not employees may receive shares of our common stock.

 

In 2003 we issued stock options to each independent board member to purchase 250 shares of our common stock at an exercise price of $2.00 per share as compensation for their services as members of the board of directors. The options will expire on December 19, 2008. Outside directors are also paid a fee of $2,500 per quarter or $10,000 per year. The board members who are executives of the Company received no additional compensation in excess of their management remuneration.

 

Compensation Committee

 

We currently do not have a compensation committee of the board of directors. Until a formal committee is established our entire board of directors will review all forms of compensation provided to our executive officers, directors, consultants and employees, including stock compensation.

 

ITEM 11.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table presents information, to the best of our knowledge, about the beneficial ownership of our common stock on March 31, 2006 held by those persons known to beneficially own more than 5% of our capital stock and by our directors and executive officers. The percentage of beneficial ownership for the following table is based on 7,304,200 shares of common stock outstanding as of March 31, 2006.

 

52

 



Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes (unless footnoted) shares of common stock that the stockholder has a right to acquire within 60 days after March 31, 2006 pursuant to options, warrants, conversions privileges or other rights. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of our common stock.

 

Security Ownership of Management

 

 

Name of Beneficial Owner (2)

 

 

Number

of Shares

 

 

Percent of

Class (2)

Robert L. Cox, President, CEO & Director

16 Wood Hollow Lane

Northport, NY 11768

 

380,246 (3)

 

5%

Keith Berman, Secretary, Treasurer & Director

1623 Elmsford

Westlake, CA 91361

 

439,299 (4)

 

6%

Robert Jagunich, Director

765 Christine Drive

Palo Alto, CA 94303

 

187,616 (5)

 

3%

Joel V. Brill, M.D., Director

6602 E. Gold Dust Ave.

Scottsdale, AZ 85253

 

25,000 (6)

 

0%

Directors and Officers as a Group

 

1,032,161

 

14%

1.

As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). The address of each person is care of the Company.

2.

Figures are rounded to the nearest tenth of a percent.

3.

Includes 337,500 options to purchase shares of our common stock.

4.

Includes 337,500 options to purchase shares of our common stock.

5.

Includes 112,500 options to purchase shares of our common stock.

6.

Includes 25,000 options to purchase shares of our common stock.

 

53

 



 

 

Security Ownership of Certain Beneficial Owners

Name of Beneficial Owner (1)

 

Number

of Shares

 

Percent of

Class (2)

Mercator Momentum Fund, L.P. (3) (4)

Monarch Pointe Fund, Ltd.

M.A.G. Capital, LLC

David F. Firestone

555 South Flower St., Ste. 4200

Los Angeles, CA 90071

 

364,318

 

5%

Pinnacle Investment Partners

c/o Hank Gracin Esq.

50 Charles Lindberg Blvd., Ste. 505

Uniondale, NJ 11583

 

1,612,500 (5)

 

22%

Beneficial Owners as a Group

 

1,976,818

 

27%

1.

As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). The address of each person is care of the Company.

2.

Figures are rounded to the nearest tenth of a percent.

3.

Mercator Momentum Fund, L.P. (“Momentum Fund”) is a private investment limited partnership organized under California law. The general partner of Momentum Fund is M.A.G. Capital, LLC (“MAG”), a California limited liability company. David F. Firestone is the Managing Member of MAG. Monarch Pointe Fund, Ltd. (“MPF”) is a corporation organized under the laws of the British Virgin Islands. MAG controls the investments of MPF. Momentum Fund, MAG and MPF share dispositive power over the 364,318 shares.

4.

The information used is based on information reported on the beneficial owners Schedule 13G filing.

5.

Includes 1,462,500 shares held in escrow to back the loan made to us by Pinnacle.

 

ITEM 12.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

In February 2005, through our subsidiary Pharma Tech Solutions, Inc., we acquired CareGeneration, Inc. a company controlled by Ronald Kelly. Upon closing of the acquisition, Mr. Kelly was elected as a director of the Company and an officer and director of Pharma Tech. Subsequently, in June 2005 Mr. Kelly was removed for cause.

 

Our officers, Robert Cox and Keith Berman, serve as the sole officers for each of our two wholly owned subsidiaries formed on November 18, 2004: Pharma Tech Solutions, Inc. and PDA Services, Inc. Mr. Berman serves as President, Treasurer and Director of both subsidiaries Pharma Tech and PDA Services. Mr. Cox serves as Secretary of both subsidiaries Pharma Tech and PDA Services.

 

There is no other transaction that occurred during the last full fiscal year or proposed to occur during the current fiscal year to which any person related to the Company had or is to have a direct or indirect material interest as set forth in item 404 of Regulation S-B of the Securities and Exchange Act of 1933.

 

54

 



ITEM 13.

EXHIBITS

 

(a)

Exhibits

 

Exhibit Number

Description

3(i)(a)

Articles of Incorporation - Filed March 2, 2001

 

(Incorporated by reference to the exhibits to Form 10-SB filed on September 27, 2001.)

3(i)(b)

Articles of Amendments to Articles of Incorporation - Filed May 9, 2001

 

(Incorporated by reference to the exhibits to Form 10-SB filed on September 27, 2001.)

3(i)(c)

Articles of Amendments to Articles of Incorporation - Filed August 2, 2002

 

(Incorporated by reference to the exhibits to Form 10-QSB filed on August 22, 2002.)

3(ii)

Bylaws of CareDecision Corporation (formerly ATR Search Corporation)

 

(Incorporated by reference to the exhibits to Form 10-SB filed on September 27, 2001.)

10.1

CDED-Mercator Advisory Group LLC Subscription (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.2

CDED-Mercator Advisory Group LLC CoD Preferred Series C (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.3

CDED-Mercator Advisory Group LLC Reg Rts Agreement (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.4

Warrant Mercator Advisory Group, LLC $.02 (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.5

Warrant Mercator Momentum Fund, LP $.02 (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.6

Warrant Monarch Pointe Fund, Ltd. $.02 (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.7

Warrant Mercator Advisory Group, LLC $.03 (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.8

Warrant Mercator Momentum Fund, LP $.03 (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.9

Warrant Monarch Pointe Fund, Ltd. $.03 (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.10

CDED-Pinnacle Secured Note (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.11

CDED Pinnacle Pledge Agreement (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.12

CDED-Pinnacle Securities Purchase Agreement (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.13

CDED-Pinnacle 9_24_2004 Note Extension (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.14

CDED-Pinnacle 2_10_2005 Note Extension (Incorporated by reference to the exhibits of Form SB-2/A filed on February 11, 2005)

10.15

Lease Agreement (Incorporated by reference to the exhibits of Form SB-2/A filed on November 1, 2005)

31.1*

Certification of Robert Cox pursuant to Section 302 of the Sarbanes-Oxley Act

31.2*

Certification of Keith Berman pursuant to Section 302 of the Sarbanes-Oxley Act

32.1*

Certification of Robert Cox pursuant to Section 906 of the Sarbanes-Oxley Act

32.2*

Certification of Keith Berman pursuant to Section 906 of the Sarbanes-Oxley Act

 

______

*

Filed herewith.

 

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

(1) AUDIT FEES

 

The aggregate fees billed for professional services rendered by Beckstead and Watts, LLP, for the audit of our annual financial statements and review of the financial statements included in our Form 10-QSB or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal years 2005 and 2004 were $58,500 and $26,000, respectively.

 

 

55

 



(2) AUDIT-RELATED FEES

 

The aggregate fees billed by Beckstead and Watts, LLP for professional services rendered for audit related fees for fiscal years 2005 and 2004 were $0.00 and $0.00.

 

(3) TAX FEES

 

The aggregate fee to be billed by Beckstead and Watts, LLP for professional services to be rendered for tax fees for fiscal year 2005 was $-0- and for fiscal year 2004 was $-0-, respectively.

 

(4) ALL OTHER FEES

 

There were no other fees to be billed by Beckstead and Watts, LLp for the fiscal years 2005 and 2004 other than the fees described above.

 

(5) AUDIT COMMITTEE POLICIES AND PROCEDURES

 

 

We do not have an audit committee.

 

(6) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.

 

 

Not applicable.

 

 

 

56

 



SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

INSTACARE CORP.

 

 

By: /s/ Robert Cox                                               

 

Robert Cox, President

 

Date: April 11, 2006

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

Title

Date

 

/s/ Robert Cox                               

President, CEO,

April 11, 2006

Robert Cox

and Director

 

 

/s/ Keith Berman                           

Secretary, Treasurer,

April 11, 2006

Keith Berman

and Director

 

 

/s/ Robert Jagunich                      

Director

April 11, 2006

Robert Jagunich

 

/s/ Joel Brill                                     

Director

April 11, 2006

Joel V. Brill, M.D.

 

 

57

 



TABLE OF CONTENTS

 

PAGES

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

F-1

 

CONSOLIDATED BALANCE SHEET

F-2

 

CONSOLIDATED STATEMENT OF OPERATIONS

F-3

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

F-4

 

CONSOLIDATED STATEMENT OF CASH FLOWS

F-6

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-7 – F-35

 

 

58

 



Beckstead and Watts, LLP

Certified Public Accountants

2425 W Horizon Ridge Parkway

Henderson, NV 89052

702.257.1984 (tel)

702.362.0540 (fax)

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors

InstaCare, Inc.

(formerly CareDecision Corp.)

 

We have audited the accompanying restated balance sheet of InstaCare, Inc. (formerly CareDecision Corp.) as of December 31, 2005, and the related statements of income, retained earnings, and cash flows for the years ended December 31, 2005 and 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of InstaCare, Inc. (formerly CareDecision Corp.) as of December 31, 2005, and the results of its operations and its cash flows for the years ended December 31, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the Company has an accumulated deficit and a net loss in the current year. This raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

March 30, 2006

 

F-1

 

 



instaCare Corp.

(formerly CareDecision Corporation)

Consolidated Balance Sheet

 

 

 

 

 

 

December 31,

 

 

 

 

 

2005

Assets

 

 

Current assets:

 

 

 

Cash

$

709,295

 

Accounts receivable

 

247,584

 

Inventory

 

73,530

 

Prepaid expenses

 

55,956

 

 

Total current assets

 

1,086,365

 

 

 

 

 

 

 

Fixed assets, net

 

131,004

 

 

 

 

 

 

 

Other assets:

 

 

 

Deposits

 

3,412

 

Amortizable loan fees, net

 

116,208

 

 

Total other assets

 

119,620

 

 

 

 

 

 

 

 

 

 

 

 

$

1,336,989

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

43,850

 

Accrued expenses

 

22,943

 

Accrued interest

 

14,301

 

Convertible notes payable

 

1,403,583

 

 

Total current liabilities

 

1,484,677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ (deficit)

 

 

 

 

 

Preferred stock, $0.001 par value, 3,249,000 shares

 

 

 

authorized, 207,526 shares issued and outstanding

 

208

Preferred series “A” stock, $0.001 par value, 750,000 shares

 

 

 

authorized, no shares issued and outstanding

 

-

Preferred series “C” stock, $0.001 par value, 1,000,000 shares

 

 

 

authorized, 20,000 shares issued and outstanding

 

20

Preferred series “D” stock, $0.001 par value, 1,000 shares

 

 

 

Authorized, no shares issued and outstanding

 

-

Common stock, $1.001 par value, 1,750,000,000 shares authorized,

 

 

 

7,236,013 shares issued and outstanding

 

7,236

Additional paid-in capital

 

14,964,989

Prepaid share-based compensation

 

(60,000)

Shares authorized and un-issued

 

56

Unamortized warrants and options

 

(13,517)

Accumulated (deficit)

 

(15,046,680)

 

 

 

 

 

 

(147,688)

 

 

 

 

 

 

 

 

 

 

 

 

$

1,336,989

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-2

 



 

 

instaCare Corp.

(formerly CareDecision Corporation)

Consolidated Statements of Operations

 

 

For the Years Ended

 

December 31,

 

2005

 

2004

 

 

 

 

 

 

Revenue

$

5,614,313

 

$

182,112

Cost of sales

 

5,112,629

 

 

-

 

 

 

 

 

 

Gross profit

 

501,684

 

 

182,112

 

 

 

 

 

 

Expenses:

 

 

 

 

 

General and administrative expenses

 

386,037

 

 

396,079

Consulting services

 

38,000

 

 

-

Payroll expense

 

824,098

 

 

369,448

Professional fees

 

353,887

 

 

-

Compensation expense

 

1,128,706

 

 

2,086,469

Software development

 

-

 

 

119,640

Impairment of operating assets and goodwill

 

1,167,717

 

 

415,078

Depreciation

 

52,546

 

 

99,910

Total expenses

 

3,950,991

 

 

3,486,624

 

 

 

 

 

 

Net operating (loss)

 

(3,449,307)

 

 

(3,304,511)

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Loss – related party

 

(377,778)

 

 

(377,136)

Loss on debt settlement

 

(19,838)

 

 

-

Interest income

 

16,112

 

 

3,527

Merger expenses

 

-

 

 

(304,750)

Financing costs

 

(562,973)

 

 

(481,700)

Interest expense

 

(429,524)

 

 

(86,456)

 

 

 

 

 

 

Provision for income taxes

 

-

 

 

-

 

 

 

 

 

 

Net (loss)

$

(4,823,308)

 

$

(4,551,027)

 

 

 

 

 

 

Weighted average number of

 

 

 

 

 

Common shares outstanding – basic and fully diluted

 

5,695,457

 

 

2,573,930

 

 

 

 

 

 

Net (loss) per share – basic and fully diluted

$

(0.85)

 

$

(1.77)

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3

 



 

 

instaCare, Corp.

(formerly CareDecision Corporation)

Consolidated Statement of Changes of Stockholders’ Equity

 

 

 

Preferred Stock

Common Stock

Additional

Paid-in

Capital

Shares

Authorized and

Un-issued

Unamortized

Warrant & Options

Prepaid

Stock Comp

Accumulated

(Deficit)

Total

Stockholders'

Equity

 

Shares

Amount

Shares

Amount

Balance, December 31, 2003

-

$ -

1,503,061

$ 1,503

$ 5,748,728

$ -

$ -

$ -

$ (5,672,345)

$ 77,886

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services on January 9, 2004

 

 

81,250

81

261,419

 

 

 

 

261,500

 

Shares issued for services on January 13, 2004

 

 

19,375

19

67,481

 

 

 

 

67,500

 

Shares issued for services on January 20, 2004

 

 

90,625

91

289,909

 

 

 

 

290,000

 

Shares issued for services on January 23, 2004

 

 

2,563

3

9,222

 

 

 

 

9,225

 

Shares issued for services on February 23, 2004

 

 

25,000

25

79,975

 

 

 

 

80,000

 

Shares issued for services on March 3, 2004

 

 

11,250

11

35,989

 

 

 

 

36,000

 

Shares issued for debt conversion on March 3, 2004

207,526

208

91,875

92

521,908

 

 

 

 

522,208

 

Shares issued for dispute settlement on March 10, 2004

 

 

81,375

81

325,419

 

 

 

 

325,500

 

Shares issued for services on March 16, 2004

 

 

58,256

58

186,362

 

 

 

 

186,420

 

Shares issued for services on April 2, 2004

 

 

23,875

24

76,376

 

 

 

 

76,400

 

Shares issued for services on April 13, 2004

 

 

250,625

251

277,749

 

 

 

 

278,000

 

Shares issued for services on April 20, 2004

 

 

41,250

41

131,959

 

 

 

 

132,000

 

Shares issued for services on April 28, 2004

 

 

100,000

100

319,900

 

 

 

 

320,000

 

Shares issued for services on May 7, 2004

 

 

3,125

3

9,997

 

 

 

 

10,000

 

Shares issued for services on May 20, 2004

 

 

9,375

9

29,991

 

 

 

 

30,000

 

Shares issued for services on May 28, 2004

 

 

37,500

38

2,962

 

 

 

 

3,000

 

Shares issued for cash on June 2, 2004

 

 

9,688

10

30,990

 

 

 

 

31,000

 

Shares issued for cash on June 10, 2004

 

 

37,500

38

119,962

 

 

 

 

120,000

 

Shares issued for employee stock option plan on August 13, 2004

 

 

17,500

17

33,583

 

 

 

 

33,600

 

Shares issued for services on August 13, 2004

 

 

250,000

250

479,750

 

 

 

 

480,000

 

Shares issued for services on August 25, 2004

 

 

9,375

9

25,491

 

 

 

 

25,500

 

Shares issued for services on September 13, 2004

 

 

35,625

36

76,914

 

 

 

 

76,950

 

Shares issued for debt conversion on September 13, 2004

 

 

25,000

25

49,975

 

 

 

 

50,000

 

Shares issued for services on October 12, 2004

 

 

178,125

178

284,822

 

 

 

 

285,000

 

Shares issued for cash on October 12, 2004

 

 

121,875

122

194,878

 

 

 

 

195,000

 

Shares issued for renewal fees on November 2, 2004

 

 

50,000

50

37,950

 

 

 

 

38,000

 

Shares issued for cash on November 3, 2004

 

 

44,722

45

64,355

 

 

 

 

64,400

 

Shares issued for services on November 3, 2004

 

 

53,965

54

77,656

 

 

 

 

77,710

 

Shares issued for renewal fees on November 29, 2004

 

 

25,000

25

37,975

 

 

 

 

38,000

 

 

 

 

 

 

 

 

 

 

 

Net (loss) for the Year Ended December 31, 2004

 

 

 

 

 

 

 

 

(4,551,027)

(4,551,027)

Balance, December 31, 2004

207,526

208

3,288,755

3,289

9,889,647

 

-

-

(10,223,372)

(330,228)

 

 The accompanying notes are an integral part of these consolidated financial statements.

 

F-4


instaCare, Corp.

(formerly CareDecision Corporation)

Consolidated Statement of Changes of Stockholders’ Equity (Continued)

 

 

 

Preferred Stock

Common Stock

Additional

Paid-in

Capital

Shares

Authorized and

Un-issued

Unamortized

Warrant & Options

Prepaid

Stock Comp

Accumulated

(Deficit)

Total

Stockholders'

Equity

 

Shares

Amount

Shares

Amount

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for financing services on January 13, 2005

 

 

90,625

91

137,659

 

 

 

 

137,750

 

Shares issued for services on February 2, 2005

 

 

46,875

47

68,703

 

 

 

 

68,750

 

Shares issued for warrants exercised in exchange for services on February 2, 2005

 

 

88,000

88

133,672

 

 

 

 

133,760

 

Shares issued for merger on March 14, 2005

 

 

531,250

531

806,969

 

 

 

 

807,500

 

Shares issued for cash and services on March 14, 2005

 

 

125,000

125

189,875

 

 

 

 

190,000

 

Shares issued for cash and financial consulting on March 14, 2005

 

 

218,750

219

314,781

 

 

 

 

315,000

 

Shares issued per financing agreement on March 24, 2005

20,000

20

-

-

1,677,980

 

 

 

 

1,678,000

 

 

(net of offering costs)

 

 

 

 

 

 

 

 

 

 

 

Shares issued for debt collateral on April 5, 2005

 

 

1,037,500

1,037

(1,037)

 

 

 

 

-

 

Shares issued for financing fees on April 5, 2005

 

 

162,500

162

233,838

 

 

 

 

234,000

 

Shares issued for consulting services on April 5, 2005

 

 

37,500

37

44,963

 

 

 

 

45,000

 

Shares issued for debt conversion on April 5, 2005

 

 

134,960

135

172,614

 

 

 

 

172,749

 

Shares issued for consulting services on June 1, 2005

 

 

118,750

119

107,881

 

 

 

 

108,000

 

Warrants granted for services on May 1, 2005

 

 

-

-

90,706

 

 

 

 

90,706

 

Shares and options issued per settlement on June 14, 2005

 

 

28,125

28

104,767

 

 

 

 

104,795

 

Shares issued for debt conversion on August 1, 2005

 

 

201,125

201

128,519

 

 

 

 

128,720

 

Shares issued in exchange for PharmaTech stock interest on August 2, 2005

 

 

158,234

158

151,746

 

 

 

 

151,904

 

Shares issued for consulting services on August 8, 2005

 

 

12,626

13

14,128

 

 

 

 

14,141

 

Shares issued for licensing agreement on September 28, 2005

 

 

50,000

50

63,950

 

 

 

 

64,000

 

Shares issued for services on September 28, 2005

 

 

1,250

1

799

 

 

 

 

800

 

Escrow shares used for accrued interest on September 30, 2005

 

 

-

-

39,292

 

 

 

 

39,292

 

Shares issued for consulting services on October 3, 2005

 

 

1,250

1

799

 

 

 

 

800

 

Warrants issued and exercised in exchange for services on October 3, 2005

 

 

5,438

6

3,474

 

 

 

 

3,480

 

Options issued and exercised for services on October 3, 2005

 

 

215,625

216

155,034

 

 

 

 

155,250

 

Options issued and exercised for services on November 17, 2005

 

 

231,250

231

184,769

 

 

(60,000)

 

125,000

 

Options issued and exerecised for employee bonuses on November 17, 2005

 

 

18,750

19

14,981

 

 

 

 

15,000

 

Shares issued for consulting services on November 18, 2005

 

 

6,875

7

5,993

 

 

 

 

6,000

 

Shares issued for debt collateral on November 18, 2005

 

 

337,500

338

(338)

 

 

 

 

-

 

Shares issued for financing fees on November 18, 2005

 

 

87,500

88

55,913

 

 

 

 

56,000

 

Shares authorized and unissued for services

 

 

-

-

16,627

23

 

 

 

16,650

 

Shares authorized and unissued for Director bonus

 

 

-

-

21,975

25

 

 

 

22,000

 

Share authorized and unissued for services on December 26, 2005

 

 

-

-

25,959

41

 

 

 

26,000

 

Options granted for 2006 Director services on December 6, 2005

 

 

-

-

13,517

 

(13,517)

 

 

-

 

Options granted for services on December 1, 2005

 

 

-

-

36,463

 

-

 

 

36,463

 

Share cancellation authorized on December 1, 2005

 

 

-

-

33

(33)

 

 

 

-

 

Warrants granted in connection with financing on December 31, 2005

 

 

-

-

33,726

 

 

 

 

33,726

 

 

 

 

 

 

 

 

 

 

 

 

 

Escrow shares issued for debt reduction on December 14, 2005

 

 

 

 

24,612

 

 

 

 

24,612

 

 

 

 

 

 

 

 

 

 

 

Net (loss), year ended December 31, 2005

 

 

-

-

 

 

 

 

(4,823,308)

(4,823,308)

Balance, December 31, 2005

227,526

$ 228

7,236,013

$ 7,236

$14,965,989

$ 56

$ (13,517)

$(60,000)

$(15,046,680

$ (147,688)

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5

 



instaCare, Corp.

(formerly CareDecision Corporation)

Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended

 

 

 

 

 

December 31,

 

 

 

 

 

2005

2004

Cash flows from operating activities

 

 

 

Net (loss)

$

(4,823,308)

$

(4,551,027)

Adjustments to reconcile net (loss) to

 

 

 

 

 

net cash (used) by operating activities:

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

General and administrative

 

42,999

 

-

 

Consulting services

 

905,957

 

1,326,269

 

Payroll expense

 

15,000

 

738,600

 

Professional fees

 

164,750

 

-

 

Software development

 

-

 

21,600

 

Financing costs

 

355,682

 

481,700

 

Interest expense

 

93,940

 

-

 

Amortization of loan fees

 

107,292

 

-

 

Impairment loss on operating assets and goodwill

 

1,118,376

 

415,078

 

Loss – related party

 

78,347

 

377,136

 

Depreciation

 

52,546

 

99,910

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

(247,584)

 

-

 

 

Inventory

 

127,373

 

(200,903)

 

 

Prepaid expenses

 

(55,956)

 

-

 

 

Note receivable

 

107,500

 

(57,500)

 

 

Deposits

 

(3,412)

 

-

 

 

Amortizable loan fees

 

116,208

 

-

 

 

Accounts payable

 

(70,852)

 

114,703

 

 

Customer deposits

 

(12,500)

 

12,500

 

 

Accrued interest

 

14,301

 

-

 

 

Accrued liabilities

 

(281,807)

 

304,750

Net cash (used) by operating activities

 

(2,402,564)

 

(917,184)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Convertible notes - related party

 

-

 

50,000

 

Proceeds from notes payable to shareholders

 

-

 

51,085

 

Payments on note payable to shareholders

 

(11,028)

 

(116,175)

 

Proceeds from convertible notes payable

 

669,350

 

700,088

 

Issuance of preferred series “C” stock

 

1,878,000

 

-

 

Issuance of common stock

 

153,050

 

625,400

Net cash provided by financing activities

 

2,689,372

 

1,310,398

 

 

 

 

 

 

 

 

 

Net increase in cash

 

286,808

 

393,214

Cash - beginning

 

422,487

 

29,273

Cash - ending

$

709,295

$

422,487

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

Interest paid

$

335,584

$

76,856

 

Income taxes paid

$

-

$

-

 

 

F-6

 



 

instaCare, Corp.

(formerly CareDecision Corporation)

Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

Number of shares issued for stock-based compensation

 

18,750

 

1,569,674

 

Number of shares issued for debt conversion

 

213,751

 

116,875

 

Number of shares issued for settlement

 

-

 

81,375

 

Number of shares issued to acquire software

 

-

 

270