UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the Fiscal Year Ended December 31, 2008
OR
o
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
File Number 333-149260
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(Exact
name of issuer as specified in its charter)
|
Oklahoma
|
20-1842879
|
|
(State
or other jurisdiction of incorporation
or
organization)
|
(IRS
Employer Identification No.)
|
|
3400 SE
Macy Rd, #18
Bentonville,
Arkansas
|
72712
|
(479)
845-0880
|
|
(Address
of principal executive office)
|
(Postal
Code)
|
(Issuer's
telephone number)
|
Securities
registered pursuant to Section 12(b) of the Act: None.
Securities
registered pursuant to Section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined by
Rule 405 of the Securities Act. Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes
o
No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
o
|
Accelerated
filer
o
|
|
Non-accelerated
filer
o
|
Smaller
reporting company
x
|
|
(Do
not check if a smaller reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Act.) Yes
o
No
x
There was
no aggregate market value of the voting common equity held by non-affiliates as
of June 30, 2008, as our common stock was not publicly traded at that
time.
As of
March 27, 2009, there were 23,716,361 shares of the registrant’s common stock
and 37,440 shares of series A convertible preferred stock
outstanding.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
FORM
10-K
For
the Fiscal Year Ended December 31, 2008
|
|
|
Page
|
|
|
Part
I
|
|
|
|
|
|
|
Item
1.
|
Business
|
3
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
11
|
|
|
|
|
|
Item
1B.
|
Unresolved Staff
Comments
|
21
|
|
|
|
|
|
Item
2.
|
Properties
|
21
|
|
|
|
|
|
Item
3.
|
Legal
Proceedings
|
21
|
|
|
|
|
|
Item
4.
|
Submission of
Matters to a Vote of Security Holders
|
21
|
|
|
|
|
|
|
Part
II
|
|
|
|
|
|
|
Item
5.
|
Market for Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
|
22
|
|
|
|
|
|
Item
6.
|
Selected Financial
Data
|
23
|
|
|
|
|
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
24
|
|
|
|
|
|
Item
7A.
|
Quantitative and
Qualitative Disclosures about Market Risk
|
30
|
|
|
|
|
|
Item
8.
|
Financial Statements
and Supplementary Data
|
F-1
|
|
|
|
|
|
Item
9.
|
Changes in and
Disagreements With Accountants on Accounting and Financial
Disclosure
|
31
|
|
|
|
|
|
Item
9A.
|
Controls and
Procedures
|
31
|
|
|
|
|
|
Item
9B.
|
Other
Information
|
31
|
|
|
|
|
|
|
Part
III
|
|
|
|
|
|
|
Item
10.
|
Directors, Executive
Officers and Corporate Governance
|
32
|
|
|
|
|
|
Item
11.
|
Executive
Compensation
|
34
|
|
|
|
|
|
Item
12.
|
Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder
Matters
|
36
|
|
|
|
|
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
37
|
|
|
|
|
|
Item
14.
|
Principal Accounting
Fees and Services
|
38
|
|
|
|
|
|
|
Part
IV
|
|
|
|
|
|
|
Item
15.
|
Exhibits and
Financial Statement Schedules
|
39
|
|
|
|
|
|
Signatures
|
41
|
PART I
FORWARD-LOOKING
INFORMATION
This
Annual Report of WellQuest Medical & Wellness Corporation on Form 10-K
contains forward-looking statements, particularly those identified with the
words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives”
and similar expressions. These statements reflect management's best judgment
based on factors known at the time of such statements. The reader may find
discussions containing such forward-looking statements in the material set forth
under “Legal Proceedings” and “Management's Discussion and Analysis of Financial
Condition and Results of Operations,” generally, and specifically therein under
the captions “Liquidity and Capital Resources” as well as elsewhere in this
Annual Report on Form 10-K. Actual events or results may differ materially from
those discussed herein.
ITEM
1.
BUSINESS.
Overview
We were
incorporated in the State of Oklahoma on November 8, 2004 as HQHealthQuest
Medical & Wellness Centers, Ltd. We changed our name to WellQuest
Medical & Wellness Corporation on April 24, 2008. We incorporated
a wholly-owned subsidiary in the State of Arkansas on May 5, 2005 as WellQuest
Medical & Wellness Centers of Arkansas, Inc., which was subsequently
re-registered as WellQuest of Arkansas, Inc. We opened our first
medical center in Bentonville, Arkansas on September 12, 2005. Our
principal offices are located at 3400 SE Macy Rd., Suite 18, Bentonville,
Arkansas 72712. Our telephone number is (479) 845-0880.
We
provide an integrated medical delivery site with family physician healthcare
services, preventive/wellness services and medical skin-care
services. The integration of these services embraces the clinical
synergy of medical treatments for illness, preventive/wellness services and
products for health maintenance and medically supervised skin-care treatments
for aesthetic enhancement.
Our
wellness center is open daily from 8 am to 8 pm (12 pm to 6 pm on Sunday),
providing our clients with the ability to be seen and treated seven days a week.
We offer our services with and without appointments, occupational health
services for business, preventive health alternatives (such as life-style
counseling, nutritional counseling, fitness counseling, vitamin and supplement
therapies and disease management counseling) and aggressive medical aesthetics
(such as laser treatments, injections, chemical peels and therapeutic massages
compared to “relaxation” only services). Utilizing electronic medical
records, digital radiology and diagnostic testing, and customer service
protocols, we intend to brand and replicate the service center in
demographically selected metropolitan areas. We manage the physician
practices, own and lease certain medical equipment and personnel services, own
and operate preventive care products and services and own and manage medical spa
services and product sales.
Our
service concept will initially target segments of metropolitan areas in the
United States with household incomes above $75,000, business occupational
healthcare needs, wellness oriented consumers and those seeking
aesthetic/skincare improvements. Health insurance companies are
billed for allowed medical services and cash or credit cards are accepted for
non-covered services.
Industry
Overview
The
healthcare industry in the United States ranks in World Health Organization
studies as first in spending/cost per capita among industrialized nations but
far behind other nations in many significant health status and quality
rankings. In spite of the abundance of advanced technology,
healthcare expenditures represented more than 16% of the U.S. gross domestic
product spending in 2006 (source: Blue Cross and Blue Shield Association,
National Healthcare Trends, 2007 Medical Cost Reference Guide). We believe a
lack of timely access to non-emergent care, lack of customer service
orientation, high costs and lack of emphasis on preventive care are significant
barriers to increased quality healthcare.
An
Indiana
University-Purdue
University, Fort Wayne (IPFW) study determined there is emerging demand for
preventive and wellness lifestyles. As insurance companies refuse to
pay for such preventive services, people are paying out-of-pocket for these
services in pursuit of better health and longer life. The 2007 Spa
Industry study by the International Spa Association found there are similar
trends of increased personal attention and spending for improved aesthetic
services.
We
believe that our integration of high customer service medical care, advanced
technology, preventive/wellness services and aesthetic care in attractive and
accessible facilities makes us a “solution company” for many families and
businesses who want all of these services in a professional, accessible and
pleasant environment.
Our
Operations
We own
and operate a medical spa business, retail skincare and nutraceutical product
business and a practice management business. In addition, we own the
long-term lease for our center and have completed improvements in the facility
that houses the spa business, the retail business and the medical practice of
Northwest Arkansas Primary Care Physicians, which we refer to as
NWAPCP. We own all of the equipment utilized in the spa and the
medical practice, and we employ all non-physician employees who work in the spa,
the medical practice and the management company.
Our
business model depends primarily upon a retail market approach for generating
customers. We generate business through marketing and advertising,
direct sales of occupational medical services to companies (flu shots, worker
injury treatment services, drug testing, and health promotion programs), public
relations efforts with local charities, city and county organizations, hospitals
and medical providers, networking and promotional events and open
houses. Internal marketing includes brochures, posters, magazines,
health promotion articles, and educational materials that point to our
services. The integrated service areas of the site (medical clinic,
wellness services and medical spa) actively cross educate clients on the
services available within the service site. Once we have a new
client, client follow-up, client referral programs and return visits are
utilized to maintain and grow our business. To assure broad access of insured
clients in the medical service area, we participate in contracts with virtually
all commercial health insurance plans and company self-insured health plans in
the market, and, in the Medicare Program, making our services fully reimbursable
for the clients who choose us. At the present time, we do not
participate in pre-paid or HMO plans, since we do not believe there is a
significant presence of those plans in our market.
Management
and Medical Services Agreement
On
September 1, 2005, we entered into a Management and Medical Services Agreement
with NWAPCP pursuant to which we engaged the physicians to provide medical
direction to our one-stop primary healthcare and wellness center in exchange for
our providing certain management services to the physicians. This
agreement has an initial term of three years from the effective date of the
agreement and shall automatically renew for successive two year terms unless
either party gives notice of its intent not to renew at least 90 days prior to
the expiration of the then current term. The proceeds from the
practice are assigned to us. From those proceeds, we pay the
compensation of the employees of NWAPCP and all expenses associated from the
conduct of the practice. In 2008, revenues from the operation of the
medical practice were from private commercial insurance (91%), self-payment (4%)
and Medicare (5%). The revenues were used for the
following:
|
|
•
|
26%
was paid to NWAPCP for physician compensation, including the medical
director’s fee;
|
|
|
•
|
7.5%
was paid to us as a management fee;
|
|
|
•
|
5 %
was paid to us as a facility lease fee;
|
|
|
•
|
25%
was paid to us as an employee lease fee;
|
|
|
•
|
2%
was paid to us as an equipment lease fee; and
|
|
|
•
|
23.5%
was paid to us for all other direct expenses including software, facility
and computer maintenance, accounting, legal, malpractice insurance,
medical supplies, office supplies, continuing education, billing and
collection expenses, marketing and other routine expenses of the
practice.
|
Pursuant
to this agreement, we granted NWAPCP exclusive rights to operate medical
practices in our current center and all future sites that we might open in
Northwest Arkansas. As a result, NWAPCP is responsible for hiring all
physicians and nurses who operate in the medical center. The center
is currently staffed by two full-time physicians, one full-time physician’s
assistant, two part time advance practice nurses (nurse practitioners), and two
part time physician’s assistants. Under the Agreement, NWAPCP
provides professional medical services to patients in compliance with practice
standards and laws; supervision of all non-physician personnel for clinical
services; employs, schedules and supervises all physicians (and physician’s
assistants/nurse practitioners); maintains and assures acceptable clinical
standards and participates in providing education and training to
staff.
NWAPCP,
and its employed physicians, have restrictive covenants for practicing in the
immediate market following a termination of the Agreement. NWAPCP is
required to maintain professional liability insurance. We have the
right to terminate the agreement for cause or material default with 90 day cure
periods.
We are
responsible for hiring and providing all non-medical personnel, In addition,
NWAPCP grants us the exclusive right to manage all aspects of the medical
practice’s financial and operational activities, including accounting, billing
and collecting, staffing, inventory management, equipment procurement and
management, facility management, marketing and other management
services. We provide all operational and financial management
services outside the scope of clinical practice.
Under the
Agreement, we are responsible for all management services related to the
ordinary and usual business affairs of the practice. We advise the
practice in matters of compliance, policies, procedures, marketing, billing and
collection, and other matters related to the operation of the practice; we
provide financial, accounting, human resource and management services for the
practice; we supervise and maintains records and files of the practice in
compliance with requirements of the Health Insurance Portability and
Accountability Act of 1996, which we refer to as HIPAA; we manage all computer,
software, bookkeeping and clerical services; we assist with physician
recruitment; we negotiate and secure contracts with vendors, suppliers and third
party insurance companies related to the practice; and, we assist the practice
in quality assurance and compliance programs. Through a facility
sub-lease with NWAPCP, we provide the specific space and improvements utilized
for the medical practice services. Through a medical equipment lease
with NWAPCP, we provide all equipment and furniture utilized in the medical
practice. Through an employee lease agreement with NWAPCP, we provide the
practice with all non-physician personnel utilized in the practice.
Under the
Agreement, we purchase all non-government accounts receivable monthly and from
the collections of those accounts receivable, pay all operating expenses of the
practice including physician compensation. In addition, we loan the
practice any amounts of monthly shortfall in the funds necessary to pay all
expenses of the practice and the practice repays loans with interest to us when
collections exceed monthly expenses. We receive a monthly management fee of 7.5%
of the practice’s net revenues, and after all practice loans and interest are
repaid in full to us, we receive a performance bonus as a share of any practice
operating profits after physician compensation and all practice operating
expenses are paid. Any remaining profits are paid or payable to the owners of
NWAPCP. Because NWAPCP currently has outstanding loans due to
WellQuest of Arkansas, 80% of any remaining profits are used to reduce the
debt. The remaining 20% of any remaining profits are paid or payable
to the owners of NWAPCP Once the debt has been repaid in full,
remaining profits will be paid or payable to the owners of NWAPCP
Because
the accounts of NWAPCP are consolidated with ours, loans to fund NWAPCP’s
operating losses are eliminated and reported as expenses in the consolidated
financial statements. Operating profits of NWAPCP used to reduce its
debt to WellQuest are eliminated and reported as operating profits in the
consolidated financial statements. For each period presented,
NWAPCP’s profits paid or payable to its owners are reported as physician
compensation in clinic direct expenses.
Medical
Director Services Agreement
On
September 1, 2005, we entered into a Medical Director Services Agreement with C.
Wade Fox, M.D. pursuant to which we engaged Dr. Fox as medical director for our
healthcare and wellness center to advise us on the operations of our center and
to provide medical services to our customers. This agreement has an
initial term of three years from the initial date of the agreement and shall
automatically renew for successive two year terms unless either party gives
notice of its intent not to renew at least 90 days prior to the expiration of
the then current term. We pay Dr. Fox $25,000 annually for his
services under the agreement. An administrative bonus may be added at a later
date but has not been enacted at this time.
Dr. Fox’s
responsibilities under the agreement include: a minimum time commitment of five
hours per week; maintaining an Arkansas Medical license; maintaining customary
narcotics and controlled drugs licensure; staff membership at a local hospital;
Board Certification in family practice medicine; maintaining malpractice
insurance in minimum of $1 million per incident/$3 million aggregate per year;
conformity to HIPAA privacy laws; compliance with national and state fraud and
abuse protection laws and observance of our policies and
procedures. Dr. Fox has a non-compete for similar services during the
term of the agreement.
The
services that Dr. Fox must provide include physician administrative duties such
as quality assurance programs, medical education of staff and patients, direct
laboratory and clinical services, development of patient care policies, provide
continuing education for staff and recommending practice improvements for
staffing, equipment and procedures. The specific duties in the
agreement include:
|
|
•
|
Devote
his or her best ability to the proper medical management of the
center;
|
|
|
•
|
Establish
and continually review policies and procedures related to medical
education;
|
|
|
•
|
Serve
as laboratory director of any clinical laboratories for us in
Arkansas;
|
|
|
•
|
Be
responsible for assuring that our established policies, bylaws, rules and
regulations are followed in the medical practice;
|
|
|
•
|
Design,
develop, review, evaluate and implement administrative and patient care
policies and procedures that promote the quality, service, efficiency,
cost-effectiveness and overall success of the medical
practice;
|
|
|
•
|
Supervise
and coordinate the delivery of patient care, including any laboratories
and imaging centers we operate;
|
|
|
•
|
Meet
regularly with our employees and quality assurance staff for discussion of
clinical issues to ensure proper treatment;
|
|
|
•
|
Assist
us in ensuring that our center, including any laboratories and or imaging
centers, meet all requirements, terms and conditions required by Medicare
Conditions of Participation and federal and state statutes governing the
provision of such services;
|
|
|
•
|
Propose
programs to address current and future medical specialty
needs;
|
|
|
•
|
Work
with the Director of Quality Assurance, after implementation of programs,
to determine the impact of said programs on the quality of care at the
medical center;
|
|
|
•
|
Make
recommendations at least annually to us regarding staffing, equipment and
facility needs, quality standards, quality assurance indicators, and our
personnel’s adherence to policies and procedures; and
|
|
|
•
|
Assist
us in identifying new markets for our medical centers, and in recruiting
and staffing medical practices to serve the new
markets.
|
Our
Services
We
deliver an integrated model of primary medical care, preventive/wellness
services and medical esthetics in an upscale facility located in a high-traffic
retail corridor. Our site is called “WellQuest Medical Clinic and
Spa”, a trademarked business name. Our business concept combines a
customer-service oriented medical treatment facility for interventional care
with programmed preventive services and products that lead clients in the quest
for wellness. The facility also houses an advanced medical spa for
skincare services and products. We believe we are creating a new
experience for the health-conscious healthcare consumers who have increased
service expectations and are seeking not just to get well, but to stay well and
look well. Our facility, the interior design, aroma therapy, trained
administrative receptionists, programmed visual and sound media are designed to
not look, act or smell like a doctor’s office. We believe this
environment, experience and service can be replicated and
branded. This gives individual and business clients a predictable and
consistent medical service.
Interventional
Medical Services
Family
practice physicians assisted by physician’s assistants and advanced practice
nurses are available from 8 am to 8 pm six days per week and from noon to 6 pm
on Sunday. Scheduling protocols allow customers to schedule
appointments to meet their busy schedules or to come without an appointment when
unplanned sickness or injuries occur. For sudden sickness and minor
injuries, we provide an alternative to the often long waits and excessive costs
of hospital emergency rooms. The extended hours and open access are
attractive alternatives for business clients seeking occupational services for
their employees. The clinical services include the
following:
|
•
|
Full-spectrum
family practice services for adults and children;
|
|
•
|
Advanced
Electronic Medical Records (EMR) that enables rapid, accurate and
consistent medical documentation and protocols, safety features, follow-up
planning and billing information. In the future when we open
additional sites, connectivity between our sites will allow clients to
access their information for treatment or prescriptions at any of our
available facilities;
|
|
•
|
Digital
radiology for views of chest, abdomen, extremities, and
head. The digital images can be electronically delivered to
referral specialists, employers (on work injuries) or other WellQuest
sites. The digital equipment has enhancement features that
virtually eliminate repeat films;
|
|
•
|
Laboratory
services include on-site testing and referral testing to major outsource
lab companies. Electronic bridges deliver the results directly
to the client’s EMR for faster and more accurate
results. Clients with PIN numbers are able to view their
laboratory test results next day via our website;
|
|
•
|
Blood
pressure, temperature, pulse rates, EKG and pulmonary testing are also
tied directly to the client’s EMR;
|
|
•
|
Women’s
health, annual fitness and wellness exams, Executive Health Services and
extended health assessments; and
|
|
•
|
Occupational
health services include treatment of work injuries, pre-employment exams,
drug testing, company sponsored flu shots and education programs for
workers.
|
Wellness
and Preventive Health Services
Under the
direction of our physicians, clients are provided with personalized programs for
nutrition, lifestyle improvement, targeted health treatments and
preventions. These services are performed by physicians, nutritional
counselors or other trained health clinical personnel, and the plans are
recorded in the clients’ EMR. Wellness and prevention are not
adjuncts to medical treatment, but rather, an integrated part of the clinical
treatment and service. These services include:
|
•
|
Functional
Intracellular Analysis (FIA) is a next generation blood test for measuring
specific vitamins, minerals, antioxidants, and other essential
micronutrients within an individual's white blood cells
(lymphocytes);
|
|
•
|
Computerized
body composition analysis that determines body mass composition by
quadrants and measures intracellular water;
|
|
•
|
Nutritional
counseling for weight loss that addresses nutrition, proper lifestyle,
exercise and supplements;
|
|
•
|
Targeted
health counseling for integrated treatment of diabetes, high cholesterol,
high blood pressure, heart and circulatory problems;
|
|
•
|
Wellness
protocols include counseling for nutritional supplements, vitamins and
weight control products. We carry private label and other label
nutraceutical products;
|
|
•
|
Therapeutic
massage; and
|
|
•
|
Stress
management.
|
Medical
Spa Services
With a
physician on-site at all times, registered nurses, certified estheticians and
licensed massage therapists provide advanced skincare and massage services for
clients. Our medical spa offers the following services:
|
•
|
Personal
esthetic concierge; a consultant to help clients plan and achieve their
esthetic goals;
|
|
•
|
SkinPrint
Facial Analysis utilizes high resolution camera, ultra-violet light
photography and electronic probes to measure facial skin
characteristics. A sophisticated computer analysis reports the
information to our certified estheticians and to compounding chemists in
New York. The analysis is used to produce customized skin care
serums for each client’s personal needs. The analysis is also
used to discuss the treatment plan for long term
results;
|
|
•
|
Specialized
lasers are used for procedures such as hair removal, skin resurfacing,
micro laser peels, spider-vein removal and wrinkle
reduction;
|
|
•
|
Broad
Band Light (BBL) equipment treats skin discoloration, blemishes, photo
damage, collagen stimulation for skin tightening, and
acne;
|
|
•
|
We
utilize custom protocols for facials, chemical peels, micro-dermabrasion
and other fundamental procedures;
|
|
•
|
In
addition to stress-relieving massages, our therapists collaborate with the
physicians to address clinical therapies through
massage;
|
|
•
|
Injectibles
(such as Botox, Juvederm, Radiesse, and Sculptra) that address wrinkles
and sagging;
|
|
•
|
Cosmetic
consultations assist clients in selecting and applying high quality
mineral makeup, glosses and cosmetic products; and
|
|
•
|
Custom
spa party events are offered for businesses, families and
friends.
|
In
addition, we offer for sale retail skincare products such as cleansers,
moisturizers, body lotions, exfoliating gels, eye moisturizers, lip balms,
bio-peptide lotions, body wash gels, and other related skin items and
enhancers. In addition, we sell cosmeceutical products such as
mineral make-up, eye shadows, lip glosses, foundations, and other related beauty
or cosmeceutical products. Products in both of these categories are obtained
from multiple sources, and these or similar products are available from numerous
manufacturers in the market place. We make our selections based upon
client acceptance, quality of product and service, trends in the market and
seasons, wholesale costs, retail pricing and margin.
Staffing
Our
integrated facility is staffed to meet extended days and hours of
service. Staffing may also fluctuate with client
volume. The typical staffing pattern at our one center includes the
following personnel and professionals:
Medical Clinic and Wellness
Services (Six and one-half days, 78 hours per week)
|
•
|
One/Two
Physicians and one/two Advanced Practice Nurses/Physicians Assistants each
week day.
|
|
•
|
One
Physician each week-end and evening.
|
|
•
|
One/Two
Licensed Practical Nurse(s) and one/two Licensed Medical
Assistants
|
|
•
|
One
Laboratory/X-ray technician
|
|
•
|
Two/Three
front administrative assistants
|
|
•
|
One
Nutritional Counselor or Registered Dietitian (contracted or staffed per
service).
|
Medical Spa (Open Monday,
Wednesday, Friday, and Saturday, 10 am to 6 pm; Tuesday and Thursday, 10 am to 8
pm)
|
•
|
Spa
Director/Concierge
|
|
•
|
Two
estheticians
|
|
•
|
One
Registered Nurse
|
|
•
|
Two
Licensed Massage Therapists
|
|
•
|
One
Receptionist
|
Management of the Current
Center
|
•
|
Financial
and Management Director
|
|
•
|
Accounting/Bookkeeping
|
|
•
|
Business
Development/Sales Representative
|
|
•
|
Billing
and Collections Supervisor
|
|
•
|
Collections
Assistant
|
Marketing
Strategy
Based
upon our experience in our first center and consultation with marketing
consultants, we have developed a multi-faceted marketing approach that includes
business/development sales personnel, direct mail, media and
publications. The sustaining emphasis, however, is built upon strong
customer retention management, active public relations and customer referrals
resulting from positive experience. In addition, website,
e-newsletters, in-house video/media, educational and promotional literature and
staff training are essential foundations for the growth and success of the
business.
For the
year ended December 31, 2008, our marketing expenses were primarily print and
radio promotion ($38,900), mailings ($8,600), website and graphic design
($19,400) and promotional events and miscellaneous ($7,000).
Future
Development
Our
initial center has reached projected volumes in the medical service areas, and
the space is adequate to sustain further growth in all service areas with the
addition of staffing, supplies and other volume-based
resources. Our next step at the current center is to develop a
standing Technical and Clinical Advisory Panel that will offer ongoing
consultation for advancements in healthcare, wellness and skincare.
Our
WellQuest integrated model was specifically planned from onset for branding,
replication and networking. The following features will be replicated
when we build additional sites:
|
•
|
WellQuest
brand name, logos and tag lines;
|
|
•
|
Marketing
programs, mailers, promotions, etc.;
|
|
•
|
Facility
floor plan, flow and interior design;
|
|
•
|
Equipment
selection;
|
|
•
|
Policies
and procedures;
|
|
•
|
Human
resource materials, staffing plans and policies;
|
|
•
|
Employee
scripting for client service;
|
|
•
|
Service
and supplier contracts;
|
|
•
|
Physician
contracts and relationships;
|
|
•
|
Electronic
Medical Record with proprietary templates and
protocols;
|
|
•
|
Clinical,
nutritional and medical spa protocols, programs and
nomenclature;
|
|
•
|
Website;
|
|
•
|
Accounting,
billing and collection services; and
|
|
•
|
Employee
training
|
In regard
to expansion, we are considering plans to place multiple facilities in
geographic proximity in demographically targeted metropolitan
areas. The proximity would accommodate shared management, staffing,
service contracting, marketing and physician contract services. We
are considering a first replication near our first center in Tulsa, OK in 2009,
but no definitive plans have been set at this time. We are also
reviewing other metropolitan areas in the Southeast and Southwest United
States.
To meet
the continuing increase in service volume and to complete the development of the
business to accommodate expansion of new centers, we added a Chief Financial
Officer and a billing and collection director during 2008. The cost
is approximately $15,000 per month which has been funded by increased
collections of accounts receivable. Since the hiring of these
positions in April 2008, days sales outstanding have decreased significantly,
providing evidence that collection of accounts receivable has
improved. Days sales outstanding have decreased from 48 days to 39
days on December 31, 2007 and December 31, 2008, respectively. A
detailed calculation of days sales outstanding can be found in “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.”
Our
business plans for fiscal year 2009 include the following:
|
•
|
Recruit
an additional full-time physician for the current site at a total cost of
approximately $200,000 for salary, benefits and variable
expenses. The demand for medical services in our center has
demonstrated the need and sufficient revenue growth to accomplish
this.
|
|
•
|
We
recently approved a position for a nutritional counseling specialist with
experience in corporate wellness, wellness program development and
nutrition. This person will complete the deliverables for the
integrated services in wellness, prevention, nutrition and nutraceutical
products.
|
|
•
|
Open
our second center in Tulsa, OK. The new center will require the
following funding: $500,000 for tenant improvements of the leased
facility; $500,000 for equipment, furnishings, technology; and $1,000,000
for working capital or acquisition costs.
|
|
•
|
Raising
additional funds for our projected
expansion.
|
Competitors
We face
competition from numerous healthcare service organizations, ranging from small
independent local doctor and wellness offices to larger companies with offices
nationwide. We are not aware of any other company that provides the broad range
of services we provide, and as a result, we believe our competitors compete
against us in one or two of our three main services provided. At the present
time, we believe that there are no dominant competitors in the integrated
medical healthcare, preventive/wellness and medical skin-care services but we
would classify regional competitors as Mana Medical Associates (15 clinics in
northwest Arkansas), Mercy Medical Clinics (11 clinics in northwest Arkansas)
and Wellness and Skin Therapy Center (one clinic in Fayetteville, Arkansas) and
national competitors as Radiance MedSpa Franchise Group (40 locations
nationwide) and Sona Med Spas (19 locations nationwide).
Governmental
Regulations
The
healthcare industry is subject to extensive and frequently changing federal,
state and local regulations. Changes in applicable laws or any failure to comply
with existing or future laws, regulations or standards could have a material
adverse effect on our results of operations, financial condition, business and
prospects. We believe our current arrangements and practices are in material
compliance with applicable laws and regulations, but there can be no assurance
that we are in compliance with all applicable existing laws and regulations or
that we will be able to comply with new laws or regulations.
At the
current time, we and NWAPCP comply with all Arkansas laws pertaining to the
practice of medicine, physician licensure, registration of ancillary laboratory
and radiology services and the licensure of all allied health personnel we
employ. There are no Certificate of Need laws in the State of
Arkansas applying to physician office practices. We and NWAPCP
provide outpatient services and are therefore not involved in utilization review
activities. The practice is certified to participate in the
Medicare program for its services. The practice does not intend to
participate in the state Medicaid programs. The failure to obtain, renew or
maintain any of the required licenses, registrations or certifications could
adversely affect our business.
The
Health Insurance Portability and Accountability Act of 1996, or HIPAA, governs
electronic healthcare transactions and the privacy and security of medical
records and other individually identifiable patient data. Any failure to comply
with HIPAA could result in criminal penalties and civil sanctions.
A
component of our business relies on reimbursement by government payors, such as
state employee benefit plans, and that business is subject to particularly
pervasive regulation by those agencies. These regulations impose stringent
requirements for provider participation in those programs and for reimbursement
of products and services. Additionally, we are subject to periodic audits or
investigations by the Centers for Medicare and Medicaid Services, or CMS, and/or
its intermediaries, of our compliance with those requirements, and any
deficiencies found may be extrapolated to cover a larger number of reimbursement
claims. Additionally, many applicable laws and regulations are aimed at
curtailing fraudulent and abusive practices in relation to those programs. These
rules include the illegal remuneration provisions of the Social Security Act
(sometimes referred to as the “Anti-Kickback” statute), which impose criminal
and civil sanctions on persons who knowingly and willfully solicit, offer,
receive or pay any remuneration, whether directly or indirectly, in return for,
or to induce, the referral of a patient covered by a federal healthcare program
to a particular provider of healthcare products or services. Related federal
laws make it unlawful, in certain circumstances, for a physician to refer
patients covered by federal healthcare programs to a healthcare entity with
which the physician and/or the physician's family have a financial relationship.
Additionally, a large number of states have laws similar to the federal laws
aimed at curtailing fraud and abuse and physician “self-referrals.” These rules
have been interpreted broadly such that any financial arrangement between a
provider and potential referral source may be suspect. While we believe our
business arrangements are in compliance with these laws and regulations, the
government could take a contrary position or could investigate our
practices.
In
addition to the laws described above, the Federal False Claims Act imposes civil
liability on individuals or entities that submit false or fraudulent claims for
payment to the government. HIPAA created two new federal crimes: “Healthcare
Fraud” and “False Statements Relating to Healthcare Matters.” The Healthcare
Fraud statute prohibits knowingly and willfully executing a scheme or artifice
to defraud any healthcare benefit program. The False Statements Relating to
Healthcare Matters statute prohibits knowingly and willfully falsifying,
concealing or covering up a material fact by any trick, scheme or device or
making any materially false, fictitious or fraudulent statement in connection
with the delivery of or payment for healthcare benefits, items or services. The
Federal False Claims Act allows actions to be brought on the government's behalf
by individuals under the Federal False Claims Act’s “qui tam” provision.
Violation of these and other applicable rules can result in substantial fines
and penalties, required repayment of monies previously recognized as income, as
well as exclusion from future participation in government-sponsored healthcare
programs.
There can
be no assurance that we will not become the subject of a regulatory or other
investigation or proceeding or that our interpretations of applicable laws and
regulations will not be challenged. The defense of any such challenge could
result in adverse publicity, substantial cost to us and diversion of
management's time and attention. Thus, any such challenge could have a material
adverse effect on our business, regardless of whether it ultimately is
sustained.
Research
and Development
The
development of our health management programs and refinements to our operations
are the result of cooperative efforts of our information technology, clinical,
operating and marketing staffs. Currently, there are no formal research
activities we conduct. The Medical Director and our staff members
engage in development of protocols and specific programs that integrate
nutrition, wellness, prevention and nutraceuticals with conventional medical
services. All activities are included in the responsibilities of the
existing staff and budget.
Employees
As of
March 27, 2009, we had 24 full time employees and seven part time employees, of
whom two of our employees are in corporate management, 12 are nurses/medical
assistants, two are technicians, two are estheticians, two are massage
therapists, one is a spa manager and 10 are administrative
personnel. All physician services are provided by physicians,
physician’s assistants, and nurse practitioners employed by Dr. Fox and NWAPCP
pursuant to the Management and Medical Services Agreement and are not employed
by us. We consider our relations with our employees to be good.
ITEM
1A.
RISK
FACTORS.
You
should carefully consider the following risk factors and all other information
contained herein as well as the information included in this Annual Report in
evaluating our business and prospects. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties, other
than those we describe below, that are not presently known to us or that we
currently believe are immaterial, may also impair our business operations. If
any of the following risks occur, our business and financial results could be
harmed. You should refer to the other information contained in this Annual
Report, including our consolidated financial statements and the related
notes.
Risks
Related to Our Business
Our
company has limited operating history and therefore we cannot ensure the
long-term successful operation of our business or the execution of our business
plan.
We have
only been in existence and engaged in our current and proposed business
operations since September 2005. As a result, we have only a limited operating
history upon which you may evaluate our proposed business and prospects. Our
proposed business operations will be subject to numerous risks, uncertainties,
expenses and difficulties associated with early stage enterprises and the
development, production and sale of the types of products and services that we
offer. You should consider an investment in our company in light of
these risks, uncertainties, expenses and difficulties. Such risks
include:
|
|
•
|
the
absence of an operating history;
|
|
|
|
|
|
|
•
|
insufficient
capital;
|
|
|
|
|
|
|
•
|
expected
continual losses for the foreseeable future;
|
|
|
|
|
|
|
•
|
our
ability to anticipate and adapt to a developing market(s); acceptance by
consumers of our services and products;
|
|
|
|
|
|
|
•
|
limited
marketing experience;
|
|
|
|
|
|
|
•
|
an
expected reliance on third parties for our professional staff and
services;
|
|
|
|
|
|
|
•
|
a
competitive environment characterized by numerous, well-established and
well-capitalized competitors;
|
|
|
|
|
|
|
•
|
the
ability to identify, attract and retain qualified
personnel;
|
|
|
|
|
|
|
•
|
our
ability to provide superior customer service; and
|
|
|
|
|
|
|
•
|
reliance
on key personnel.
|
Because
we are subject to these risks, you may have a difficult time evaluating our
business and your investment in our company. We may be unable to successfully
overcome these risks which could harm our business.
Our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by new and growing companies in the medical and wellness
fields in which we operate. We must meet many challenges
including:
|
|
•
|
Establishing
and maintaining broad market acceptance of our services and products and
converting that acceptance into new and repeat
patients;
|
|
|
|
|
|
|
•
|
Establishing
and maintaining our brand name;
|
|
|
•
|
Timely
and successfully introducing new services and products, and increasing the
functionality and features of existing services and products;
and
|
|
|
|
|
|
|
•
|
Successfully
responding to competition.
|
Our
business strategy may be unsuccessful and we may be unable to address the risks
we face in a cost-effective manner, if at all. If we are unable to successfully
address these risks our business will be harmed.
We
Have a History Of Losses Which May Continue, Which May Negatively Impact Our
Ability to Achieve Our Business Objectives.
We
incurred net losses of $732,098 for the year ended December 31, 2008 and
$831,070 for the year ended December 31, 2007. In addition, at
December 31, 2008, we had an accumulated deficit of approximately $3,400,000 and
a working capital deficit of approximately $2,216,000. We cannot assure you that
we can achieve or sustain profitability on a quarterly or annual basis in the
future. Our operations are subject to the risks and competition
inherent in the establishment of a business enterprise. There can be no
assurance that future operations will be profitable. Revenues and profits, if
any, will depend upon various factors, including whether we will be able to
continue expansion of our revenue. We may not achieve our business objectives
and the failure to achieve such goals would have an adverse impact on
us.
Our
independent auditors have expressed substantial doubt about our ability to
continue as a going concern, which may hinder our ability to obtain future
financing.
In their
report dated March 31, 2009, our independent auditors stated that our financial
statements for the year ended December 31, 2008 were prepared assuming that we
would continue as a going concern. Our ability to continue as a going concern is
an issue raised as a result of recurring losses from operations, a working
capital deficiency and an accumulated deficit. Our ability to continue as a
going concern is subject to our ability to generate a profit and/or obtain
necessary funding from outside sources, including obtaining additional funding
from the sale of our securities, increasing sales or obtaining loans and grants
from various financial institutions where possible. Our continued net operating
losses increase the difficulty in meeting such goals and there can be no
assurances that such methods will prove successful.
We
are currently in default on our obligations under our secured bank
loan.
On August
3, 2005, we entered into a bank loan that is secured by substantially all of our
assets. Under the terms of the note issued thereunder, we are obligated to
maintain a debt service coverage ratio of 1.5:1. As of December 31,
2008, we were not in compliance with the debt service coverage ratio and
continue to remain non-compliant. We attempted to obtain a waiver from the bank,
however, no agreement was able to be reached. The bank has not
declared a formal event of default, however, we cannot assure you that the bank
will not declare an event of default in the future. In the event the
bank declares an event of default, we would be unable to repay the amount of the
note outstanding. As a result, the bank would have the right to take possession
of the collateral, to operate our business using the collateral, and would have
the right to assign, sell, lease or otherwise dispose of and deliver all or any
part of the collateral, at public or private sale or otherwise to satisfy our
obligations under the note.
We
face significant competitive risks. If these risks negatively affect
our business, you could lose your entire investment.
We can
provide no assurance that our medical center will be able to compete effectively
with other existing healthcare providers. The business of providing
healthcare-related services is highly competitive. Many companies, including
professionally managed physician practice management companies like ours, have
been organized to acquire medical clinics, manage the clinics, and employ clinic
physicians at the clinics. Large hospitals, other physician practice centers,
private doctor's offices and healthcare companies, HMOs, and insurance companies
are also involved in activities similar to ours. Because our main business is
the provision of medical services to the general public, our primary competitors
are the local physician practices and hospital emergency rooms in the market
where we own our medical center. We believe that all of our current competitors
have longer operating histories and significantly greater resources than we do.
In addition, these traditional sources of medical services, such as hospital
emergency rooms and private physicians, have had in the past a higher degree of
recognition and acceptance than the medical center that we operate. In addition,
the spa services we provide, such as massages, facials, laser skin treatments
and Botox, are offered by other physician offices and health spas, some of which
are nationally branded companies. We cannot assure you that we will be able to
compete effectively or that additional competitors will not enter the market in
the future. If we are unable to compete, we may be forced to curtail
or cease our business operations, which might result in the loss of some or all
of your investment in our common stock.
If
we do not manage our growth successfully, our growth may slow, decline or stop,
and we may never become profitable.
If we do
not manage our growth successfully, our growth may slow, decline or stop, and we
may never become profitable. We have expanded our operations within our one
center through additional services and products available to our customers and
plan to continue to expand. This expansion has created significant demands on
our administrative, operational and financial personnel and other resources.
Future expansion in existing or new markets could strain resources and increase
the need for capital. Our personnel, systems, procedures, controls and existing
space may not be adequate to support further expansion.
We
are highly dependent on our management and our business would be materially
adversely affected if any of our executives leave.
The
operations and financial success of our company are significantly dependent on
Steve Swift, our Chief Executive Officer. While we do maintain key man life
insurance on Mr. Swift, should he become unable or unwilling to continue to
direct operations, we may lack the funds and financial resources to replace
departing management and we would be materially adversely affected. Operations
could be materially affected and under certain circumstances, shareholders would
lose their entire investment.
Our
failure to attract and retain physicians, physician’s assistants, and nurse
practitioners in a competitive labor market could limit our ability to execute
our growth strategy, resulting in a slower rate of growth.
Our
business depends on our ability to continue to recruit and retain a sufficient
number of qualified licensed doctors and nurses. We have contracted with NWAPCP
to staff our medical clinic. Pursuant to that agreement, we currently
have two full-time physicians, one full-time physician’s assistant, two part
time advance practice nurses (nurse practitioners), and two part time
physician’s assistants. Although we believe we have an effective
recruitment process, there is no assurance that we will be able to secure
arrangements with sufficient numbers of licensed doctors and nurses or retain
the services of such practitioners. We also recruit our personnel from a
variety of employment agencies and services. If we experience delays or
shortages in obtaining access to qualified physicians and nurses, we would be
unable to expand our services and operations, resulting in reduced
revenues.
If
our physicians develop a poor reputation, our operations and revenues would
suffer.
The
success of our business is dependent upon quality medical services being
rendered by our physicians. As the patient-physician relationship involves
inherent trust and confidence, any negative publicity, whether from civil
litigation, allegations of criminal misconduct, or forfeiture of medical
licenses, with respect to any of our physicians and/or our facilities could
adversely affect our results of operations.
Our
revenues and profits could be diminished if we lose the services of key
physicians.
Substantially
all of our revenues in the medical practice division are derived from medical
services performed by physicians. Our physicians are provided by Northwest
Arkansas Primary Care Physicians, P.A. (NWAPCP) pursuant to a Management and
Medical Services Agreement. Dr. C. Wade Fox is President of NWAPCP
and a significant producer of revenue; along with Dr. Ornette Gaines, a
full-time staff physician. Should these higher producing physicians retire,
become disabled, terminate their employment agreements or provider contracts, or
otherwise become unable or unwilling to continue generating revenues at the
current level, or practice medicine within our organization, then medical
revenue would be reduced until new physicians are engaged. Although we have
demonstrated an ability to recruit and contract physicians; we maintain
part-time physicians for volume and replacement demands; we are recruiting an
additional full time physician; and, we supplement physician services with Nurse
Practitioners and Physician’s Assistants, a loss of existing key physicians
would represent a potential reduction of service levels. Patients who have been
served by current physicians could choose to request medical services from our
competitors, which could reduce our revenues and profits. Moreover, the
recruitment and retaining of other qualified physicians to replace the services
of such physicians could take an extended period of time.
We
rely upon a third party to provide our medical personnel and as a result, we
could be adversely affected by the inability of the third party to provide
sufficient personnel, the financial condition of the third party or by the
deterioration or termination of our relationship with the third
party.
As a
result of state regulations, we are unable to directly employ medical personnel,
as it would constitute the unlawful practice of medicine. As a
result, we have entered into a Management and Medical Services Agreement with
NWAPCP. Pursuant to this agreement, NWAPCP has the exclusive right to
operate a medical practice in our facility, including the responsibility of
hiring the medical personnel (physicians and nurses). A significant
decline in NWAPCP’s financial condition or an inability of them to hire enough
qualified medical personnel could adversely affect our results of operations. In
addition, if our existing relationship with NWAPCP or Dr. Fox, the President and
sole member of NWAPCP deteriorates or is terminated in the future, and we are
not successful in establishing a relationship with an alternative provider at
rates we deem commercially acceptable, our results of operations could be
adversely affected.
Our
products and services may not be accepted in the marketplace. If we
cannot obtain marketplace acceptance, you could lose your entire
investment.
We plan
to combine the practice of traditional medical treatment and diagnosis,
preventative and wellness services, and healthcare products and technologies.
However, at this time, such combined services and practices have not been tested
and do not have a general acceptance from the public at large. This is still
perceived to be a new business concept in an industry characterized by an
increasing number of market entrants who have introduced or are developing an
array of new services. As is typical in the case of a new business concept,
demand and market acceptance for newly introduced services are subject to a high
level of uncertainty, and there can be no assurance as to the ultimate level of
market acceptance for our system, especially in the health care industry, in
which the containment of costs is emphasized. Because of the subjective nature
of patient compliance, we may be unable, for an extensive period of time, to
develop a significant amount of data to demonstrate to potential customers the
effectiveness of our services. Even after such time, no assurance can be given
that our data and results will be convincing or determinative as to the success
of our system. There can be no assurance that increased marketing efforts and
the implementation of our strategies will result in market acceptance for our
services or that a market for our services will develop or not be
limited.
If
our clients seek services and treatment elsewhere, our operations will
suffer.
Our
clients may terminate our services at any time and seek medical advice and
treatment elsewhere. We do not have any agreements or arrangements that require
our client to meet with us or utilize us beyond the then current treatment or
service they contract with us. If our clients decide to seek
treatment and services elsewhere, our operations will decline.
Our
resources may not be sufficient to manage our expected growth; failure to
properly manage our potential growth would be detrimental to our
business.
We may
fail to adequately manage our anticipated future growth. Any growth in our
operations will place a significant strain on our administrative, financial and
operational resources, and increase demands on our management and on our
operational and administrative systems, controls and other resources. We cannot
assure you that our existing personnel, systems, procedures or controls will be
adequate to support our operations in the future or that we will be able to
successfully implement appropriate measures consistent with our growth strategy.
As part of this growth, we may have to implement new operational and financial
systems, procedures and controls to expand, train and manage our employee base,
and maintain close coordination among our staff. We cannot guarantee that we
will be able to do so, or that if we are able to do so, we will be able to
effectively integrate them into our existing staff and
systems.
If we are
unable to manage growth effectively, such as if our sales and marketing efforts
exceed our capacity to perform our services and maintain our products or if new
employees are unable to achieve performance levels, our business, operating
results and financial condition could be materially adversely affected. As with
all expanding businesses, the potential exists that growth will occur rapidly.
If we are unable to effectively manage this growth, our business and operating
results could suffer. Anticipated growth in future operations may place a
significant strain on management systems and resources. In addition, the
integration of new personnel will continue to result in some disruption to
ongoing operations. The ability to effectively manage growth in a rapidly
evolving market requires effective planning and management processes. We will
need to continue to improve operational, financial and managerial controls,
reporting systems and procedures, and will need to continue to expand, train and
manage our work force.
We
lack experience in developing and opening new centers and cannot guarantee we
will be successful in opening additional centers.
We
currently own and operate one medical and wellness center. Part of our future
plans involves developing and opening additional wellness centers. To the extent
we open additional centers, we will need to integrate and assimilate new
operations, technologies and personnel. We do not have any experience with
developing and opening additional centers and there is no guarantee that we will
be successful in opening additional centers, if we are able to open any at
all. Failure to successfully develop and open additional centers
could result in significant lost expenses and management attention, which would
result in our business and financial condition being materially adversely
affected.
Because
of the nature of our business, we run the risk that we will be unable to collect
the fees that we have earned.
Virtually
all of our consolidated net revenue was derived in the past, and we believe will
be derived in the future, from our medical center’s charges for services on a
fee-for-service basis. Accordingly, we assume the financial risk related to
collection, including the potential uncollectability of accounts, long
collection cycles for accounts receivable, and delays attendant to reimbursement
by third party payors, such as governmental programs, private insurance plans
and managed care organizations. Increases in write-offs of doubtful accounts,
delays in receiving payments or potential retroactive adjustments, and penalties
resulting from audits by payors may require us to borrow funds to meet our
current obligations or may otherwise have a material adverse effect on our
financial condition and results of operations.
We
are dependent on third party payors. Changes in Medicare that decrease program
payments will affect our financial condition and the results of operations would
suffer.
Our
revenues are derived from private health insurance (91%), private payers (4%)
and government reimbursement programs (Medicare – 5%). The Medicare program is
subject to statutory and regulatory changes, administrative rulings, and
interpretations of policy and governmental funding restrictions, all of which
may have the effect of decreasing program payments, increasing costs or
modifying the way we operate our business. Any future action by the federal
government, or by state governments, limiting or reducing the total amount of
funds available for such programs could lower the amount of reimbursement
available to us. If Medicare reimbursement for care treatment is reduced in the
future, private payors including health insurers and managed care companies and
other non-government payors may be required to assume a greater percentage of
the costs. This could have a material adverse effect on our operating results
and financial condition.
Our
business is concentrated in a specific geographic location and could be affected
by a depressed economy in that area.
We
provide our services at one center in Bentonville, Arkansas. A stagnant or
depressed economy in this area could adversely affect our business and results
of operations.
Our
failure to maintain adequate price levels could have a material adverse effect
on our business.
In recent
years, the healthcare industry has undergone significant change driven by
various efforts to reduce costs, including potential national healthcare reform,
trends toward managed care, cuts in Medicare reimbursements, and horizontal and
vertical consolidation within the healthcare industry. Our inability to react
effectively to these and other changes in the healthcare industry could
adversely affect our operating results. We cannot predict whether any healthcare
reform efforts will be enacted and what effect any such reforms may have on us
or our customers. Our inability to react effectively to changes in the
healthcare industry could result in a material adverse effect on our
business.
We
are subject to extensive changes in the healthcare industry. If we
are unable to adapt, our operations could suffer.
The
healthcare industry is subject to changing political, economic and regulatory
influences that may affect the procurement practices and operations of
healthcare industry participants. Several lawmakers have announced that they
intend to propose programs to reform the U.S. health care system. These programs
may contain proposals to increase governmental involvement in health care, lower
reimbursement rates, and otherwise change our operating environment and our
targeted customers. Healthcare industry participants may react to these
proposals and the uncertainty surrounding such proposals by curtailing or
deferring certain expenditures, including those for our programs. We cannot
predict what impact, if any, such changes in the healthcare industry might have
on our business, financial condition and results of operations. In addition,
many healthcare providers are consolidating to create larger healthcare delivery
enterprises with greater regional market power. As a result, the remaining
enterprises could have greater bargaining power, which may lead to price erosion
of our programs.
We
face the risk of professional liability claims which may exceed the limits of
insurance coverage. If claims are not covered by insurance, our
operations could suffer.
We may
become involved in malpractice claims with the attendant risk of damage awards.
We currently maintain malpractice insurance, at an annual cost of approximately
$26,000 in the aggregate amount of $3,000,000 and $1,000,000 on a per claim
basis per year. There can be no assurance that a future claim or claims will not
exceed the limits of available insurance coverage or that such coverage will
continue to be available at commercially reasonable rates, if at all. In the
event of a successful claim against us that is uninsured in whole or in part,
our business and financial condition could be materially adversely
affected.
If
we fail to comply with government laws and regulations it could have a
materially adverse effect on our business.
The
health care industry is subject to extensive federal, state and local laws and
regulations relating to licensure, conduct of operations, ownership of
facilities, addition of facilities and services, payment for services and prices
for services that are extremely complex and for which, in many instances, the
industry does not have the benefit of significant regulatory or judicial
interpretation. In particular, Medicare and Medicaid antifraud and abuse
amendments, codified under Section 1128B(b) of the Social Security Act (the
“Anti-Kickback Statute”), prohibit certain business practices and relationships
related to items or services reimbursable under Medicare, Medicaid and other
federal health care programs, including the payment or receipt of remuneration
to induce or arrange for the referral of patients covered by a federal or state
health care program. Sanctions for violating the Anti-Kickback Statute include
criminal penalties and civil sanctions. Each violation of these rules may be
punished by a fine (of up to $250,000 for individuals and $500,000 for
corporations, or twice the pecuniary gain to the defendant or loss to another
from the illegal conduct) or imprisonment for up to five years, or both. In
addition, a provider may be excluded from participation in Medicaid or Medicare
for violation of these prohibitions through an administrative proceeding,
without the need for any criminal proceeding. Many states have similar
laws, which apply whether or not Medicare or Medicaid patients are
involved.
In
addition, another federal law, known as the “Stark law” was expanded in 1993, to
significantly broaden its scope by prohibiting referrals by physicians under the
Medicare or Medicaid programs to providers of designated health services with
which such physicians have ownership or certain other financial arrangements.
This law also prohibits billing for services rendered pursuant to a prohibited
referral. Penalties for violation include denial of payment for the services,
significant civil monetary penalties, and exclusion from Medicare and Medicaid.
Several states have enacted laws similar to the Stark law to prohibit the
payment or receipt of remuneration for the referral of patients and physician
self-referrals regardless of the source of the payment for the
care.
We
exercise care in structuring our arrangements with physicians and other referral
sources to comply in all material respects with applicable laws. We will also
take such laws into account when planning future centers, marketing and other
activities, and expect that our operations will be in compliance with applicable
law. The laws, rules and regulations described above are complex and subject to
interpretation. In the event of a determination that we are in violation of such
laws, rules or regulations, or if further changes in the regulatory framework
occur, any such determination or changes could have a material adverse effect on
our business. There can be no assurance however that we will not be found in non
compliance in any particular situation.
If
we fail to maintain state licenses or authorizations it could result in the
closure of our center.
The
Arkansas State Medical Board and the Arkansas State Department of Health
(“ASMB/ASDH”) are responsible for licensing, registering, and regulating all
health care and health service facilities in Arkansas. ASMB/ASDH strives to
ensure that these facilities and services comply with standards of safety and
quality established by state and federal regulation. Under state and federal
regulations, facilities must meet state licensing requirements, submit a
completed application, required documentation, and have a satisfactory survey to
be “deemed” certified or licensed. If our center loses its state license or
its authorizations, it would result in the closure of our center, which would
have a material adverse effect on our business.
Any
inability to adequately protect our intellectual property could harm our
competitive position.
We
consider our methodologies, processes and know how to be proprietary. We seek to
protect our proprietary information through confidentiality agreements with our
employees. Our policy is to have employees enter into confidentiality agreements
that contain provisions prohibiting the disclosure of confidential information
to anyone outside of our company. There can be no assurance that the steps we
take to protect our intellectual property will be successful. If we do not
adequately protect our intellectual property, competitors may be able to use our
technologies and erode or negate our competitive advantage.
We
may face costly litigation that could force us to pay damages and harm our
reputation.
Like
other participants in the healthcare market, we are subject to lawsuits alleging
negligence, product liability or other similar legal theories, many of which
involve large claims and significant defense costs. Any of these claims, whether
with or without merit, could result in costly litigation, and divert the time,
attention, and resources of management. Although we currently maintain liability
insurance intended to cover such claims, there can be no assurance that the
coverage limits of such insurance policies will be adequate or that all such
claims will be covered by the insurance. In addition, these insurance policies
must be renewed annually. Although we have been able to obtain liability
insurance, such insurance may not be available in the future on acceptable
terms, or at all. A successful claim in excess of the insurance coverage could
have a material adverse effect on our results of operations or financial
condition.
If
we are unable to obtain additional funding our business operations will be
harmed and if we do obtain additional financing our then existing shareholders
may suffer substantial dilution.
We will
require additional funds to sustain our operations and institute our business
plan. We anticipate that we will require up to approximately
$1,500,000 to fund our anticipated operations for the next twelve months.
Additional capital will be required to effectively support the operations and to
otherwise implement our overall business strategy. Even if we do
receive additional financing, it may not be sufficient to sustain or expand our
development operations or continue our business operations.
We do not
have any contracts or commitments for additional funding, and there can be no
assurance that financing will be available in amounts or on terms acceptable to
us, if at all. The inability to obtain additional capital will restrict our
ability to grow and may reduce our ability to continue to conduct business
operations. If we are unable to obtain additional financing, we will likely be
required to curtail our development plans. Any additional equity financing may
involve substantial dilution to our then existing shareholders.
Our
officers, directors and principal shareholders own a controlling interest in our
voting stock and investors will not have any voice in our
management.
Our
officers, directors and principal shareholders in the aggregate, beneficially
own or control the votes of approximately 81.3% of our outstanding common stock.
As a result, these stockholders, acting together, will have the ability to
control substantially all matters submitted to our stockholders for approval,
including:
|
|
•
|
election
of our board of directors;
|
|
|
•
|
removal
of any of our directors;
|
|
|
•
|
amendment
of our certificate of incorporation or bylaws; and
|
|
|
•
|
adoption
of measures that could delay or prevent a change in control or impede a
merger, takeover or other business combination involving
us.
|
As a
result of their ownership and positions, our directors, executive officers and
principal shareholders collectively are able to influence all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, sales of significant amounts of
shares held by our directors, executive officers or principal shareholders, or
the prospect of these sales, could adversely affect the market price of our
common stock. Management's stock ownership may discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of us,
which in turn could reduce our stock price or prevent our stockholders from
realizing a premium over our stock price.
Risks Relating to Our Common
Stock
There
is presently a limited trading market for our common stock. Any failure to
develop or maintain a trading market could negatively affect the value of our
shares and make it difficult or impossible for you to sell your
shares.
Effective
January 23, 2009, our common stock was assigned a symbol for quotation on the
Pink Sheets. Effective March 20, 2009, our common stock was assigned
a symbol for quotation on the OTC Bulletin Board. As of March 27,
2009, there has not been an initial bid or offer price set and no public trades
in our common stock have occurred. Failure to develop or maintain an active
trading market could negatively affect the value of our shares and make it
difficult for you to sell your shares or recover any part of your investment in
us. Even if a market for our common stock does develop, the market
price of our common stock may be highly volatile. In addition to the
uncertainties relating to our future operating performance and the profitability
of our operations, factors such as variations in our interim financial results,
or various, as yet unpredictable factors, many of which are beyond our control,
may have a negative effect on the market price of our common stock.
The OTC
Bulletin Board provides a limited trading market. Accordingly, there can be no
assurance as to the liquidity of any markets that may develop for our common
stock, the ability of holders of our common stock to sell our common stock, or
the prices at which holders may be able to sell our common stock.
The
issuance of shares upon conversion of our series A convertible preferred stock
and convertible notes may cause immediate and substantial dilution to our
existing stockholders and may depress the market price of our common
stock.
As of
March 27, 2009, we had 23,716,361 shares of common stock issued and
outstanding. There were series A convertible preferred stock
outstanding that may be converted into 9,360,000 shares of common
stock. In addition, the outstanding convertible debentures with
detachable warrants may be converted into 4,956,085 shares of common stock or
have the warrants exercised and issued as 2,202,750 shares of common
stock. The issuance of shares upon conversion of the series A
convertible preferred stock and convertible notes may result in substantial
dilution to the interests of other stockholders and may adversely affect the
market price of our common stock. In addition, the conversion price
of the outstanding series A convertible preferred stock will decrease if we
issue securities below the then current conversion price, which would result in
the number of shares of common stock issuable upon conversion to increase,
resulting in substantial dilution to the purchasers of our common
stock. Below, we have calculated the dilutive effects of these
securities upon the conversion of the debentures to convertible preferred stock
and the exercise of the warrants. Because we have a net asset
deficiency, the issuance of additional shares of common stock from conversion of
outstanding debentures or preferred stock is anti-dilutive.
|
|
|
As
of
December
31, 2008
|
|
|
Net
tangible assets (A)
|
|
$
|
(1,947,357
|
)
|
|
|
|
|
|
|
|
Shares
outstanding (B)
|
|
|
23,716,361
|
|
|
|
|
|
|
|
|
Assumed
conversion of debentures to convertible preferred stock
|
|
|
4,956,085
|
|
|
Assumed
conversion of preferred stock
|
|
|
9,360,000
|
|
|
Assumed
exercise of outstanding exercisable stock options
|
|
|
166,666
|
|
|
Assumed
conversion of debentures to common stock
|
|
|
1,125,169
|
|
|
Net
additional shares issuable
|
|
|
15,607,920
|
|
|
Adjusted
shares outstanding
|
|
|
39,324,281
|
|
|
|
|
|
|
|
|
Net
tangible book value per share (A) divided by (B)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
Diluted
tangible book value per share
|
|
$
|
(0.08
|
)
|
|
(assumed
exercise/conversion is anti-dilutive)
|
|
|
|
|
|
|
|
As
of
December
31, 2008
|
|
|
Net
tangible assets (A)
|
|
$
|
(1,947,357
|
)
|
|
|
|
|
|
|
|
Shares
outstanding (B)
|
|
|
23,716,361
|
|
|
|
|
|
|
|
|
Assumed
exercise of warrants issued with convertible debentures
|
|
|
2,202,750
|
|
|
Assumed
conversion of preferred stock
|
|
|
9,360,000
|
|
|
Assumed
exercise of outstanding exercisable stock options
|
|
|
166,666
|
|
|
Assumed
conversion of debentures to common stock
|
|
|
1,125,169
|
|
|
Net
additional shares issuable
|
|
|
12,854,585
|
|
|
Adjusted
shares outstanding
|
|
|
36,570,946
|
|
|
|
|
|
|
|
|
Net
tangible book value per share (A) divided by (B)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
Diluted
tangible book value per share
|
|
$
|
(0.08
|
)
|
|
(assumed
exercise/conversion is anti-dilutive)
|
|
|
|
|
If
we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board which would limit the ability of broker-dealers to
sell our securities and the ability of stockholders to sell their securities in
the secondary market.
Companies
trading on the Over-The-Counter Bulletin Board must be current in their reports
under Section 13 in order to maintain price quotation privileges on the OTC
Bulletin Board. The lack of resources to prepare and file our reports, including
the inability to pay our auditor, could result in our failure to remain current
on our reporting requirements, which could result in our being removed from the
OTC Bulletin Board. As a result, the market liquidity for our securities could
be severely adversely affected by limiting the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their securities in the
secondary market. In addition, we may be unable to get
re-listed on the OTC Bulletin Board, which may have an adverse material effect
on our company.
We have not paid dividends in the
past and do not expect to pay dividends in the future. Any return on investment
may be limited to the value of our common stock
.
We have
never paid cash dividends on our common stock and do not anticipate paying cash
dividends in the foreseeable future. The payment of dividends on our common
stock will depend on earnings, financial condition and other business and
economic factors affecting it at such time as the board of directors may
consider relevant.
Efforts
to comply with recently enacted changes in securities laws and regulations will
increase our costs and require additional management resources, and we still may
fail to comply.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules
requiring public companies to include a report of management on our internal
controls over financial reporting in their annual reports on Form 10-K. In
addition, the public accounting firm auditing our financial statements must
attest to the effectiveness of our internal controls over financial reporting.
These requirements are not presently applicable to us but we will become subject
to these requirements for the year ended December 31, 2009. If we are
unable to conclude that we have effective internal controls over financial
reporting or if our independent auditors are unable to provide us with a report
as to the effectiveness of our internal controls over financial reporting as
required by Section 404 of the Sarbanes-Oxley Act of 2002, investors could lose
confidence in the reliability of our financial statements, which could result in
a decrease in the value of our securities. We have not yet begun a formal
process to evaluate our internal controls over financial reporting. Given the
status of our efforts, coupled with the fact that guidance from regulatory
authorities in the area of internal controls continues to evolve, substantial
uncertainty exists regarding our ability to comply by applicable
deadlines.
Our
common stock is subject to the "penny stock" rules of the SEC and the trading
market in our securities is limited, which makes transactions in our stock
cumbersome and may reduce the value of an investment in our stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
|
|
•
|
that
a broker or dealer approve a person's account for transactions in penny
stocks; and
|
|
|
•
|
the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
|
In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
|
|
•
|
obtain
financial information and investment experience objectives of the person;
and
|
|
|
•
|
make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny
stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
|
|
•
|
sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
|
|
•
|
that
the broker or dealer received a signed, written agreement from the
investor prior to the
transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM
2.
PROPERTIES.
We
maintain our principal office at 3400 SE Macy Rd., #18, Bentonville, Arkansas
72712. Our telephone number at that office is (479) 845-0880 and our
facsimile number is (479) 845-0887. Our current office space is leased with a
base cost of $15,256 per month and runs through September 2015 with options for
additional lease terms. The space consists of approximately 6,956
square feet. We have secured an additional 1,800 square feet of adjacent
space at a cost of $2,652 per month for administrative and billing services
which were previously housed in the medical clinic service space. The lease for
this space runs through July 2011. Should we need additional space
due to the continued growth of the medical services, we do not anticipate any
difficulty securing alternative or additional space on terms acceptable to
us.
ITEM
3.
LEGAL
PROCEEDINGS.
From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have, individually
or in the aggregate, a material adverse affect on our business, financial
condition or operating results.
ITEM
4.
SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM
5.
MARKET FOR COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
MARKET
INFORMATION
Our
common stock is quoted on the OTC Bulletin Board under the symbol
“WEQL”. Prior to March 20, 2009, our common stock was quoted on
the Pink Sheets under the symbol “WEQL”. Prior to January 23, 2009,
there was no public market for our common stock.
HOLDERS
As of March 27, 2009, we had
approximately 29 holders of record of our common stock. The number of holders
was determined from the records of our transfer agent and does not include
beneficial owners of common stock whose shares are held in the names of various
security brokers, dealers, and registered clearing agencies. The transfer agent
of our common stock is Continental Stock Transfer & Trust Company, 17
Battery Place, New York, New York 10004.
DIVIDENDS
The
payment by us of dividends, if any, in the future rests within the discretion of
our Board of Directors and will depend, among other things, upon our earnings,
capital requirements and financial condition, as well as other relevant
factors. We effected a stock dividend of 249 shares of our common
stock for every share of common stock held on February 14, 2008. We
do not intend to pay any cash dividends in the foreseeable future, but intend to
retain all earnings, if any, for use in our business.
RECENT
SALE OF UNREGISTERED SECURITIES AND EQUITY PURCHASES BY THE COMPANY
None.
Equity
Compensation Plan Information
On April
4, 2008, our stockholders adopted the WellQuest Medical and Wellness Corporation
2008 Incentive Stock Plan.
The
purpose of the 2008 Plan is to further our growth and development by providing,
through ownership of our stock, an incentive to officers and other key personnel
who are in a position to contribute materially to our prosperity including, but
not limited to, all our salaried personnel, to increase such persons’ interests
in our welfare, to encourage them to continue their services to us, and to
attract individuals of outstanding ability to enter into employment with
us.
The 2008
Plan authorizes the issuance of 5,000,000 shares of our common
stock. On August 4, 2008, we granted Dr. Wade Fox stock options for
500,000 shares of stock at an exercise price of $0.08888 per
share. The options are subject to a vesting schedule as
follows: 166,667 options on August 4, 2008; 166,667 options on August
4, 2009; and 166,666 options on August 4, 2010. The options have a
termination date of August 3, 2018.
On
December 9, 2008, we granted Greg Primm stock options for 300,000 shares of
stock at an exercise price of $0.08888 per share. The options are
subject to a vesting schedule as follows: 100,000 options on April
14, 2011; 100,000 options on April 14, 2012; and 100,000 options on April 14,
2013. The options have a termination date of April 14,
2015.
|
Plan
category
|
|
Number
of
securities
to
be issued upon
exercise
of
outstanding
options,
warrants
and
rights
|
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and
rights
|
|
Number
of securities
remaining
available
for
future issuance
under
equity
compensation
plans
(excluding
securities
reflected
in column (a)
|
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
Equity
compensation plans approved by security holders
|
|
|
800,000
|
|
$0.08888
|
|
|
4,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
-0-
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
800,000
|
|
$0.08888
|
|
|
4,200,000
|
|
ITEM
6.
SELECTED
FINANCIAL DATA.
Not
required under Regulation S-K for “smaller reporting companies.”
ITEM
7.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The
following information should be read in conjunction with the consolidated
financial statements and the notes thereto contained elsewhere in this report.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Information in this Item 6, "Management's
Discussion and Analysis of Financial Conditions and Results of Operations," and
elsewhere in this 10-K that does not consist of historical facts, are
"forward-looking statements." Statements accompanied or qualified by, or
containing words such as "may," "will," "should," "believes," "expects,"
"intends," "plans," "projects," "estimates," "predicts," "potential," "outlook,"
"forecast," "anticipates," "presume," and "assume" constitute forward-looking
statements, and as such, are not a guarantee of future performance. The
statements involve factors, risks and uncertainties including those discussed in
the “Risk Factors” section contained elsewhere in this report, the impact or
occurrence of which can cause actual results to differ materially from the
expected results described in such statements. Risks and uncertainties can
include, among others, fluctuations in general business cycles and changing
economic conditions; changing product demand and industry capacity; increased
competition and pricing pressures; advances in technology that can reduce the
demand for the Company's products, as well as other factors, many or all of
which may be beyond the Company's control. Consequently, investors should not
place undue reliance on forward-looking statements as predictive of future
results. The Company disclaims any obligation to update the forward-looking
statements in this report.
Overview
We were
incorporated in the State of Oklahoma on November 8, 2004 as HQHealthQuest
Medical & Wellness Centers, Ltd. We incorporated a wholly-owned
subsidiary in the State of Arkansas on May 5, 2005 as WellQuest Medical &
Wellness Centers of Arkansas, Inc., which subsequently changed its name to
WellQuest of Arkansas, Inc. We opened our first medical center in
Bentonville, Arkansas on September 12, 2005. We changed our name to
WellQuest Medical & Wellness Corporation on April 24, 2008.
We
provide an integrated medical delivery site with family physician healthcare
services, preventive/wellness services and medical skin-care
services. The integration of these services embraces the clinical
synergy of medical treatments for illness, preventive/wellness services and
products for health maintenance and medically supervised skin-care treatments
for aesthetic enhancement.
Results
of Operations
The
following discussion of the financial condition and results of operations should
be read in conjunction with the financial statements included herewithin. This
discussion should not be construed to imply that the results discussed herein
will necessarily continue into the future, or that any conclusion reached herein
will necessarily be indicative of actual operating results in the
future.
Year
ended December 31, 2008 compared to the year ended December 31,
2007
Net
Revenues
.
We had
net revenues for the year ended December 31, 2008 of $3,332,433 compared to the
year ended December 31, 2007, which was $2,393,453. This increase of $938,980 is
comprised of $771,489 of additional revenue in the medical clinic services of
the business and $167,441 additional revenue in medical spa services in 2008
over the previous year. Medical service revenue increases in 2008 are
due to: increases in daily medical client volume in 2008 (29,579 total visits in
2008 versus 21,680 total client visits in 2007) and the addition of allergy
testing and allergy shots for a full year in 2008 (we began offering the service
in June 2007). Overall, client visits to the medical clinic increased
37%. Medical spa service revenues increased due to the addition of
advanced laser technology in May 2007, expanding the range and pricing of
services. In addition, medical spa revenue increased as a result of
increased marketing and promotion expenditures.
Operating
Expenses
.
Operating expenses for the year ended December 31, 2008 were $3,778,255 compared
to the year ended December 31, 2007, which was $2,967,008. This increase of
$811,247 was the result of increased expenses for our medical services and
operations. Increases in medical clinic expenses of $478,000 included
nurse and reception staffing costs (increased $105,000), laboratory and medical
supplies expenses (increased $97,000), physician compensation (increased
$114,000) related to increased services and the addition of a physician’s
assistant, and continued growth of our allergy shot business and supplies
(increased $15,000) associated with new services in 2008. Medical spa
expenses increased by $157,044 in 2008 due to the increased variable costs
associated with higher revenue. Operating expenses related to medical
spa product sales increased $51,000 in response to higher
demand. Marketing costs for the medical spa increased $32,000.
General corporate expenses increased approximately $184,000 primarily due to
legal and consulting costs associated with the registration statement filing
with the Securities and Exchange Commission, which we refer to as the
SEC.
Operating
Loss.
Operating loss for the year ended December 31, 2008 was
$445,822 compared to the year ended December 31, 2007, which was
$573,555. This decrease of $127,733 was primarily the result of
continued growth of business revenue (increase of $938,980 in 2008) while
holding operating expense growth to $811,247.
Net
Interest Expense
.
Our net interest expense
for the year ended December 31, 2008 was $286,276 compared to the year ended
December 31, 2007, which was $257,515. This increase of $28,761 was
primarily the result of the following:
A related
party capital lease recorded in May 2007 resulted in an additional $19,000 in
interest expense. The lease was for equipment utilized in our medical
spa operation. Subordinated convertible debentures of approximately
$227,000 were issued throughout 2007. In total, interest expense relating to
debentures increased $19,000. During 2008, the Company incurred debt
to a related party for SEC registration and other consulting
costs. Interest expense incurred on this debt was $25,000 in
2008. Throughout 2006 and 2007, we issued subordinated debentures
with detachable warrants, resulting in a debt discount of
$177,000. This debt discount is being amortized over the remaining
life of the debentures as interest expense. The amortized amount for
2008 increased $30,000 over 2007.
Interest
expense decreased in 2008 related to the reduction in principal in April 2008 of
$250,000 on our long-term debt. Previously, the bank held a $250,000
restricted certificate of deposit. In April 2008, the bank released
the restriction on the certificate and applied the proceeds to the outstanding
loan balance. Interest expense in 2008 decreased $49,000 as a result
of this transaction.
Net Loss
Applicable to Common Stock.
Net loss for the year ended
December 31, 2008 was $732,098 as compared to year ended December 31, 2007,
which was $831,070. This decrease of $98,972 is primarily the result
of items discussed above.
Liquidity
and Capital Resources
As of
December 31, 2008, we had a working capital deficit of $2,215,836, resulting
from current liabilities of $2,663,201. For the year ended December 31, 2008,
operating activities used $258,252 of our cash. Cash used in investing
activities totaled $6,175. Cash provided by financing activities
totaled $275,981; $148,356 in debt reductions, which were offset by $66,000 from
the sale of common stock and additional borrowings of
$358,337. Non-cash activities included the release of a $250,000
restricted certificate of deposit with a bank that was used to pay down
debt.
Our days
in medical accounts receivables were 39 days, 48 days and 51 days as of December
31, 2008, December 31, 2007 and December 31, 2006, respectively. All
medical spa services and product sales are paid at the point of service by
credit cards, debit cards, checks or cash. Accounts receivable
related to medical spa services are not material and are not included in this
analysis. Medical clinic services provided by NWAPCP are generally
submitted for billing to third-party insurance companies or Medicare within 48
hours of the time of service. We have engaged a professional medical
billing company to submit the claims to insurers. Most claims are
submitted electronically to the insurance companies and
Medicare. These claims become accounts receivable at the time they
are submitted to the insurance company. The aging of accounts
receivable begins at the date of the billing submission. Insurance companies
then review the electronic billing and either ask for more/corrected
information, deny the particular service or part of a service or pay it
electronically to a bank lock box or by check. In addition, each
insurance company adjusts the billing amount for each specific service to the
“insurance allowable rate” as specified in that insurance company’s contract
with NWAPCP. The insurance company will also identify any portions of
the billing that are to be paid by the insured patient (patient
responsible). These reviews and adjustments are communicated along
with payments to us in an explanation of benefits from the insurance
company.
We
calculate days sales outstanding using average daily sales over the previous
three months to arrive at an average daily charge amount. Medical
clinic accounts receivable as of the end of the period is divided by the average
daily charge amount to arrive at days sales outstanding. Below is a
calculation of the days in medical accounts receivable as reported
above:
|
|
|
Three
Months Ended
|
|
|
Three
Months
Ended
|
|
|
Three
Months
Ended
|
|
|
|
|
December
31,
2008
|
|
|
December
31,
2007
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Medical Clinic Revenue (1)
|
|
$
|
1,174,388
|
|
|
$
|
949,346
|
|
|
$
|
547,422
|
|
|
Expense
recorded for Contractual adjustment/Bad Debt Allowance
|
|
|
(408,955
|
)
|
|
|
(356,132
|
)
|
|
|
(176,046
|
)
|
|
Net
Medical Clinic Revenue
|
|
$
|
765,433
|
|
|
$
|
593,214
|
|
|
$
|
371,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#
of Days in period (2)
|
|
|
92
|
|
|
|
92
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Daily Charge (3) = (1) / (2)
|
|
$
|
12,765
|
|
|
$
|
10,319
|
|
|
$
|
5,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
Clinic Accounts Receivable (4)
|
|
$
|
497,303
|
|
|
$
|
492,400
|
|
|
$
|
304,144
|
|
|
Other
Accounts Receivable
|
|
$
|
31,408
|
|
|
$
|
21,302
|
|
|
$
|
9,263
|
|
|
|
|
$
|
528,711
|
|
|
$
|
513,702
|
|
|
$
|
313,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days
in medical accounts receivable = (4) / (3)
|
|
|
39
|
|
|
|
48
|
|
|
|
51
|
|
We make
every effort to collect any anticipated “patient responsible” portions of a
service bill (such as a co-pay or deductible) at the time of service. Payments
by the insurance companies are posted to each client’s account at the time it is
received. Patient payments are also posted as
received. Accounts receivable are then reduced by the amounts of
insurance contractual adjustments, insurance payments and client payments. At
the time any amounts are determined to be owed by the patient, printed bills are
sent to the responsible party of the patient. During all of these collection
processes from the time of the initial billing date to the insurance companies,
the accounts are individually and collectively aged. Due to the
complexities of medical insurance policies, employer specific policies, and
coverage qualifications, some appeals and interactions with insurance companies
can result in three to six months of claim reconciliation. If the patient does
not respond after three mailed billings, then the account is turned over to a
collection company that pursues collection from the patient. When an
account is turned over for collection, it is maintained in a bad debt recovery
account and reserved at its estimated realizable value. If the
collection company fails in locating the patient or in collecting the account
due, then the balance of the account is written off against the allowance. Any
amounts due under $5.00 are immediately written off due to the cost of
collection exceeding the expected collection recovery.
We expect
significant capital expenditures during the next 12 months, contingent upon
raising capital. These anticipated expenditures are for opening an
additional office, property and equipment, overhead and working capital
purposes. We have sufficient funds to conduct operations at our current site for
six months, but not to undertake our expansion plans. We anticipate
that we will need an additional $2,000,000 to fund our anticipated operations
for the next 12 months, depending on revenues from operations. We
have no contracts or commitments for additional funds and there can be no
assurance that financing will be available in amounts or on terms acceptable to
us, if at all.
By
adjusting our operations and development to the level of capitalization, we
believe we have sufficient capital resources to meet projected cash flow
deficits. However, if during that period or thereafter, we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations, liquidity and
financial condition.
We have a
note payable to a bank dated August 3, 2005. As of December 31, 2008, the
principal face amount owed under the note was $517,324. The proceeds of this
loan have been used to fund business start-up costs, acquisitions of equipment
and general operations. The loan agreement bears interest at the Wall Street
Journal prime rate plus 2.5% adjusted quarterly (5.75% at December 31,
2008). We were required to pay twelve payments of interest only beginning one
month from the date of the loan and each month thereafter. Beginning in the
thirteenth month of the loan, we began paying monthly principal and interest
payments through the date of maturity. The loan matures on August 3, 2013 and is
secured by essentially all of our assets as well as a 75% guaranty by the Small
Business Administration, a personal guaranty from Steve Swift, our Chief
Executive Officer and majority stockholder and life insurance of $1,000,000 on
Mr. Swift. This note payable contains certain restrictive covenants, both
financial and non-financial. The restrictive covenants include a debt service
coverage ratio of 1.5:1, maintaining $1,000,000 in life and disability insurance
on our Chief Executive Officer, and restrictions on our Chief Executive
Officer’s salary. As of December 31, 2008, we were not in compliance
with the debt service coverage ratio and continue to remain
non-compliant. As a result, we are in default under the note and the
bank could demand full and immediate payment, which we cannot repay at this
time. The bank has the right to take possession of the collateral, to
operate our business using the collateral, and has the right to assign, sell,
lease or otherwise dispose of and deliver all or any part of the collateral, at
public or private sale or otherwise to satisfy our obligations under the
note.
We
presently do not have any available credit, bank financing or other external
sources of liquidity. Due to our brief history and historical operating losses,
our operations have not been a source of liquidity. We will need to obtain
additional capital in order to expand operations and become profitable. In order
to obtain capital, we may need to sell additional shares of our common stock or
borrow funds from private lenders. There can be no assurance that we will be
successful in obtaining additional funding.
To the
extent that we raise additional capital through the sale of equity or
convertible debt securities, the issuance of such securities may result in
dilution to existing stockholders. If additional funds are raised through the
issuance of debt securities, these securities may have rights, preferences and
privileges senior to holders of common stock and the terms of such debt could
impose restrictions on our operations. Regardless of whether our cash assets
prove to be inadequate to meet our operational needs, we may seek to compensate
providers of services by issuance of stock in lieu of cash, which may also
result in dilution to existing stockholders. Even if we are able to raise the
funds required, it is possible that we could incur unexpected costs and
expenses, fail to collect significant amounts owed to us, or experience
unexpected cash requirements that would force us to seek alternative
financing.
Whereas
we have been successful in the past in raising capital, no assurance can be
given that these sources of financing will continue to be available to us and/or
that demand for our equity/debt instruments will be sufficient to meet our
capital needs, or that financing will be available on terms favorable to us. If
funding is insufficient at any time in the future, we may not be able to take
advantage of business opportunities or respond to competitive pressures, or may
be required to reduce the scope of our planned service development and marketing
efforts, any of which could have a negative impact on our business and operating
results. In addition, insufficient funding may have a material adverse effect on
our financial condition, which could require us to:
|
|
curtail
operations significantly;
|
|
|
sell
significant assets;
|
|
|
seek
arrangements with strategic partners or other parties that may require us
to relinquish significant rights to products, technologies or markets;
or
|
|
|
explore
other strategic alternatives including a merger or sale of our
company.
|
Between
January 2008 and February 2008, we sold an aggregate of 630,000 shares of our
common stock to four investors for aggregate gross proceeds of
$56,000. These shares were issued in reliance on the exemption
provided by Section 4(2) of the Securities Act of 1933, as
amended. Pursuant to the terms of sale, we granted the investors
piggyback registration rights for their shares.
In July
2008, we sold an aggregate of 111,111 shares of our common stock to an investor
for aggregate gross proceeds of $10,000. These shares were issued in
reliance on the exemption provided by Section 4(2) of the Securities Act of
1933, as amended.
Critical
Accounting Policies
Accounts
Receivable
Accounts
receivable principally represent receivables from customers and third-party
payors for medical services provided by clinic physicians, less an allowance for
contractual adjustments and doubtful accounts. We utilize a third party billing
organization that estimates the collectability of receivables based on industry
standards and our collection history. We recorded contractual
adjustments and bad debt expense of approximately $1,414,000 and $1,143,000 for
the years ended December 31, 2008 and 2007, respectively. We recorded
contractual adjustments of approximately $1,210,000 and $954,000 for the years
ended December 31, 2008 and 2007, respectively. We recorded bad debt
expense of approximately $204,000 and $189,000 for the years ended December 31,
2008 and 2007, respectively. Our revenues and receivables are
reported at their estimated net realizable amounts and are subject to audit and
adjustment. Provisions for estimated third-party payor settlements are provided
in the period the related services are rendered and are adjusted in the period
of settlement. Actual settlements could have an adverse material
effect on our financial position and operations.
Our
accounts receivable include amounts that are pending approval from third party
payors. Claims for insured patients are first filed with insurance,
at which time the net realizable amount is unknown. The insurance
company processes the claim and calculates the payment made to
us. The following factors are among those considered by the insurance
company: adjustments based on contracted amounts for specific
procedures, outstanding deductible for the patient, and co-insurance
percentages. Our billing system does not separately track claims that
are pending approval. Our billing system also does not track claims
that are denied by a third party payor and ultimately paid by the
patient. Thus, the amount of claims classified as insurance
receivables that are reclassified to self-pay is not quantifiable. We
calculate allowances for contractual adjustment and bad debts based on total
accounts receivable outstanding.
|
|
|
As
of December 31, 2008
|
|
|
|
|
60
days or less
|
|
|
61
– 120 days
|
|
|
Greater
than 120 days
|
|
|
Total
|
|
|
Medicare
|
|
$
|
19,173
|
|
|
$
|
1,966
|
|
|
$
|
2,691
|
|
|
$
|
23,830
|
|
|
Third
party insurance (1)
|
|
|
224,900
|
|
|
|
40,113
|
|
|
|
48,859
|
|
|
|
313,872
|
|
|
Self
pay (2)
|
|
|
31,883
|
|
|
|
28,891
|
|
|
|
98,827
|
|
|
|
159,601
|
|
|
Other
|
|
|
15,873
|
|
|
|
5,173
|
|
|
|
10,362
|
|
|
|
31,408
|
|
|
Total
Accounts Receivable
|
|
$
|
291,829
|
|
|
$
|
76,143
|
|
|
$
|
160,739
|
|
|
$
|
528,711
|
|
|
|
|
As
of December 31, 2007
|
|
|
|
|
60
days or less
|
|
|
61
– 120 days
|
|
|
Greater
than 120 days
|
|
|
Total
|
|
|
Medicare
|
|
$
|
20,372
|
|
|
$
|
1,891
|
|
|
$
|
5,475
|
|
|
$
|
27,738
|
|
|
Third
party insurance (1)
|
|
|
250,780
|
|
|
|
41,359
|
|
|
|
29,285
|
|
|
|
321,424
|
|
|
Self
pay (2)
|
|
|
26,965
|
|
|
|
52,462
|
|
|
|
63,811
|
|
|
|
143,238
|
|
|
Other
|
|
|
9,095
|
|
|
|
484
|
|
|
|
11,723
|
|
|
|
21,302
|
|
|
Total
Accounts Receivable
|
|
$
|
307,212
|
|
|
$
|
96,196
|
|
|
$
|
110,294
|
|
|
$
|
513,702
|
|
|
(1)
|
Third
party insurance represents claims made to insurance companies not
classified as Medicare, Medicaid, or other government-backed
program.
|
|
(2)
|
Self
pay receivables are defined as all amounts due from
individuals. The amounts can include amounts due from uninsured
patients and co-payments or
deductibles.
|
Revenue
Recognition
We
recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104,
Revenue Recognition in Financial Statements (SAB 104). Under SAB 104, revenue is
recognized when the title and risk of loss have passed to the customer, there is
persuasive evidence of an arrangement, delivery has occurred or services have
been rendered, the sales price is determinable and collectability is reasonably
assured.
Our net
revenue is comprised of net clinic revenue and revenue derived from the sales of
spa services and related products. Net clinic revenue is recorded at established
rates reduced by provisions for doubtful accounts and contractual adjustments.
Contractual adjustments arise as a result of the terms of certain reimbursement
and managed care contracts. Such adjustments represent the difference between
charges at established rates and estimated recoverable amounts and are
recognized in the period the services are rendered. Any differences between
estimated contractual adjustments and actual final settlements under
reimbursement contracts are recognized in the year they are
determined.
Spa
revenues are recognized at the time of sale, as this is when the services have
been provided or, in the case of product revenues, delivery has occurred, and
the spa receives the customer’s payment. Revenues from pre-paid purchases are
also recorded when the customer takes possession of the merchandise or receives
the service. Pre-paid purchases are defined as either gift cards or series
sales. Series sales are the purchase of a series of services to be
received over a period of time. Pre-paid purchases are recorded as a
liability (deferred revenue) until they are redeemed. Gift cards expire two
years from the date of the customer’s purchase. Series sales do not
carry an expiration date.
Earnings
Per Share
We
calculate and disclose earnings per share (EPS) in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 128, Earnings Per Share (SFAS 128).
SFAS 128 requires dual presentation of Basic and Diluted EPS on the face of the
statements of operations and requires a reconciliation of the numerator and
denominator of the Basic EPS computation to the numerator and denominator of the
Diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in our earnings.
In
computing Diluted EPS, only potential common shares that are dilutive — those
that reduce earnings per share or increase loss per share — are included.
Exercise of options and warrants or conversion of convertible securities is not
assumed if the result would be antidilutive, such as when a loss from continuing
operations is reported. The “control number” for determining whether including
potential common shares in the Diluted EPS computation would be antidilutive is
income from continuing operations. As a result, if there is a loss from
continuing operations, Diluted EPS would be computed in the same manner as Basic
EPS is computed, even if an entity has net income after adjusting for
discontinued operations, an extraordinary item or the cumulative effect of an
accounting change. Therefore, basic and diluted EPS are calculated in the same
manner for the years ended December 31, 2008 and 2007, as there were losses from
continuing operations for those periods.
Share-Based
Payment
In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No 123R,
Share-Based Payment
(SFAS
123R). SFAS 123R is a revision of SFAS 123,
Accounting for Stock-Based
Compensation
, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to
Employees
, and its related implementation guidance. Under
paragraph 7 of SFAS 123R, if the fair value of goods or services received in a
share-based payment transaction with nonemployees is more reliably measurable
than the fair value of the equity instruments issued, the fair value of the
goods or services received shall be used to measure the transaction. In
contrast, if the fair value of the equity instruments issued in a share-based
payment transaction with nonemployees is more reliably measurable than the fair
value of the consideration received, the transaction shall be measured based on
the fair value of the equity instruments issued. We utilized the fair
value of the equity instruments issued to nonemployees to value the shares
issued. We recognize the fair value of stock-based compensation
awards in general corporate expense in the consolidated statements of operations
on a straight-line basis over the vesting period.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157,
Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. The issuance of
this standard is meant to increase consistency and comparability in fair value
measurements. In February 2008, the FASB issued FASB Staff Position 157-1,
Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13
(FSP 157-1) and FASB Staff Position 157-2,
Effective Date of FASB
Statement No. 157
(FSP 157-2). FSP 157-1 amends SFAS 157 to remove
certain leasing transactions from its scope. FSP 157-2 delays until
January 1, 2009 the effective date of SFAS 157 for all non-financial assets
and liabilities, except for items that are recognized or disclosed at fair value
in the financial statements on a recurring basis. In October 2008, the FASB
issued FASB Staff Position 157-3,
Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active
(FSP 157-3).
FSP 157-3 clarifies the application of SFAS 157 in a market that is not active.
We adopted SFAS 157 as of January 1, 2008. The adoption of SFAS 157 did not
have a material impact on our financial statements.
In
February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities
(SFAS 159). SFAS 159 permits entities to
choose to measure many financial instruments and certain other items at fair
value, and establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities. SFAS 159 is effective
for fiscal years beginning after November 15, 2007. We adopted SFAS 159
effective January 1, 2008. The adoption did not have a material
impact on our financial statements and related disclosures.
In
December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements
(SFAS 160). SFAS 160 was issued to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary (formerly called minority interests) and for the deconsolidation of
a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. SFAS No. 160 is effective for us in
our fiscal year beginning after December 15, 2008. We do not expect
the adoption of SFAS 160 to have a material effect on our consolidated financial
statements and related disclosures.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007),
Business Combinations
(SFAS
141R). SFAS 141R was issued to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its
effects. This Statement is effective prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008. We do not expect the adoption of SFAS 141R to have a material
effect on our consolidated financial statements and related
disclosures.
In
March 2008, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 161,
Disclosures about Derivative
Instruments and Hedging Activities — an amendment of FASB Statement No. 133
(SFAS 161). SFAS 161 requires enhanced disclosures about an entity’s
derivative and hedging activities, including qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008.
ITEM
7A.
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not
required under Regulation S-K for “smaller reporting companies.”
ITEM
8.
FINANCIAL
STATEMENTS.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
INDEX TO
FINANCIAL STATEMENTS
|
|
|
Page
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
|
F-3
|
|
|
|
|
|
Consolidated
Statements of Operations for each of the years in the two year period
ended December 31, 2008
|
|
F-4
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for each of the years in the two year period
ended December 31, 2008
|
|
F-5
|
|
|
|
|
|
Consolidated
Statement of Stockholders' Deficit for each of the years in the two year
period ended December 31, 2008
|
|
F-6
|
|
|
|
|
|
Notes
to the Consolidated Financial Statements
|
|
F-7
to F-22
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
WellQuest
Medical & Wellness Corporation
We have
audited the accompanying consolidated balance sheets of WellQuest Medical &
Wellness Corporation (formerly HQ HealthQuest Medical & Wellness Centers,
LTD) and subsidiary as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the years then ended. 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
audits. Tullius Taylor Sartain & Sartain LLP audited the
financial statements of WellQuest Medical & Wellness Corporation as of and
for the year ended December 31, 2007, and merged with Hogan & Slovacek P.C.
to form HoganTaylor LLP effective January 7, 2009.
We
conducted our audits 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. The Company is not required to
have, nor were we engaged to perform an audit of the Company’s internal control
over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of WellQuest Medical &
Wellness Corporation as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that WellQuest
Medical & Wellness Corporation will continue as a going
concern. As discussed in Note 1 to the financial statements, the
Company has suffered recurring losses from operations and has both a working
capital deficit and stockholders’ deficit. These factors raise
substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans concerning these matters are also
discussed in Note 1 to the financial statements. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/
HOGANTAYLOR LLP
Fayetteville,
Arkansas
April 8,
2009
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly HQHealthQuest Medical &
Wellness Centers, Ltd.
)
Consolidated
Balance Sheets
December
31, 2008 and 2007
|
|
|
2008
|
|
|
2007
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
103,265
|
|
|
$
|
91,711
|
|
|
Accounts
receivable, less allowances of $235,348 and $184,585 at December 31,
2008 and 2007, respectively
|
|
|
293,363
|
|
|
|
329,117
|
|
|
Certificate
of deposit, restricted
|
|
|
-
|
|
|
|
250,000
|
|
|
Other
current assets
|
|
|
50,737
|
|
|
|
65,729
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
447,365
|
|
|
|
736,557
|
|
|
Property
and equipment, net
|
|
|
387,125
|
|
|
|
495,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
834,490
|
|
|
$
|
1,231,884
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Line
of credit
|
|
$
|
202,494
|
|
|
$
|
193,765
|
|
|
Accounts
payable
|
|
|
293,312
|
|
|
|
285,641
|
|
|
Accrued
liabilities
|
|
|
232,034
|
|
|
|
185,139
|
|
|
Due
to physicians and related parties
|
|
|
521,118
|
|
|
|
375,335
|
|
|
Note
payable to related party
|
|
|
349,608
|
|
|
|
-
|
|
|
Current
maturities of long-term debt
|
|
|
517,324
|
|
|
|
352,585
|
|
|
Current
obligations under capital leases
|
|
|
23,902
|
|
|
|
20,291
|
|
|
Current
maturities of subordinated debentures payable to stockholders net of
unamortized discount
of
$17,093 and $0 at December 31, 2008 and 2007, respectively
|
|
|
523,409
|
|
|
|
125,005
|
|
|
Total
current liabilities
|
|
|
2,663,201
|
|
|
|
1,537,761
|
|
|
Long-term
debt, less current maturities
|
|
|
-
|
|
|
|
517,804
|
|
|
Long-term
obligations under capital leases, less current portion
|
|
|
118,646
|
|
|
|
142,548
|
|
|
Subordinated
debentures payable to stockholders, less current maturities, net of
unamortized discount
of
$112,000 at December 31, 2007
|
|
|
-
|
|
|
|
328,497
|
|
|
Total
liabilities
|
|
|
2,781,847
|
|
|
|
2,526,610
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit:
|
|
|
|
|
|
|
|
|
|
Preferred
stock - $.01 par value; authorized 2,500,000 shares
75,000
designated as Series A convertible
preferred
stock; 37,440 issued and outstanding at December 31, 2008 and
2007
|
|
|
374
|
|
|
|
374
|
|
|
Common
stock - $.001 par value; authorized 150,000,000 shares; 23,716,361 and
22,975,250 issued and
outstanding
at December 31, 2008 and 2007, respectively
|
|
|
23,716
|
|
|
|
22,975
|
|
|
Additional
paid-in capital
|
|
|
1,263,030
|
|
|
|
1,184,304
|
|
|
Warrants
outstanding
|
|
|
177,000
|
|
|
|
177,000
|
|
|
Accumulated
deficit
|
|
|
(3,411,477
|
)
|
|
|
(2,679,379
|
)
|
|
|
|
|
(1,947,357
|
)
|
|
|
(1,294,726
|
)
|
|
Total
liabilities and stockholders' deficit
|
|
$
|
834,490
|
|
|
$
|
1,231,884
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly HQHealthQuest Medical &
Wellness Centers, Ltd.
)
Consolidated
Statements of Operations
Years
ended December 31, 2008 and 2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
3,332,433
|
|
|
$
|
2,393,453
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and benefits
|
|
|
1,256,706
|
|
|
|
1,081,077
|
|
|
Rents
and facility expenses
|
|
|
304,391
|
|
|
|
259,681
|
|
|
Clinic
direct expenses, excluding salaries, wages and benefits
|
|
|
1,138,221
|
|
|
|
793,445
|
|
|
Spa
direct expenses, excluding salaries, wages and benefits
|
|
|
341,591
|
|
|
|
245,416
|
|
|
General
corporate expenses
|
|
|
622,969
|
|
|
|
485,026
|
|
|
Depreciation
and amortization
|
|
|
114,377
|
|
|
|
102,363
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
3,778,255
|
|
|
|
2,967,008
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(445,822
|
)
|
|
|
(573,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense):
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
3,232
|
|
|
|
12,739
|
|
|
Interest
expense
|
|
|
(289,508
|
)
|
|
|
(270,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest expense
|
|
|
(286,276
|
)
|
|
|
(257,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common stock
|
|
$
|
(732,098
|
)
|
|
$
|
(831,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share:
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares and dilutive common share equivalents
outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
23,608,429
|
|
|
|
19,505,250
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly HQHealthQuest Medical &
Wellness Centers, Ltd.
)
Consolidated
Statements of Stockholders’ Deficit
Years
ended December 31, 2008 and 2007
|
|
|
Common
|
|
|
Series
A Convertible
Preferred
|
|
|
Additional
Paid-in
|
|
|
Warrants
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
|
Shares
|
|
|
$
|
|
|
Shares
|
|
|
$
|
|
|
Capital
|
|
|
Outstanding
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
18,875,000
|
|
|
$
|
18,875
|
|
|
|
36,315
|
|
|
$
|
363
|
|
|
$
|
798,972
|
|
|
$
|
85,000
|
|
|
$
|
(1,848,309
|
)
|
|
$
|
(945,099
|
)
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(831,070
|
)
|
|
|
(831,070
|
)
|
|
Issuance
of common stock for cash
|
|
|
1,094,000
|
|
|
|
1,094
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96,149
|
|
|
|
-
|
|
|
|
-
|
|
|
|
97,243
|
|
|
Issuance
of common stock for services performed
|
|
|
3,006,250
|
|
|
|
3,006
|
|
|
|
-
|
|
|
|
-
|
|
|
|
264,194
|
|
|
|
-
|
|
|
|
-
|
|
|
|
267,200
|
|
|
Issuance
of subordinated convertible debentures with warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92,000
|
|
|
|
-
|
|
|
|
92,000
|
|
|
Issuance
of convertible preferred stock for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
1,125
|
|
|
|
11
|
|
|
|
24,989
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
22,975,250
|
|
|
|
22,975
|
|
|
|
37,440
|
|
|
|
374
|
|
|
|
1,184,304
|
|
|
|
177,000
|
|
|
|
(2,679,379
|
)
|
|
|
(1,294,726
|
)
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(732,098
|
)
|
|
|
(732,098
|
)
|
|
Issuance
of common stock for cash
|
|
|
741,111
|
|
|
|
741
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,259
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66,000
|
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,467
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
|
23,716,361
|
|
|
$
|
23,716
|
|
|
|
37,440
|
|
|
$
|
374
|
|
|
$
|
1,263,030
|
|
|
$
|
177,000
|
|
|
$
|
(3,411,477
|
)
|
|
$
|
(1,947,357
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly HQHealthQuest Medical &
Wellness Centers, Ltd.
)
Consolidated
Statements of Cash Flows
Years
ended December 31, 2008 and 2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(732,098
|
)
|
|
$
|
(831,070
|
)
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
114,377
|
|
|
|
102,363
|
|
|
Provision
for uncollectible accounts
|
|
|
50,763
|
|
|
|
94,206
|
|
|
Amortization
of debt discount
|
|
|
94,907
|
|
|
|
65,000
|
|
|
Stock-based
compensation
|
|
|
13,467
|
|
|
|
267,200
|
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(15,009
|
)
|
|
|
(200,295
|
)
|
|
Other
current assets
|
|
|
14,992
|
|
|
|
(38,822
|
)
|
|
Accounts
payable and accrued liabilities
|
|
|
54,566
|
|
|
|
140,881
|
|
|
Due
to physicians and related parties
|
|
|
145,783
|
|
|
|
206,484
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(258,252
|
)
|
|
|
(194,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(6,175
|
)
|
|
|
(17,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
Repayment
of long-term borrowings and obligations under capital
leases
|
|
|
(123,356
|
)
|
|
|
(111,948
|
)
|
|
Proceeds
from issuance of subordinated notes to stockholders
|
|
|
-
|
|
|
|
226,833
|
|
|
Repayments
of subordinated notes to stockholders
|
|
|
(25,000
|
)
|
|
|
-
|
|
|
Net
borrowings on line of credit
|
|
|
8,729
|
|
|
|
44,777
|
|
|
Proceeds
from issuance of note payable to related party
|
|
|
349,608
|
|
|
|
-
|
|
|
Proceeds
from issuance of common stock
|
|
|
66,000
|
|
|
|
97,243
|
|
|
Proceeds
from issuance of convertible preferred stock
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
275,981
|
|
|
|
281,905
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
11,554
|
|
|
|
70,424
|
|
|
Cash,
beginning of year
|
|
|
91,711
|
|
|
|
21,287
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
end of year
|
|
$
|
103,265
|
|
|
$
|
91,711
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
Restricted
certificate of deposit applied to long-term borrowings
|
|
$
|
250,000
|
|
|
|
-
|
|
|
Property
and equipment acquired under capital lease
|
|
|
-
|
|
|
$
|
173,176
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
147,175
|
|
|
$
|
204,647
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and 2007
HQHealthQuest
Medical & Wellness Centers, LTD (“HQHealthQuest”) was incorporated in the
state of Oklahoma in November 2004. Its wholly-owned subsidiary,
WellQuest of Arkansas, Inc. (“WellQuest of Arkansas”), was incorporated in the
state of Arkansas in May 2005. The Company changed its name to
WellQuest Medical & Wellness Corporation (“WellQuest”) on April 24,
2008.
WellQuest
delivers an integrated model of primary medical care, preventive/wellness
services and medical esthetics in upscale facilities located in high-traffic
retail corridors. The delivery site is titled “WellQuest Medical
Clinic and Spa”, a trademarked business name. The WellQuest concept
combines a customer-service oriented medical treatment facility for
interventional care with programmed preventive services and products that lead
clients in the quest for wellness. The facility also houses an
advanced medical spa for skincare services and products. WellQuest currently
operates one facility in Bentonville, Arkansas.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of
WellQuest, it’s wholly owned subsidiary, WellQuest of Arkansas, and Northwest
Arkansas Primary Care Physicians, P.A. (collectively, the
“Company”). In December 2003, the Financial Accounting Standards
Board (FASB) issued FASB Interpretation 46R (FIN 46R),
Consolidation of Variable Interest
Entities
. FIN 46R clarifies the application of Accounting
Research Bulletin No. 51,
Consolidated Financial
Statements
, which addressed the consolidation by business enterprises of
variable interest entities (VIEs). FIN 46R provides guidance in
determining when VIEs should be consolidated in the financial statements of the
primary beneficiary.
WellQuest
of Arkansas entered into a Management and Medical Services Agreement with
Northwest Arkansas Primary Care Physicians, P.A (“NWAPCP”) pursuant to which
NWAPCP was granted exclusive rights to operate medical practices in the current
center and all future sites that WellQuest of Arkansas might open in Northwest
Arkansas. As a result, NWAPCP is responsible for hiring all
physicians and nurse practitioners who operate in the medical clinic. The
proceeds from the practice are assigned to WellQuest of
Arkansas. From those proceeds, WellQuest of Arkansas pays the
compensation of the employees of NWAPCP and all expenses associated from the
conduct of the practice. WellQuest of Arkansas receives a monthly
management fee of 7.5% of the practice’s net revenues, and after all practice
loans and interest are repaid in full, receives a performance bonus as a share
of any practice operating profits after physician compensation and all practice
operating expenses are paid. Any remaining profits are paid to
NWAPCP. Because NWAPCP currently has outstanding loans due to
WellQuest of Arkansas, 80% of any remaining profits are used to reduce the
debt. The remaining 20% of any remaining profits are paid or payable
to the owners of NWAPCP Once the debt has been repaid in full,
remaining profits will be paid or payable to NWAPCP
Because
the accounts of NWAPCP are consolidated with ours, loans to fund NWAPCP’s
operating losses are eliminated and reported as expenses in the consolidated
financial statements. Operating profits of NWAPCP used to reduce its
debt to WellQuest are eliminated and reported as operating profits in the
consolidated financial statements. For each period presented,
NWAPCP’s profits paid or payable to its owners are reported as physician
compensation in clinic direct expenses.
As a
result of WellQuest’s evaluation of the effect that the adoption of FIN 46R
would have on WellQuest's results of operations and financial condition,
WellQuest determined that NWAPCP qualifies for consolidation, as WellQuest is
the primary beneficiary of the operations of the clinic after physician
compensation pursuant to the terms of the management agreement. As a
result, the operations of the clinic, primarily clinic revenues and expenses,
were consolidated into WellQuest for financial statement reporting purposes in
accordance with the provisions of FIN 46R. All significant
intercompany accounts and transactions have been eliminated.
Management’s
Plans
The
financial statements of the Company have been prepared on the basis of
accounting principles applicable to a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. At December 31, 2008, the Company had a working capital deficit of
approximately $2,216,000 and had incurred net losses of approximately $732,000
for the year ended December 31, 2008 and approximately $831,000 for the year
ended December 31, 2007. The Company also has an accumulated deficit
of approximately $3.4 million and total stockholder deficit of $1.9 million
at December 31, 2008. The Company has, in large part, been supported
by the proceeds of long-term debt and certain major stockholders, primarily
through subordinated debentures. There is no commitment for such
stockholders to continue providing financial support to the
Company.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and
2007
These
factors, among others, raise substantial doubt about the ability of the Company
to continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going
concern. The ability of the Company to continue as a going concern is
dependent upon the ongoing support of its stockholders, investors, customers and
creditors, and its ability to successfully establish and operate additional
clinics and spas throughout selected geographical markets. As
discussed in the following paragraph, the Company will require additional
financial resources in order to fund obligations as they become
due.
WellQuest
is seeking to identify potential equity participants in the public equity market
in an attempt to generate sufficient additional investment capital to meet
working capital needs for expansion and development. Management and
major stockholders are currently marketing the Company based on management's
plans which include: expanding the model, which will enable WellQuest to spread
its management costs over several centers; fund expansion to a major
metropolitan area in the United States; and complete development of the business
model. Equity funding will further allow WellQuest to reduce debt
service requirements.
Completion
of management's plans will require the Company to obtain additional debt or
equity financing beyond those resources currently available to the
Company. There is no assurance the Company will be successful in
securing resources to fund current obligations as they become due in 2008 or to
support the Company until such time, if ever, that the Company is able to
consistently generate income from operations.
2.
Summary of Significant Accounting
Policies
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Accounts
Receivable
Accounts
receivable principally represent receivables from customers and third-party
payors for medical services provided by clinic physicians, less an allowance for
contractual adjustments and doubtful accounts. The Company utilizes a third
party billing organization that estimates the collectibility of receivables
based on industry standards and the Company’s collection history. The
Company recorded contractual adjustments and bad debt expense of approximately
$1,414,000 and $1,143,000 in 2008 and 2007, respectively. These
amounts are considered in the determination of net revenue on the statements of
operations. Adjustments to the allowance for doubtful accounts for
December 31, 2008 and December 31, 2007 are as follows:
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and
2007
|
Description
|
|
Balance
at Beginning of Period
|
|
|
Charged
to Net Revenue
|
|
|
Deductions
|
|
|
Balance
at
End
of
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
adjustments
|
|
$
|
139,055
|
|
|
$
|
1,209,908
|
|
|
$
|
1,229,753
|
|
|
$
|
119,210
|
|
|
Bad
debt expense
|
|
|
45,530
|
|
|
|
203,829
|
|
|
|
133,221
|
|
|
|
116,138
|
|
|
|
|
$
|
184,585
|
|
|
$
|
1,413,737
|
|
|
$
|
1,362,974
|
|
|
$
|
235,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2007 :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
adjustments
|
|
$
|
60,939
|
|
|
$
|
954,308
|
|
|
$
|
876,192
|
|
|
$
|
139,055
|
|
|
Bad
debt expense
|
|
|
29,440
|
|
|
|
189,173
|
|
|
|
173,083
|
|
|
|
45,530
|
|
|
|
|
$
|
90,379
|
|
|
$
|
1,143,481
|
|
|
$
|
1,049,275
|
|
|
$
|
184,585
|
|
Other
Current Assets
Other
current assets include $41,000 of inventoried medical supplies, cosmetics, and
skincare products. These assets are recorded at the lower of cost or
market on a first in, first out basis. The Company performs quarterly
reviews of inventory for expired or obsolete items and if necessary, records a
valuation allowance.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation of property and equipment is
calculated using the straight-line method over the estimated useful lives of the
assets. Useful lives of furniture and equipment are estimated to range from five
to fifteen years; useful lives of leasehold improvements are estimated to be ten
years. Gains or losses on sales or other dispositions of property are credited
or charged to income in the period incurred. Repairs and maintenance costs are
charged to income in the period incurred, unless it is determined that the
useful life of the respective asset has been extended.
Revenue
Recognition
The
Company recognizes revenue in accordance with Securities and Exchange Commission
(SEC) Staff Accounting Bulletin No. 104,
Revenue Recognition in Financial
Statements
(SAB 104). Under SAB 104, revenue is recognized when the title
and risk of loss have passed to the customer, there is persuasive evidence of an
arrangement, delivery has occurred or services have been rendered, the sales
price is determinable and collectibility is reasonably assured.
Net
revenue of the Company is comprised of net clinic revenue and revenue derived
from the sales of spa services and related products. Net clinic revenue is
recorded at established rates reduced by provisions for doubtful accounts and
contractual adjustments. Contractual adjustments arise as a result of the terms
of certain reimbursement and managed care contracts. Such adjustments represent
the difference between charges at established rates and estimated recoverable
amounts and are recognized in the period the services are rendered. Any
differences between estimated contractual adjustments and actual final
settlements under reimbursement contracts are recognized in the year the
settlements are determined.
Spa
revenues are recognized at the time of sale, as this is when the services have
been provided or, in the case of product revenues, delivery has occurred, and
the spa receives the customer’s payment. Revenues from pre-paid purchases are
also recorded when the customer takes possession of the merchandise or receives
the service. Pre-paid purchases are defined as either gift cards or series
sales. Series sales are the purchase of a series of services to be
received over a period of time. Pre-paid purchases are recorded as a
liability (deferred revenue) until they are redeemed. Gift cards expire two
years from the date of the customer’s purchase. Series sales do not
carry an expiration date.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and 2007
Income
Taxes
The
Company accounts for income taxes following the asset and liability method in
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109,
Accounting for Income
Taxes.
Under such method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years that the asset is expected to be recovered or the liability
settled.
The
Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes-an Interpretation of FASB Statement No. 109
(FIN 48), on January 1,
2007. FIN 48 requires application of a more likely than not threshold
to the recognition and derecognition of uncertain tax positions. FIN
48 permits the Company to recognize the amount of tax benefit that has a greater
than 50% likelihood of being ultimately realized upon settlement. It
further requires that a change in judgment, resulting from evaluation of new
information, related to the expected ultimate resolution of uncertain tax
positions be recognized in earnings in the quarter of such change.
Upon
adoption of FIN 48 on January 1, 2007, the Company recognized no adjustment in
the liability for unrecognized income tax benefits and no corresponding change
in retained earnings. The Company does not have any accrued interest
or penalties associated with any unrecognized tax benefits. The
Company’s policy is to account for interest and penalties related to uncertain
tax positions, if any, in income tax expense.
Share-Based
Payment and Stock-Based Compensation Plan
In
December 2004, the Financial Accounting Standards Board issued Statement SFAS
No. 123R,
Share-Based
Payment
(SFAS 123R). SFAS 123R is a revision of SFAS 123,
Accounting for Stock-Based
Compensation
, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to
Employees
, and its related implementation guidance. Under
paragraph 7 of SFAS 123R, if the fair value of goods or services received in a
share-based payment transaction with nonemployees is more reliably measurable
than the fair value of the equity instruments issued, the fair value of the
goods or services received shall be used to measure the transaction.
In
contrast, if the fair value of the equity instruments issued in a share-based
payment transaction with nonemployees is more reliably measurable than the fair
value of the consideration received, the transaction shall be measured based on
the fair value of the equity instruments issued. The Company utilized
the fair value of the equity instruments issued to nonemployees to value the
shares issued. The Company recognizes the fair value of stock-based
compensation awards in general corporate expense in the consolidated statements
of operations on a straight-line basis over the vesting
period.
On April
4, 2008, the shareholders of the Company adopted the WellQuest Medical and
Wellness Corporation 2008 Incentive Stock Plan (the 2008 Plan).
The
purpose of the 2008 Plan is to further the growth and development of the Company
by providing, through ownership of stock of the Company, an incentive to
officers and other key personnel who are in a position to contribute materially
to the prosperity of the Company including, but not limited to, all salaried
personnel of the Company, to increase such persons’ interests in the Company’s
welfare, to encourage them to continue their services to the Company, and to
attract individuals of outstanding ability to enter the employment of the
Company. The 2008 Plan authorizes the issuance of 5,000,000 shares of
the Company’s common stock.
On August
4, 2008, the Company granted stock options for 500,000 shares of stock at an
exercise price of $0.08888 per share. The options are subject to a
vesting schedule as follows: 166,667 options on August 4, 2008;
166,667 options on August 4, 2009; and 166,666 options on August 4,
2010. The options have a termination date of August 3,
2018. Compensation expense was calculated at approximately
$29,000, which will be recognized over the vesting period. The amount
expensed in 2008 related to these options was approximately
$13,000. The Company has reserved 500,000 shares of common stock for
the exercise of these options.
On
December 9, 2008, we granted stock options for 300,000 shares of stock at an
exercise price of $0.08888 per share. The options are subject to a
vesting schedule as follows: 100,000 options on April 14, 2011;
100,000 options on April 14, 2012; and 100,000 options on April 14,
2013. The options have a termination date of April 14,
2015. Compensation expense was calculated at approximately $23,000,
which will be recognized over the vesting period. The Company has
reserved 300,000 shares of common stock for the exercise of these
options.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and 2007
The
following table provides information as of December 31, 2008 regarding shares
outstanding and available for issuance under our existing stock option
plan.
The
following table summarizes information concerning the Plan.
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Number
|
|
|
Exercise
Price
|
|
|
Fair
Value of
Options
|
|
|
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Balance,
December 31, 2007
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
800,000
|
|
|
|
0.08888
|
|
|
|
0.06477
|
|
|
|
8.4
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
|
800,000
|
|
|
|
0.08888
|
|
|
|
0.06477
|
|
|
|
8.4
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2008
|
|
|
166,666
|
|
|
$
|
0.08888
|
|
|
$
|
0.05736
|
|
|
|
9.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table details the options granted to certain members of the board of
directors and management during 2008 and the assumptions used in the
Black-Scholes option valuation model for those grants:
|
Grant
Date
|
Number
of
Shares
|
|
Exercise
Price
|
|
Risk-Free
Interest
Rate
|
|
|
Estimated
Volatility
|
|
|
Dividend
Yield
|
|
Forfeiture
Rate
|
|
Expected
Life
|
|
Aug-08
|
500,000
|
|
$
|
0.08888
|
|
4.50
|
%
|
|
180
|
%
|
|
None
|
|
|
0
|
%
|
10 years
|
|
Dec-08
|
300,000
|
|
$
|
0.08888
|
|
2.03
|
%
|
|
190
|
%
|
|
None
|
|
|
0
|
%
|
7 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility.
Because the Company does
not yet have a trading history, we calculated an estimated volatility rate for
options at each grant date based on three years of trading activity of six
similarly sized companies in the healthcare
industry.
As of
December 31, 2008, there was approximately $16,000 of unrecognized
compensation expense related to non-vested share-based compensation arrangements
under the Plan for the grants in August 2008. That cost is expected to be
recognized on a straight-line basis over a period of 19 months. In addition, as
of December 31, 2008 there was approximately $23,000 of unrecognized
compensation expense related to non-vested share-based compensation for the
December 2008 grants. That cost is expected to be recognized on a straight-line
basis over a period of 51 months beginning in 2009.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and
2007
On
October 12, 2007, we issued 1,750,000 shares of our common stock to Concordia
Financial Group, Inc. in consideration for financial and consulting services
rendered. These shares were issued in reliance on the exemption
provided by Section 4(2) of the Securities Act of 1933, as amended.
On
October 22, 2007, we issued 750,000 shares of our common stock to Sichenzia Ross
Friedman Ference LLP in consideration for legal services
rendered. These shares were issued in reliance on the exemption
provided by Section 4(2) of the Securities Act of 1933, as amended.
On
November 15, 2007, we issued 506,250 shares of our common stock to Curtis Rice,
a member of the Board of Directors, in consideration for financial services
rendered. These shares were issued in reliance on the exemption
provided by Section 4(2) of the Securities Act of 1933, as amended.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and 2007
Earnings
Per Share
The
Company calculates and discloses earnings per share (EPS) in accordance with
SFAS No. 128,
Earnings Per
Share
(SFAS 128). SFAS 128 requires dual presentation of Basic and
Diluted EPS on the face of the statements of operations and requires a
reconciliation of the numerator and denominator of the Basic EPS computation to
the numerator and denominator of the Diluted EPS computation. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
Company.
In
computing Diluted EPS, only potential common shares that are dilutive — those
that reduce earnings per share or increase loss per share — are included.
Exercise of options and warrants or conversion of convertible securities is not
assumed if the result would be antidilutive, such as when a loss from continuing
operations is reported. The “control number” for determining whether including
potential common shares in the Diluted EPS computation would be antidilutive is
income from continuing operations. As a result, if there is a loss from
continuing operations, Diluted EPS would be computed in the same manner as Basic
EPS is computed, even if an entity has net income after adjusting for
discontinued operations, an extraordinary item or the cumulative effect of an
accounting change. Therefore, Basic and Diluted EPS are calculated in the same
manner for the years ended December 31, 2008 and 2007, as there were losses from
continuing operations for those periods.
Anti
dilutive and/or non-exercisable warrants and convertible preferred stock and
convertible subordinated debentures represent approximately 15,100,000 and
14,300,000 common shares at December 31, 2008 and 2007, respectively which may
become dilutive in future calculations of EPS.
EPS has
been retroactively adjusted to reflect the effect of a February 14, 2008 stock
split of 249 shares of our common stock for every share of common stock held on
that date as discussed in Note 8.
Advertising
Advertising
costs are expensed as incurred. Advertising expense approximated $74,000 and
$31,000 in 2008 and 2007, respectively, and have been included in general
corporate expenses in the consolidated statements of operations.
Disclosure about
Fair Value of Financial Instruments
The
following methods and assumptions were used to estimate the fair value of each
class of financial instrument held by the Company:
Current assets and current
liabilities
— The carrying value approximates fair value due to the short
maturity of these items.
Long-term debt
— The fair
value of the Company’s long-term debt has been estimated by the Company based
upon each obligation’s characteristics, including remaining maturities, interest
rate, credit rating, and collateral and amortization schedule. The carrying
amount approximates fair value.
Subordinated debentures payable to
stockholders
— The fair value of the Company’s subordinated debentures has
been estimated by the Company based upon each obligation’s characteristics,
including remaining maturities, interest rate, credit rating, and collateral and
amortization schedule. The carrying amount approximates fair value.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157,
Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. The issuance of
this standard is meant to increase consistency and comparability in fair value
measurements. In February 2008, the FASB issued FASB Staff Position 157-1,
Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13
(FSP 157-1) and FASB Staff Position 157-2,
Effective Date of FASB
Statement No. 157
(FSP 157-2). FSP 157-1 amends SFAS 157 to remove
certain leasing transactions from its scope. FSP 157-2 delays until
January 1, 2009 the effective date of SFAS 157 for all non-financial assets
and liabilities, except for items that are recognized or disclosed at fair value
in the financial statements on a recurring basis. In October 2008, the FASB
issued FASB Staff Position 157-3,
Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active
(FSP 157-3).
FSP 157-3 clarifies the application of SFAS 157 in a market that is not active.
The Company adopted SFAS 157 as of January 1, 2008. The adoption of SFAS
157 did not have a material impact on its financial statements.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and 2007
In
February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities
(SFAS 159). SFAS 159 permits entities to
choose to measure many financial instruments and certain other items at fair
value, and establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities. SFAS 159 is effective
for fiscal years beginning after November 15, 2007. The Company adopted SFAS 159
effective January 1, 2008. The adoption did not have a material
impact on the financial statements and related disclosures.
In
December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements
(SFAS 160). SFAS 160 was issued to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary (formerly called minority interests) and for the deconsolidation of
a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. FAS No. 160 is effective for the
Company in its fiscal year beginning after December 15, 2008. The
Company does not expect the adoption of SFAS 160 to have a material effect on
its consolidated financial statements and related disclosures.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007),
Business Combinations
(SFAS
141R). SFAS 141R was issued to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its
effects. This Statement is effective prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
The Company does not
expect the adoption of SFAS 141R to have a material effect on its consolidated
financial statements and related disclosures.
In
March 2008, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 161,
Disclosures about Derivative
Instruments and Hedging Activities — an amendment of FASB Statement No. 133
(SFAS 161). SFAS 161 requires enhanced disclosures about an entity’s
derivative and hedging activities, including qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. The Company does not expect the
adoption of SFAS 161 to have a material effect on its consolidated financial
statements and related disclosures.
Reclassifications
Certain
reclassifications have been made to prior years’ financial statements to conform
to the current year presentation. These reclassifications had no effect on the
Company’s net loss.
3.
Property and
Equipment
The
following is a summary of property and equipment as of December 31:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Furniture
and equipment
|
|
$
|
687,255
|
|
|
$
|
682,418
|
|
|
Leasehold
improvements
|
|
|
22,616
|
|
|
|
21,278
|
|
|
|
|
|
709,871
|
|
|
|
703,696
|
|
|
Less
accumulation depreciation
|
|
|
(322,746
|
)
|
|
|
(208,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
$
|
387,125
|
|
|
$
|
495,327
|
|
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and 2007
At
December 31, 2008 and 2007, property and equipment includes equipment acquired
under capital lease with a total cost of $173,176. Amortization of
the property and equipment acquired under capital lease of $28,863 is included
in depreciation expense for the year ended December 31, 2008.
4.
Line of Credit and Note Payable to
Related Party
The
Company has a revolving line of credit with a bank dated June 12, 2006 that
allows for a maximum borrowing of $250,000. The outstanding balance is due on
demand or, if not demanded, September 12, 2009. Interest accrues on this note at
the Wall Street Journal prime rate plus 1.25% (4.5% at December 31, 2008) and is
payable monthly. The note is collateralized by accounts receivable and general
intangibles, as well as personal guarantees from certain officers, directors and
stockholders. The amount of available credit on the line of credit is calculated
as 80% of collectible accounts receivable. As of December 31, 2008,
the Company has $9,000 available to borrow from this line of
credit. This line of credit is subordinated to the note payable to a
bank discussed in Note 5.
The
Company has a note payable due to a related party and stockholder in the amount
of $349,608 as of December 31, 2008. The proceeds from the note were
primarily used to pay for costs incurred in the Company’s initial SEC
registration process and ongoing fees associated with the Company’s public
filing status. The note is due on demand and carries an interest rate
of 10%.
5.
Long-Term Debt and Subordinated
Debentures Payable to Stockholders
Long-Term
Debt
The
Company has a note payable to a bank dated August 3, 2005. The proceeds of this
loan have been used to fund business start-up costs, acquisitions of equipment
and general operations. The loan agreement bears interest at the Wall Street
Journal prime rate plus 2.5% adjusted quarterly (5.75% at December 31,
2008). The Company was required to pay twelve payments of interest only
beginning one month from the date of the loan and each month thereafter.
Beginning in the thirteenth month of the loan, the Company began paying monthly
principal and interest payments through the date of maturity. The loan matures
on August 3, 2013 and is secured by essentially all assets of the Company as
well as a 75% guaranty by the Small Business Administration, a personal guaranty
from the Company’s CEO and majority stockholder and life insurance of $1,000,000
on the CEO. $250,000 of the original loan proceeds were used to purchase a
certificate of deposit to serve as partial collateral for this note. In April
2008, the bank released the certificate of deposit and used the proceeds to
reduce the principal balance of the note.
This note
payable contains certain restrictive covenants, both financial and
non-financial. The restrictive covenants include a debt service coverage ratio
of 1.5:1, maintaining $1,000,000 in life and disability insurance on the CEO,
and restrictions on the CEO’s salary. As of December 31, 2008, the
Company was not in compliance with the debt service coverage
ratio. The Company was unable to obtain a written waiver of said
covenant. In accordance with SFAS No. 78,
Classification of Obligations That
Are Callable by the Creditor,
the Company has classified the entire
remaining debt as a current liability
.
At
December 31, the balance of this note was as follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
517,324
|
|
|
$
|
870,389
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
current maturities
|
|
|
517,324
|
|
|
|
352,585
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current maturities
|
|
$
|
-
|
|
|
$
|
517,804
|
|
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and
2007
Subordinated
Debentures Payable to Stockholders
Subordinated
debentures payable to stockholders consisted of the following as of December
31:
|
|
|
2008
|
|
|
2007
|
|
|
Subordinated
debentures with detachable warrants
|
|
$
|
100,005
|
|
|
$
|
125,005
|
|
|
Subordinated
convertible debentures with detachable warrants
|
|
|
440,497
|
|
|
|
440,497
|
|
|
Total
subordinated debentures
|
|
|
540,502
|
|
|
|
565,502
|
|
|
Less
amount of debt discount attributable to warrants
outstanding
|
|
|
17,093
|
|
|
|
112,000
|
|
|
|
|
|
523,409
|
|
|
|
453,502
|
|
|
Less
current maturities of subordinated debentures
|
|
|
523,409
|
|
|
|
125,005
|
|
|
Long-term
subordinated debentures
|
|
$
|
-
|
|
|
$
|
328,497
|
|
The
Company accounts for warrants under the provisions of Emerging Issues Task Force
abstract 00-19,
Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock
(EITF 00-19). The terms detailed in the
agreements allow the warrants to be classified as equity rather than debt in the
Company's balance sheet under the provisions of EITF 00-19. As a
result, there was no impact on earnings as of the grant date of the
warrants.
Subordinated Debentures with
Detachable Warrants
In 2006,
the Company issued debentures with detachable warrants to certain stockholders.
These debentures bear interest at the fixed rate of 10% per annum, and shall be
paid in arrears on a quarterly basis, commencing December 31, 2006. These
debentures contained original maturity dates of March 31, 2008, at which time
the unpaid principal balance was due and payable. The rights of the holders
under these debentures to collect the amounts due are subordinated to the rights
of the banks owed as identified under Long-Term Debt and Note 4 above. As
additional consideration for these debentures, the Company issued warrants to
purchase 625,000 shares of the common stock of the Company at a price of $0.01
per share. All such warrants were exercised upon issuance of the related
debentures.
When the
debentures matured on March 31, 2008, one investor was paid the principal amount
of the debenture in full. The remaining three investors agreed to
extend the maturity dates of the debentures to various dates during
2008. At the time the extensions were signed, the debenture
agreements were amended to allow for conversion of the debentures to the
Company’s common stock at anytime during the term of the
debenture. The conversion price of the debentures is $0.08888 per
share, the same as the current fair value of the Company’s common
stock.
In
December 2008, one investor elected not to extend the maturity date beyond
November 30, 2008. Per the terms of the debenture agreement, because
the debenture was not paid at the end of its maturity, the interest rate
increases from 10% per annum to 13%.
The
remaining two holders of the above debentures have extended the maturity dates
to March 31, 2009. The Company expects that the holders of these
debentures will either extend the maturity dates beyond March 31, 2009 or
convert them to common stock.
Subordinated Convertible
Debentures with Detachable Warrants
In 2007
and 2006, the Company issued convertible debentures with detachable warrants to
certain stockholders. These debentures bear interest at the fixed rate of 10%
per annum, and shall be paid in arrears on a quarterly basis. These debentures
mature at various times in 2008 and 2009, at which time the unpaid principal
balance will be due and payable. The holders of those debentures having original
maturity dates in 2008 extended the maturity dates to June 30,
2009. The remaining debentures have original maturity dates of June
30, 2009. The rights of the holders under these debentures to collect
the amounts due are subordinated to the rights of the banks owed as identified
under Long-Term Debt and Note 4 above. These debentures are convertible in full
into shares of the Company’s series A convertible preferred stock at the option
of the holder at any time after the date of issuance. No partial conversions of
the debentures are allowed. The conversion price is $22.22 per share, subject to
adjustment pursuant to the terms of the debenture agreement. As additional
consideration for these debentures, the Company issued warrants to purchase
2,202,750 shares of the common stock of the Company at a price of $0.01 per
share. The holder of these debentures will have the option to
either
: (i) exercise the
warrant and acquire common stock, or (ii) exercise the conversion feature of
this debenture, and acquire preferred stock of the Company. There were no
conversions or exercise of warrants attributable to these convertible debentures
in 2008.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and
2007
Issuances of Subordinated
Convertible Debentures with Detachable Warrants
On
December 31, 2006, the Company issued a convertible debenture with detachable
warrants in the amount of $44,128 to a stockholder. As part of the
transaction, the Company issued warrants to purchase 220,750 shares of common
stock. The warrants were valued at approximately $17,500 in the
equity section of the balance sheet. This debenture and the
accompanying warrants have an expiration date of June 30, 2009.
On
December 31, 2006, the Company issued a convertible debenture with detachable
warrants in the amount of $150,000 to a stockholder. As part of the
transaction, the Company issued warrants to purchase 750,000 shares of common
stock. The warrants were valued at approximately $60,000 in the
equity section of the balance sheet. This debenture and the
accompanying warrants have an expiration date of June 30, 2009.
On
December 31, 2006, the Company issued a convertible debenture with detachable
warrants in the amount of $19,536 to a stockholder. As part of the
transaction, the Company issued warrants to purchase 97,750 shares of common
stock. The warrants were valued at approximately $7,500 in the equity
section of the balance sheet. This debenture and the accompanying
warrants have an expiration date of June 30, 2009.
On
January 4, 2007, the Company issued a convertible debenture with detachable
warrants in the amount of $50,000 to a stockholder. As part of the
transaction, the Company issued warrants to purchase 250,000 shares of common
stock. The warrants were valued at approximately $20,000 in the
equity section of the balance sheet. This debenture and the
accompanying warrants have an expiration date of January 1,
2009. Subsequent to December 31, 2008, the expiration date was
extended to June 30, 2009.
On
February 1, 2007, the Company issued a convertible debenture with detachable
warrants in the amount of $5,000 to a stockholder. As part of the
transaction, the Company issued warrants to purchase 25,000 shares of common
stock. The warrants were valued at approximately $2,000 in the equity
section of the balance sheet. This debenture and the accompanying
warrants have an expiration date of January 1, 2009. Subsequent to
December 31, 2008, the expiration date was extended to June 30,
2009.
On April
11, 2007, the Company issued a convertible debenture with detachable warrants in
the amount of $25,000 to a stockholder. As part of the transaction,
the Company issued warrants to purchase 125,000 shares of common
stock. The warrants were valued at approximately $10,000 in the
equity section of the balance sheet. This debenture and the
accompanying warrants have an expiration date of January 1,
2009. Subsequent to December 31, 2008, the expiration date was
extended to June 30, 2009.
On June
15, 2007, the Company issued a convertible debenture with detachable warrants in
the amount of $27,000 to a stockholder. As part of the transaction,
the Company issued warrants to purchase 135,000 shares of common
stock. The warrants were valued at approximately $11,000 in the
equity section of the balance sheet. This debenture and the
accompanying warrants have an expiration date of January 1,
2009. Subsequent to December 31, 2008, the expiration date was
extended to June 30, 2009.
On August
1, 2007, the Company issued a convertible debenture with detachable warrants in
the amount of $27,833 to a stockholder. As part of the transaction,
the Company issued warrants to purchase 139,250 shares of common
stock. The warrants were valued at approximately $11,500 in the
equity section of the balance sheet. This debenture and the
accompanying warrants have an expiration date of January 1,
2009. Subsequent to December 31, 2008, the expiration date was
extended to June 30, 2009.
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and 2007
On August
17, 2007, the Company issued a convertible debenture with detachable warrants in
the amount of $92,000 to a stockholder. As part of the transaction,
the Company issued warrants to purchase 460,000 shares of common
stock. The warrants were valued at approximately $37,500 in the
equity section of the balance sheet. This debenture and the
accompanying warrants have an expiration date of January 1,
2009. Subsequent to December 31, 2008, the expiration date was
extended to June 30, 2009.
During
the years ended December 31, 2008 and 2007, the Company recorded approximately
$95,000 and $65,000, respectively, in warrants outstanding in the equity section
of its balance sheet and recorded a discount in the subordinated debentures of
the same amount. The discount is being amortized to interest expense
over the life of the respective debenture. The warrant valuation was
determined at the respective grant dates using the Black-Scholes option-pricing
model, with the following details and assumptions. The underlying
stock price was $0.08888, and the exercise price of the warrants was
$0.01. The volatility of the stock underlying the warrants ranged
from 50% to 200%, and the risk-free rates of return ranged from 4.18% to
5.05%.
6.
Lease
Commitments
The
Company leases office space under operating leases expiring July 2011 and
September 2015. The Company leases a vehicle under an operating lease
expiring July 2009. The vehicle is leased from the Company’s CEO, and
primary stockholder. Total expense incurred in 2008 related to this
lease was $7,668.
The
Company leases certain equipment under a capital lease expiring May
2013. The equipment is leased from an entity partially owned by a
stockholder of the Company. The aggregate monthly lease payments are
approximately $3,800.
Future
minimum rental payments as of December 31, 2008 are as follows:
|
|
|
Capital
Leases
|
|
|
Operating
Leases
|
|
|
2009
|
|
|
45,653
|
|
|
|
214,890
|
|
|
2010
|
|
|
45,653
|
|
|
|
215,907
|
|
|
2011
|
|
|
45,653
|
|
|
|
204,682
|
|
|
2012
|
|
|
45,653
|
|
|
|
186,119
|
|
|
2013
|
|
|
19,020
|
|
|
|
186,119
|
|
|
Thereafter
|
|
|
-
|
|
|
|
302,380
|
|
|
|
|
|
201,632
|
|
|
$
|
1,310,097
|
|
|
Less
amount representing interest
|
|
|
59,084
|
|
|
|
|
|
|
Present
value of future minimum lease payments
|
|
|
142,548
|
|
|
|
|
|
|
Less
– current obligations under capital lease
|
|
|
23,902
|
|
|
|
|
|
|
Long-term
obligations under capital lease
|
|
$
|
118,646
|
|
|
|
|
|
7.
Series A Convertible Preferred
Stock
A summary
of the preferred stock at December 31, 2008 is as follows:
|
|
|
Shares
Authorized
|
|
|
Shares
Issued
|
|
|
Shares
Outstanding
|
|
|
Par
Value
|
|
|
Liquidation
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A
|
|
|
75,000
|
|
|
|
37,440
|
|
|
|
37,440
|
|
|
$
|
0.01
|
|
|
$
|
1,663,834
|
|
During
2005, 29,025 shares of the Company’s Series A convertible preferred stock
(“preferred stock”) were issued at $22.22 a share. In 2006, 7,290 shares of
preferred stock were issued at $22.22 per share. In 2007, 1,125
shares of preferred stock were issued at $22.22 per share.
A summary
of the rights, preferences, and privileges of the preferred stock is as
follows:
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and 2007
Dividends
– The
holders of the preferred stock shall have no dividend preference over the
Company’s common stock. In the event the board of directors shall ever declare a
dividend, the holders of the preferred stock shall be entitled to participate in
such dividend, pro rata, to the same extent as any holder of the common stock on
which such dividend may be declared.
Liquidation
– In the
event of any liquidation, dissolution, or winding-up of the Company (including a
change of control), the holders of the preferred stock shall be entitled to
receive, out of the remaining assets of the Company, the liquidation valued in
cash for each of the shares of preferred stock they then hold. These
distributions will be made prior to any distributions to other stockholders. Any
amounts remaining after such distributions will be distributed to the holders of
the common stock and the preferred stock on parity with each other (on an
as-converted basis). In the event the Company at any time or from time to time
after the original issue date shall declare or pay any dividend on the preferred
stock payable in preferred stock, or effect a subdivision or combination of the
outstanding shares of preferred stock (by reclassification or otherwise than by
payment of a dividend in preferred stock), then and in any such event, the
liquidation value shall be proportionately decreased in the case of a stock
dividend or subdivision and proportionately increased in the case of a
combination of shares effective, in the case of such dividend, immediately after
the close of business on the record date for the determination of holders of
preferred stock entitled to receive such dividend or, in the case of a
subdivision or combination, at the close of business immediately prior to the
date upon which such corporate action becomes effective.
Conversion
– Holders
of shares of preferred stock have the right to convert their shares, at any
time, into shares of common stock. The conversion rate is determined by
multiplying the number of preferred shares to be converted by $22.22 and
dividing the result by the conversion price then in effect (currently $0.08888).
At the option of the Company, all (but not less than all) of the shares of
preferred stock may be converted into shares of common stock at the then
applicable conversion price in any of the following events: (i) upon
the Company having positive cumulative earnings before interest, depreciation,
taxes and amortization (“EBITDA”) of a least $750,000 over four consecutive
rolling calendar quarters; (ii) upon the closing of a qualifying offering, I.E.,
receipt by the Company of proceeds from a private placement of its securities of
not less than $3,000,000 on terms acceptable to the holders of a majority of the
issued and outstanding common stock at such time; or (iii) upon the closing of a
public offering. Such conversion will utilize the same conversion rate as
described above.
Voting
– The holders
of the preferred stock shall be entitled to one vote per share with respect to
any matter brought before the stockholders and enjoy the same voting rights as
common stockholders.
8.
Common Stock
Common
stockholders are entitled to one vote per share and dividends when declared by
the board of directors, subject to the preferential rights of preferred
stockholders.
Shares Reserved for Future
Issuance
– As of December 31, 2008 and 2007, the Company has reserved
shares of common stock for future issuance for the following
purposes:
|
|
|
2008
|
|
|
2007
|
|
|
Conversion
of outstanding preferred stock to common stock
|
|
|
9,360,000
|
|
|
|
9,360,000
|
|
|
Conversion
of subordinated convertible debentures to preferred stock and then to
common stock
|
|
|
4,956,085
|
|
|
|
4,956,085
|
|
|
Conversion
of subordinated debentures to common stock
|
|
|
1,125,169
|
|
|
|
-
|
|
|
Stock
options
|
|
|
800,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,241,254
|
|
|
|
14,316,085
|
|
Calculation of Shares
Reserved for Future Issuance
|
Conversion
of outstanding preferred stock to common stock:
|
|
|
|
|
Number
of preferred shares outstanding
|
|
|
37,440
|
|
|
Multiplier
(see Note 7)
|
|
$
|
22.22
|
|
|
|
|
$
|
831,916.80
|
|
|
Conversion
price (see Note 7)
|
|
$
|
0.08888
|
|
|
Number
of common shares
|
|
|
9,360,000
|
|
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and 2007
|
Conversion
of subordinated convertible debentures to preferred stock and then to
common stock
|
|
|
|
|
Outstanding
subordinated convertible debentures
|
|
|
440,497
|
|
|
Conversion
price (see Note 5)
|
|
$
|
22.22
|
|
|
Number
of preferred shares
|
|
|
19,824
|
|
|
Multiplier
(see Note 7)
|
|
$
|
22.22
|
|
|
|
|
|
440,497
|
|
|
Conversion
price (see Note 7)
|
|
$
|
0.08888
|
|
|
Number
of common shares
|
|
|
4,956,085
|
|
|
Conversion
of subordinated debentures to common stock
|
|
|
|
|
Outstanding
subordinated convertible debentures
|
|
|
100,005
|
|
|
Conversion
price (see Note 5)
|
|
$
|
22.22
|
|
|
Number
of preferred shares
|
|
|
4,501
|
|
|
Multiplier
(see Note 7)
|
|
$
|
22.22
|
|
|
|
|
|
100,005
|
|
|
Conversion
price (see Note 7)
|
|
$
|
0.08888
|
|
|
Number
of common shares
|
|
|
1,125,169
|
|
In
December 2007, we sold an aggregate of 1,094,000 shares of our common stock to
15 accredited investors for aggregate gross proceeds of
$97,235. These shares were issued in reliance on the exemption
provided by Regulation D promulgated under the Securities Act of 1933, as
amended.
On
February 14, 2008, the Company affected a stock split of 249 shares of our
common stock for every share of common stock held on that date. All
information contained in the Company’s financial statements related to shares
and per share data has been adjusted to reflect the split.
9.
Income Taxes
The
Company records income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes
.
Under this method, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes.
The
Company generated net operating losses for income tax purposes in 2008 and 2007,
so there were no current tax provisions for those years. Additionally, the
excess of our deferred tax assets over our deferred tax liabilities was offset
by a valuation allowance, resulting in no deferred tax benefit for those
years. The valuation allowance increased by $249,000 and $409,000 for
the years ended December 31, 2008 and 2007, respectively.
The
income tax provision for 2008 and 2007 differs from the amount computed by
applying the US federal statutory rate of 34% to income before income taxes due
primarily to changes in the valuation allowance. As of December 31, 2008,
the Company had net operating loss carryforwards of approximately $3.1 million
for federal income tax purposes, which are available to reduce future taxable
income and will expire beginning in 2025, if not utilized.
The tax
effects of significant temporary differences representing deferred tax assets
and liabilities at December 31, were as follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
1,066,000
|
|
|
$
|
810,000
|
|
|
Other
accruals
|
|
|
113,000
|
|
|
|
110,000
|
|
|
Valuation
allowance
|
|
|
(1,144,000
|
)
|
|
|
(895,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
35,000
|
|
|
|
25,000
|
|
|
Deferred
tax liability – depreciation and amortization
|
|
|
(35,000
|
)
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and 2007
As the
Company has generated net operating losses from its inception and there is no
assurance that it will be able to utilize its net operating loss carryforwards
prior to expiration, management has established a valuation allowance of
approximately $1,144,000 and $895,000 at December 31, 2008 and 2007,
respectively, to recognize its deferred tax assets only to the extent of its
deferred tax liabilities. The Company will continue to evaluate the
need for such a valuation allowance in the future.
10.
Benefit Plans
Employees
of the Company are eligible to participate in a 401(k) plan covering all
employees after a specified period of service. Employees may elect to make
deferral contributions of their salary. The Company will match 50% of the first
6% of employee contributions made to the Plan. In addition, the Company may make
discretionary contributions to the plan to be allocated to participants’
accounts pro rata based on compensation. Participants will vest in any Company
contributions over a five year period. Total Company contributions to the plan
for 2008 and 2007 approximated $6,800 and $6,000, respectively.
11.
Business
Segments
SFAS No.
131,
Disclosures About
Segments of an Enterprise and Related Information
(SFAS 131), establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. SFAS 131 requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Reportable operating segments are defined as a
component of an enterprise:
|
·
|
That
engages in business activities from which it may earn revenues and
expenses,
|
|
·
|
Whose
operating results are regularly reviewed by the enterprise’s chief
operating decision maker,
|
|
·
|
For
which discrete financial information is
available.
|
Corporate
assets detailed below are primarily comprised of property and equipment,
corporate cash, accounts receivable and other corporate assets. Summarized
financial information concerning the Company’s reportable operating segments is
shown in the following table as of December 31, 2008 and 2007:
|
|
|
For
the Year Ended December 31, 2008
|
|
|
|
|
Medical
Clinic
|
|
|
Medical
Spa
|
|
|
Unallocated
Corporate
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
2,644,822
|
|
|
$
|
687,561
|
|
|
$
|
50
|
|
|
$
|
3,332,433
|
|
|
Operating
expenses
|
|
|
2,085,891
|
|
|
|
982,079
|
|
|
|
710,285
|
|
|
|
3,778,255
|
|
|
Income
(loss) from operations
|
|
|
558,931
|
|
|
|
(294,518
|
)
|
|
|
(710,235
|
)
|
|
|
(445,822
|
)
|
|
Interest
income
|
|
|
-
|
|
|
|
-
|
|
|
|
3,232
|
|
|
|
3,232
|
|
|
Interest
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
289,508
|
|
|
|
289,508
|
|
|
Net
income (loss)
|
|
$
|
558,931
|
|
|
$
|
(294,518
|
)
|
|
$
|
(996,511
|
)
|
|
$
|
(732,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
454,645
|
|
|
$
|
229,487
|
|
|
$
|
150,358
|
|
|
$
|
834,490
|
|
WELLQUEST
MEDICAL & WELLNESS CORPORATION
(formerly
HQHealthQuest Medical & Wellness Centers, Ltd.)
Notes
to Consolidated Financial Statements December 31, 2008 and 2007
|
|
|
For
the Year Ended December 31, 2007
|
|
|
|
|
Medical
Clinic
|
|
|
Medical
Spa
|
|
|
Unallocated
Corporate
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
1,873,333
|
|
|
$
|
520,120
|
|
|
$
|
-
|
|
|
$
|
2,393,453
|
|
|
Operating
expenses
|
|
|
1,615,759
|
|
|
|
825,035
|
|
|
|
526,214
|
|
|
|
2,967,008
|
|
|
Income
(loss) from operations
|
|
|
257,574
|
|
|
|
(304,915
|
)
|
|
|
(526,214
|
)
|
|
|
(573,555
|
)
|
|
Interest
income
|
|
|
-
|
|
|
|
-
|
|
|
|
12,739
|
|
|
|
12,739
|
|
|
Interest
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
270,254
|
|
|
|
270,254
|
|
|
Net
income (loss)
|
|
$
|
257,574
|
|
|
$
|
(304,915
|
)
|
|
$
|
(783,729
|
)
|
|
$
|
(831,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
517,430
|
|
|
$
|
315,644
|
|
|
$
|
398,810
|
|
|
$
|
1,231,884
|
|
The
financial information for the Medical Clinic presented above represents the
revenue and direct operating expenses of NWAPCP after elimination of
intercompany expenses charged to NWAPCP by WellQuest of
Arkansas. Intercompany expenses that have been eliminated include the
following: a management fee paid by NWAPCP to WellQuest of Arkansas ($198,000
and $144,000 for the years ended December 31, 2008 and 2007, respectively),
lease expense paid by NWAPCP to WellQuest of Arkansas ($52,000 and $60,000 for
the years ended December 31, 2008 and 2007, respectively), and interest expense
paid by NWAPCP to WellQuest of Arkansas ($39,000 and $62,000 for the years ended
December 31, 2008 and 2007, respectively).
12.
Related Party
Transactions
The
following is a summary of related party transactions not described elsewhere in
these notes to the financial statements.
At
December 31, 2008 and 2007, we incurred expenses of approximately $33,000 and
$27,000, respectively, to the law firm of Newton, O’Connor, Turner &
Ketchum, of which John O’Connor, one of our directors, is a
partner.
We leased
a vehicle under an operating lease that expired in July 2008. The
vehicle was leased from Steve Swift, our Chief Executive Officer. The
monthly lease payment was approximately $739 until July 2008. This
lease was renewed in August 2008 at a monthly lease payment of
$529. The lease expires in July 2009.
We lease
certain equipment under a capital lease expiring May 2013. The
equipment is leased from an entity partially owned by Curtis Rice, one of our
stockholders. The aggregate monthly lease payments are approximately
$3,800.
13.
Subsequent
Events
In
January 2009, the Company entered into a one year agreement with a consulting
company for public and investor relations services. Pursuant to that
agreement, the Company will pay the consultant $6,000 per month ($72,000 per
year) and issue 348,600 shares of common stock.
ITEM
9.
CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
On
January 7, 2009, Tullius Taylor Sartain & Sartain LLP, our prior independent
registered public accounting firm, and Hogan & Slovacek, P.C. merged their
operations to become HoganTaylor LLP, which we refer to as
HoganTaylor. The respective employees, partners and shareholders of
the merged firms have become employees and partners of HoganTaylor which will
continue the practices of each of the merged firms. Consequently,
HoganTaylor has assumed the role as our independent registered public accounting
firm.
As this
is a combination of the two existing accounting firms and their respective
practices, there was no resignation of the predecessor firm. Also, as
this is a newly created firm, there have been no pre-engagement consultations or
contacts with HoganTaylor.
The
reports of Tullius Taylor Sartain & Sartain LLP regarding our financial
statements for the fiscal years ended December 31, 2007 and 2006 did not contain
any adverse opinion or disclaimer of opinion and were not
qualified. However, the report includes an emphasis paragraph
relating to an uncertainty as to the Company's ability to continue as a going
concern. During the years ended December 31, 2007 and 2006, and during the
period from December 31, 2007 through January 7, 2009, there were no
disagreements with Tullius Taylor Sartain & Sartain LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
Tullius Taylor Sartain & Sartain LLP would have caused it to make reference
to such disagreement in its report.
ITEM
9A – CONTROLS AND PROCEDURES
MANAGEMENT’S
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure
controls and procedures have been designed to ensure that information required
to be disclosed by the Corporation is collected and communicated to the
management to allow timely decisions regarding required
disclosures. The Chief Executive Officer and the Chief Financial
Officer have concluded, based on their evaluation as of December 31, 2008 that
our disclosure controls and procedures were effective in providing reasonable
assurance that material information is made known to them by others within the
Corporation.
This
annual report does not include a report of management's assessment regarding
internal control over financial reporting or an attestation report of the
Company's registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission for newly public
companies.
ITEM
9B – OTHER INFORMATION
None.
PART
III.
ITEM
10.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Names:
|
|
Ages
|
|
Titles:
|
Board
of Directors
|
|
Steve
Swift
|
|
62
|
|
President
|
Director
|
|
Greg
Primm
|
|
35
|
|
Chief
Financial Officer
|
|
|
Curtis
Rice
|
|
32
|
|
Vice
President
|
Director
|
|
Lawrence
D. Field
|
|
49
|
|
|
Director
|
|
John
O’Connor
|
|
54
|
|
Secretary
|
Director
|
|
Robert
J. Zasa
|
|
58
|
|
|
Director
|
Directors
are elected to serve until the next annual meeting of stockholders and until
their successors are elected and qualified. Currently there are five seats on
our board of directors.
Currently,
our Directors are not compensated for their services, although their expenses in
attending meetings are reimbursed. Officers are elected by the Board of
Directors and serve until their successors are appointed by the Board of
Directors. Biographical resumes of each officer and director are set forth
below.
Steve Swift
has been our
President and Chairman of the Board of Directors since November
2004. Between July 2004 and October 2004, Mr. Swift worked
independently towards the development of the Company. Between May
2000 and June 2004, Mr. Swift was the Chief Administrative Officer and Executive
Director of Springer Clinic, Inc., a Tulsa, Oklahoma based medical treatment
facility. Mr. Swift received his Bachelor of Arts degree in Sociology
from Texas Christian University in 1970, his Masters degree in Healthcare
Administration from Trinity University in 1974 and did his residency at Baylor
University Medical Center in 1973-1974.
.
Greg Primm
has been our Chief
Financial Officer since April 2008. Between September 2006 and April
2008, Mr. Primm served as Chief Financial Officer and Operations Manager for
CrossWood Associates, Inc., a food distribution company in Fayetteville,
Arkansas. From February 2002 through September 2006, Mr. Primm was
Controller for Hanna’s Candle Company, a manufacturing company. He
was the Accounting Manager for Ozark Aircraft Systems of Bentonville, Arkansas
from 1999 until 2002, and served as an auditor for Ernst & Young, LLP in
Fort Smith, Arkansas from 1996 through 1998, where he audited large public
healthcare firms. Mr. Primm is a Certified Public
Accountant. He received his Bachelor of Science in Business
Administration from the Sam Walton College of Business at the University of
Arkansas in 1996, and his Master of Business Administration from Terry College
of Business at the University of Georgia in 1999.
Curtis Rice
has been our Vice
President since helping found the Company in 2001. Since July 2006,
Mr. Rice has been the Natural Gas Energy Trading Manager for Conagra Foods, an
Omaha, Nebraska based food company. Since December 2006, Mr. Rice has
been the President of Patriot Energy, a Tulsa, Oklahoma based energy production
investment company. Since January 2006, Mr. Rice has been the Vice
President for BlastMyMusic.com, Inc., a Tulsa, Oklahoma based online music
distribution company. Between June 1999 and July 2006, Mr. Rice
worked for Williams Power Company, a Tulsa, Oklahoma based energy production
company in various positions, including Natural Gas Manager (December 2003 to
July 2006), Power Transmission Manager (December 2002 to July 2006), Global
Energy Manager (May 2002 to December 2002), NGL/Olefin Trader Manager,
Structured Analyst Manager, Weather Derivative Trader, Risk Analyst and Value at
Risk. Mr. Rice received his Masters in Business Administration from
Tulsa University in 2001 and his Bachelor of Science degree in Business
Administration from Oklahoma State University in 1999.
Lawrence D. Field
has been a
member of the Board of Directors since November 2004. Since January
1989, Mr. Field has worked for Regent Private Capital, a Tulsa, Oklahoma based
private investment company, as a Partner between January 1989 and June 2004 and
as Managing Director since June 2004. Mr. Field received his Bachelor
of Science degree from the University of Texas at Austin in 1982.
John O’Connor
has been our
Secretary and a member of the Board of Directors since November
2004. Since 2001, Mr. O’Connor has been the Chairman of the law firm
Newton, O’Connor, Turner & Ketchum, based in Tulsa, Oklahoma. Mr. O’Connor
has been a director of 3DIcon Corporation, a Tulsa, Oklahoma based public
company. Mr. O’Connor received his Bachelor of Arts degree in Political Science
from Oklahoma State University in 1977 and his Juris Doctorate degree from
University of Tulsa College of Law in 1980.
Robert J. Zasa
has been a
member of the Board of Directors since April 2005. Since June 1996,
Mr. Zasa has been the founder and Partner of Woodrum/Ambulatory Systems, a Los
Angeles, California based ambulatory and outpatient care company. Mr. Zasa was
the founder, President and CEO of Premier Ambulatory Systems, Inc., an owner and
operator of ambulatory surgery centers, Vice President of American Medical
International and Chief Operating Officer of AMI Ambulatory Surgery Centres,
Inc. Mr. Zasa is an Adjunct Faculty Member of the Graduate Program in
Health Services Administration at the University of Alabama in Birmingham, and
serves as a guest lecturer on ambulatory healthcare topics at the UCLA School of
Public Health. Mr. Zasa earned a Masters of Science degree in hospital and
health administration from the University of Alabama Birmingham.
Board
of Directors Independence
We are
not required to have any independent members of the Board of Directors. The
board of directors has determined that (i) Messrs. Swift, Rice, Field and
O’Connor have relationships which, in the opinion of the board of directors,
would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director and each is not an “independent director” as
defined in the Marketplace Rules of The NASDAQ Stock Market and (ii) Messr. Zasa
is an independent director as defined in the Marketplace Rules of The NASDAQ
Stock Market. As we do not have any board committees, the board as a
whole carries out the functions of audit, nominating and compensation
committees, and such “independent director” determination has been made pursuant
to the committee independence standards.
Code
of Ethics
We have
adopted a Code of Ethics that are designed to deter wrongdoing and to promote
honest and ethical conduct, full, fair, accurate, timely and understandable
disclosure in our SEC reports and other public communications. The Code of
Ethics promotes compliance with applicable governmental laws, rules and
regulations.
Section
16(a) Compliance
Since we
are governed under Section 15(d) of the Exchange Act, we are not required to
file reports of executive officers and directors and persons who own more than
10% of a registered class of our equity securities pursuant to Section 16(a) of
the Exchange Act.
ITEM
11.
EXECUTIVE
COMPENSATION.
Summary Compensation Table
The
following tables set forth certain information regarding our CEO and each of our
most highly-compensated executive officers whose total annual salary and bonus
for the fiscal years ending December 31, 2008 and 2007 exceeded
$100,000
|
Name
& Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards ($)
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
Change
in
Pension
Value
and
Non-Qualified Deferred Compensation Earnings ($)
|
|
All
Other
Compensation
($)
|
|
Total
($)
|
|
|
Steve
Swift, President
|
|
|
2008
|
|
$
|
160,435
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
$
|
19,222
|
(1)
|
$
|
179,657
|
|
|
|
|
|
2007
|
|
$
|
180,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
$
|
25,255
|
(2)
|
$
|
205,255
|
|
(1)
Includes $9,042 for health, dental, life and key-man life insurance, $2,492 in
401(k) contributions, and $7,688 for a vehicle lease.
(2)
Includes $12,787 for health, dental, life and key-man life insurance, $3,600 in
401(k) contributions, and $8,868 for a vehicle lease.
Employment
Agreements
On
January 1, 2005, we entered into an employment agreement with Steve Swift, our
chief executive officer. Pursuant to the terms of the agreement, Mr.
Swift will be employed by us for an initial term of 5 years from the effective
date of the agreement. Mr. Swift is to receive an annual base salary
of $180,000 a year. Upon the opening of the first clinic, Mr. Swift
was to receive an annual base salary of $250,000 a year. Mr. Swift is
entitled to receive an increase to his base salary and receive certain bonuses
to be determined by the Board of Directors based upon the performance of the
Company during each calendar year. Mr. Swift’s salary and bonus
schedule will be reviewed by the Board of Directors on an annual
basis. Mr. Swift shall be entitled to four weeks paid vacation during
each year during the initial term. The Company may terminate his
employment (i) with cause, upon a determination by a majority of the Board of
Directors or (ii) without cause, at any time, for any reason whatsoever and
without prior notice. Mr. Swift may voluntarily terminate his
employment at any time for cause or without cause upon not less than 30 days
written notice. During the term of his employment and for a period
thereafter, Mr. Swift will be subject to non-competition and non-solicitation
provisions, subject to standard exceptions. This agreement was
amended on June 30, 2007 pursuant to which Mr. Swift’s annual base salary was to
remain at $180,000 until the Board determines otherwise. The
agreement was amended again on October 29, 2008, pursuant to which Mr. Swift’s
annual base salary was reduced to $120,000 per year until the board determines
otherwise.
Option
Grants in Last Fiscal Year
The
following table sets forth information regarding the number of stock options
granted to named executive officers during fiscal 2008.
|
Name
and Position
|
|
Number
of
Units
|
|
|
Greg
Primm – Chief Financial Officer
|
|
300,000
|
|
|
|
|
|
|
|
|
Executives
as a Group
|
|
|
300,000
|
|
Outstanding
Equity Awards at Fiscal Year-End Table.
The
following table sets forth information for the named executive officers
regarding the number of shares subject to both exercisable and unexercisable
stock options, as well as the exercise prices and expiration dates thereof, as
of December 31, 2008.
|
Option
Awards
|
|
|
|
Stock
Awards
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
|
Equity
Incentive
Plan
Awards: Number
of
Unearned
Shares,
Units or Other Rights That Have Not
Vested
(#)
|
|
Equity
Incentive
Plan
Awards: Market or Payout
Value
of Unearned
Shares,
Units or Other Rights That Have Not Vested
($)
|
|
|
Greg
Primm
|
|
|
-
|
|
300,000
|
|
|
-
|
|
$0.08888
|
|
April
14, 2015
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
Director
Compensation
Our
directors are elected by the vote of a majority in interest of the holders of
our voting stock and hold office until the expiration of the term for which he
or she was elected and until a successor has been elected and qualified.
A
majority of the authorized number of directors constitutes a quorum of the Board
of Directors for the transaction of business. The directors must be present at
the meeting to constitute a quorum. However, any action required or permitted to
be taken by the Board of Directors may be taken without a meeting if all members
of the Board of Directors individually or collectively consent in writing to the
action.
We do not
pay compensation to our directors, however, we do provide reimbursement of
reasonable expenses incurred in connection with providing services as a
director.
ITEM
12.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The following table sets forth certain information
regarding beneficial ownership of our common and preferred stock as of March 27,
2009.
|
|
By
each person who is known by us to beneficially own more than 5% of our
common or preferred stock;
|
|
|
By
each of our officers and directors; and
|
|
|
By
all of our officers and directors as a
group.
|
|
NAME
AND ADDRESS
OF
OWNER (1)
|
TITLE
OF
CLASS
|
NUMBER
OF
SHARES
OWNED (2)
|
PERCENTAGE
OF CLASS
(3)
|
|
|
|
|
|
|
Stephen
H.M Swift
|
Common
Stock
|
11,680,000
|
49.25%
|
|
|
|
|
|
|
Greg
Primm
|
Common
Stock
|
0
|
0%
|
|
|
|
|
|
|
Curtis
L. Rice
|
Common
Stock
|
2,902,500
(4)
|
11.86%
|
|
|
|
|
|
|
Lawrence
D. Field
|
Common
Stock
|
1,642,500
(5)
|
6.93%
|
|
|
|
|
|
|
John
O’Connor
|
Common
Stock
|
1,642,500
|
6.93%
|
|
|
|
|
|
|
Robert
Zasa (9)
|
Common
Stock
|
2,486,250
(6)
|
10.24%
|
|
|
|
|
|
|
All
Officers and Directors
|
Common
Stock
|
20,353,750
(7)
|
81.31%
|
|
As
a Group (6 persons)
|
|
|
|
|
|
|
|
|
|
Curtis
L. Rice
|
Series
A Preferred Stock
|
3,015
(8)
|
8.05%
|
|
|
|
|
|
|
Ambulatory
Systems Development (9)
|
Series
A Preferred Stock
|
2,250
|
6.01%
|
|
|
|
|
|
|
TerraNova
Partners, L.P. (10)
|
Series
A Preferred Stock
|
4,500
|
12.02%
|
|
|
|
|
|
|
Charles
C. Stephenson, Jr.
|
Series
A Preferred Stock
|
4,500
|
12.02%
|
|
|
|
|
|
|
Derek
Johannson
|
Series
A Preferred Stock
|
4,500
|
12.02%
|
|
|
|
|
|
|
Benjamin
P. and Kelly C. Ferrell
|
Series
A Preferred Stock
|
5,625
|
15.02%
|
|
|
|
|
|
|
Lewis
Yarborough
|
Series
A Preferred Stock
|
2,250
|
6.01%
|
|
|
|
|
|
|
Industrial
and Commercial Developments Pty, Ltd. (11)
|
Series
A Preferred Stock
|
3,375
|
9.01%
|
(1)
Unless otherwise noted, the mailing address of each beneficial owner is 3400 SE
Macy Rd., #18, Bentonville, Arkansas 72712.
(2)
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to preferred
stock, options or warrants currently exercisable or convertible, or exercisable
or convertible within 60 days of March 27, 2009 are deemed outstanding for
computing the percentage of the person holding such option or warrant but are
not deemed outstanding for computing the percentage of any other
person.
(3) Based
upon 23,716,361 shares of common stock and 37,440 shares of Series A Convertible
Preferred Stock issued and outstanding on March 27, 2009.
(4)
Includes 2,340 shares of Series A Convertible Preferred Stock owned and 675
shares of Series A Convertible Preferred Stock owned by Rice Investments, LLC,
of which Mr. Rice has voting and dispositive power of the shares held by such
entity. The 3,015 shares of Series A Convertible Preferred Stock are
convertible into 753,750 shares of common stock.
(5)
Represents shares owned by Regent Private Capital, LLC, of which Mr. Field has
voting and dispositive power of the shares held by such entity.
(6)
Includes 1,923,750 shares of common stock and 2,250 shares of Series A
Convertible Preferred Stock owned by Ambulatory Systems Development, of which
Mr. Zasa has voting and dispositive power of the shares held by such
entity. The 2,250 shares of Series A Convertible Preferred Stock are
convertible into 562,500 shares of common stock.
(7)
Includes 5,265 shares of Series A Convertible Preferred Stock that are
convertible into 1,316,250 shares of common stock.
(8)
Includes 675 shares of Series A Convertible Preferred Stock owned by Rice
Investments, LLC, of which Mr. Rice has voting and dispositive power of the
shares held by such entity.
(9)
Robert Zasa, one of our directors, has sole voting and dispositive power of the
shares held by Ambulatory Systems Development.
(10)
Vahan Kololian has sole voting and dispositive power of the shares held by
TerraNova Partners, L.P.
(11)
Stefan J. Ahrens has sole voting and dispositive power of the shares held by
Industrial and Commercial Developments Pty, Ltd.
ITEM
13.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE.
Other
than as disclosed below, during the last two fiscal years, there have been no
transactions, or proposed transactions, which have materially affected or will
materially affect us in which any director, executive officer or beneficial
holder of more than 5% of the outstanding common or preferred stock, or any of
their respective relatives, spouses, associates or affiliates, has had or will
have any direct or material indirect interest. We have no policy regarding
entering into transactions with affiliated parties.
At
December 31, 2008 and 2007, we incurred expenses of approximately $33,000 and
$27,000, respectively, to the law firm of Newton, O’Connor, Turner &
Ketchum, of which John O’Connor, one of our directors, is a
partner.
We leased
a vehicle under an operating lease that expired in July 2008. The
vehicle was leased from Steve Swift, our Chief Executive Officer. The
monthly lease payment was approximately $739 until July 2008. This
lease was renewed in August 2008 at a monthly lease payment of
$529. The lease will expire in July 2009.
We lease
certain equipment under a capital lease expiring May 2013. The
equipment is leased from an entity partially owned by Curtis Rice, one of our
stockholders and directors. The aggregate monthly lease payments are
approximately $3,800.
ITEM
14.
PRINCIPAL
ACCOUNTING FEES AND SERVICES.
Audit
Fees
The
aggregate fees incurred with our public accountants for professional services
rendered during the years ended December 31, 2008 and 2007 are as
follows:
|
Description
|
|
2008
|
|
|
2007
|
|
|
Audit
Fees
1
|
|
$
|
56,450
|
|
|
$
|
82,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit-Related
Fees
2
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Fees
3
|
|
$
|
4,000
|
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other Fees
4
|
|
$
|
-
|
|
|
$
|
-
|
|
1
Audit
fees relate to professional services rendered for the annual audit of our
financial statements, the quarterly reviews relating to SEC filings of our
financial statements and our S-1 filing with the SEC. For 2008, the audit fee
amount includes estimated billings for the completion of the 2008 audit, which
was completed after year-end.
2
There
were no audit-related fees during 2008 or 2007.
3
Tax fees
include fees billed for tax planning, consultations and preparation of the tax
returns. For 2008, the tax fee amount includes estimated billings of $4,000 for
the completion of the 2008 tax returns, which are completed after
year-end.
4
There
were no other fees during 2008 or 2007.
The Board
of Directors has considered whether the provision of non-audit services is
compatible with maintaining the principal accountant's
independence.
PART
IV.
ITEM
15.
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES.
|
Exhibit No.
|
Description
|
|
|
|
|
3.01
|
Certificate of Incorporation,
filed as an exhibit to the Registration Statement on Form S-1, filed with
the Securities and Exchange Commission (the “Commission”) on February 14,
2008 and incorporated herein by
reference.
|
|
3.02
|
Bylaws, filed as an exhibit to
the Registration Statement on Form S-1, filed with the Commission on
February 14, 2008 and incorporated herein by
reference.
|
|
3.03
|
Certificate of Designation for
the Series A Preferred Stock, filed as an exhibit to the Registration
Statement on Form S-1, filed with the Commission on February 14, 2008 and
incorporated herein by
reference.
|
|
3.04
|
Certificate of Amendment to the
Certificate of Incorporation, filed as an exhibit to the amended
Registration Statement on Form S-1/A, filed with the Commission on October
14, 2008 and incorporated herein by
reference.
|
|
3.05
|
Certificate of Amendment to the
Certificate of Designation for the Series A Preferred Stock, filed as an
exhibit to the amended Registration Statement on Form S-1/A, filed with
the Commission on October 14, 2008 and incorporated herein by
reference.
|
|
4.01
|
Form of Subordinated Debenture,
filed as an exhibit to the Registration Statement on Form S-1, filed with
the Commission on February 14, 2008 and incorporated herein by
reference.
|
|
10.01
|
Management Medical Services
Agreement, dated as of September 1, 2005, by and between WellQuest Medical
& Wellness Centers of Northwest Arkansas, Inc. d/b/a WellQuest and
Northwest Arkansas Primary Care Physicians, P.A., filed as an exhibit to
the amended Registration Statement on Form S-1/A, filed with the
Commission on July 8, 2008 and incorporated herein by
reference.
|
|
10.02
|
Medical Doctor Agreement, dated
as of September 1, 2005, by and between WellQuest Medical & Wellness
Centers of Northwest Arkansas, Inc. d/b/a WellQuest and C. Wade Fox, M.D.,
filed as an exhibit to the Registration Statement on Form S-1, filed with
the Commission on February 14, 2008 and incorporated herein by
reference.
|
|
10.03
|
Employment Agreement, dated as of
January 1, 2005, by and between HQHealthQuest Medical & Wellness
Centers, Ltd. and Stephen H. M. Swift, filed as an exhibit to the
Registration Statement on Form S-1, filed with the Commission on February
14, 2008 and incorporated herein by
reference.
|
|
10.04
|
Amendment to Employment
Agreement, dated as of June 30, 2007, by and between HQHealthQuest Medical
& Wellness Centers, Ltd. and Stephen H. M. Swift, filed as an exhibit
to the Registration Statement on Form S-1, filed with the Commission on
February 14, 2008 and incorporated herein by
reference.
|
|
10.05
|
Form of Subscription Agreement,
filed as an exhibit to the Registration Statement on Form S-1, filed with
the Commission on February 14, 2008 and incorporated herein by
reference.
|
|
10.06
|
Lease Agreement, dated as of
October 6, 2004, by and between HQHealthQuest Medical & Wellness
Centers, Ltd. and 48
th
Street, LLC, filed as an exhibit
to the amended Registration Statement on Form S-1/A, filed with the
Commission on July 8, 2008 and incorporated herein by
reference.
|
|
10.07
|
Amendment to Lease Agreement,
dated as of December 2, 2005, by and between HQHealthQuest Medical &
Wellness Centers, Ltd. and 48
th
Street, LLC, filed as an exhibit
to the amended Registration Statement on Form S-1/A, filed with the
Commission on July 8, 2008 and incorporated herein by
reference.
|
|
10.08
|
Lease Rider, dated as of December
7, 2007, by and between WellQuest of Arkansas, Inc. and Next Chapter
Resources, LLC, filed as an exhibit to the amended Registration Statement
on Form S-1/A, filed with the Commission on July 8, 2008 and incorporated
herein by reference.
|
|
10.09
|
Business Loan Agreement, dated
August 3, 2005, between ONB Bank and Trust Company and HQHealthQuest
Medical & Wellness Centers, Ltd., filed as an exhibit to the amended
Registration Statement on Form S-1/A, filed with the Commission on July 8,
2008 and incorporated herein by
reference.
|
|
10.10
|
Waiver, dated January 25, 2008,
from ONB Bank and Trust Company, in favor of WellQuest Medical &
Wellness Centers, filed as an exhibit to the amended Registration
Statement on Form S-1/A, filed with the Commission on July 8, 2008 and
incorporated herein by
reference.
|
|
10.11
|
Form of Subordinated Convertible
Debenture with Warrants, filed as an exhibit to the amended Registration
Statement on Form S-1/A, filed with the Commission on July 8, 2008 and
incorporated herein by
reference.
|
|
10.12
|
Waiver, dated September 2, 2008,
from ONB Bank and Trust Company, in favor of WellQuest Medical &
Wellness Centers, filed as an exhibit to the amended Registration
Statement on Form S-1/A, filed with the Commission on September 9, 2008
and incorporated herein by
reference.
|
|
31.01
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended.
|
|
31.02
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended.
|
|
32.01
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).
|
|
32.02
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
WELLQUEST MEDICAL &
WELLNESS CORPORATION
|
|
|
|
|
|
|
|
|
By:
|
/s/
STEVE SWIFT
|
|
|
|
|
Steve
Swift
|
|
|
|
|
President
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
GREG PRIMM
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer (Principal Financial Officer and Principal Accounting
Officer)
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Name
|
|
Position
|
|
Date
|
|
|
|
|
|
|
|
/s/ STEVE SWIFT
|
|
President
(Principal Executive Officer), Chairman and Director
|
|
April
13, 2009
|
|
Steve
Swift
|
|
|
|
|
|
|
|
|
|
|
|
/s/ GREG PRIMM
|
|
Chief
Financial Officer (Principal Financial Officer and Principal
|
|
|
|
Greg
Primm
|
|
Accounting
Officer)
|
|
|
|
|
|
|
|
|
|
/s/ LAWRENCE D. FIELD
|
|
Director
|
|
|
|
Lawrence
D. Field
|
|
|
|
|
|
|
|
|
|
|
|
/s/ JOHN O’CONNOR
|
|
Director
|
|
|
|
John
O’Connor
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Robert J. Zasa
|
|
Director
|
|
|
|
Robert
J. Zasa
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Curtis L. Rice
|
|
Vice
President and Director
|
|
|
|
Curtis
L. Rice
|
|
|
|
|
41
Register for real-time alerts, custom portfolio, and market movers
Hot Features
Premium
