Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The Company was incorporated in the state of Florida on March 26, 2010. In anticipation of a business combination, in December 2012, we entered into the merger agreement with Touch Medical Solutions, Inc., whereby we assumed TMSI’s business operations. We are currently in the business of developing and bringing to market a suite of medical software products. Our principal executive offices are located at 12502 West Atlantic Blvd., Coral Springs, Florida.
We have never been the subject of a bankruptcy, receivership or similar proceeding. Additionally, apart from the merger discussed herein, we have never been the subject of a material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business.
In 2009, we began prototyping a
Picture Archiving and Communication System
(“PACS”) solution for market exploration. In July 2010, we were accepted as a Wake Forest University Demon Incubator startup company.
In January 2013, we signed an exclusive agreement with MyDICOM, LLC and ChangZhou Wealth Information & Technology Co. Ltd to provide product development, deployment and support. The agreement allows us to continually improve our product offerings while managing our expenses. The engineers and employees of MyDICOM and ChangZhou Wealth Information & Technology Co. Ltd will function as a
de facto
arm of the company in supplying the contractual support. In May of 2013, we terminated the agreement with MyDICOM.
In October 2013 we announced a definitive Letter of Intent to merge with the Virtual Physician's Network (VPN), a mobile healthcare business applications company offering the first fully integrated virtual event and professional networking platform combined with proprietary practice building tools for surgeons, healthcare professionals and medical vendors. Virtual Physician's Network provides this through the Virtual Physician's Network mobile app available in the App store (Apple devices), Google Play (Droid devices) and on their web based application. The merger is expected to be completed by the end of the second quarter, 2014.
Operating Strategy
Management is of the opinion that the leaders of the technology market as a whole are beating their competitors by presenting a more effective end user experience and fulfillment of base requirements. We believe that products were judged by the number of features they offer; however, there has been an increasing trend towards not providing the greatest number of features, but rather to provide a simpler user interface than its competitors combined with a solid product workflow. We will attempt, as a medical device provider, to offer products that are user friendly and which have a core workflow that clients can easily implement and use. We believe that a goal of applying our product ideas efficiently will allow our customers to maintain high medical standards to help them to grow in their own individual markets.
With a growing PACS market and an emergent
Electronic Medical Record
(“EMR”) market, we plan to provide a technically advanced but cost effective combined solution to medical practices that have been largely ignored by existing vendors. We will offer as a primary foundation technology, a digital imaging and communications in medicine (“DICOM”) viewer on innovative hardware, a fully Certification Commission for Healthcare Information Technology (“CCHIT”) certified EMR solution, and safe and efficient storage of diagnostic images both as individual clinical assets and as parts of a larger enterprise.
Our goal is to bring a fully integrated PACS/RIS/EMR package to market within a realistic timeframe in order to meet FDA and the American Recovery and Reinvestment Act of 2009 (“ARRA”) standards, starting with an innovative EMR framework as a basis for future product expansions. The stated project goal is to begin marketing a combined PACS/RIS/EMR solution by the end of June, 2014. With a CCHIT qualified EMR fully integrated with TouchPACS, we will be qualified for ARRA reimbursement.
The PACS will support the DICOM v3 standards for both communication and visualization as a solution, a scope of service contained within the boundaries of the total TouchEMR package. PACS is being modularized this way in order to allow for other such future standards/relational forks as laboratory control or inpatient expansion. PACS will be deemed as v1 complete upon clearance of Food and Drug Administration (“FDA”) Class2 certification with all parts intact, and EMR v1 will be considered v1 complete on receiving CCHIT certification. PACS/EMR will be implemented to include all necessary hardware and configuration for a customer, such that our expected target audience is considered “computer illiterate” and will not be expected to provide implementation equipment independently. To that end, simplification of very complex workflow and diagnostic processes is a central focus within our developed interfaces. We propose that smart implementation of clinical software as a workflow client/server process will allow us to market both products (PACS and EMR) as either standalone or paired.
Technology
Over the next 18 months Touch Medical Solutions plans:
To market both individually and combined as a full Practice Management suite the following products:
TouchERP
- Medical Enterprise Resource Planning (“Medical Enterprise RP”) –Is designed for a complete solution to various business sectors, including healthcare. A combination of products providing Clinical Management, Resource Management, Financial Management, and a Practice Information System, that are critical to the medical practices in today’s healthcare industry.
TouchPMS – Practice Management Suite
– This is a category of software that deals with the day-to-day operations of a medical practice. Such software frequently allows users to capture patient demographics, schedule appointments, maintain lists of insurance payers, perform billing tasks, and generate reports.
TouchEMR – Electronic Medical (Health) Record
– This is a locally kept copy of the patient health information located at each applicable healthcare provider, which can then be merged with the central EHR record as diagnostic information changes. This record can be kept in any applicable form, as long as it contains the basic pieces of information necessary to resynchronize with a central provider.
TouchRIS–Radiology Information System
– This is a computerized database used by radiology departments to store, manipulate and distribute patient radiological data and imagery. The system generally consists of patient tracking and scheduling, result reporting and image tracking capabilities. RIS complements HIS (Hospital Information Systems) and is critical to efficient workflow to radiology practices.
TouchPACS – Picture Archiving and Communications Systems -
In medical imaging, PACS have been developed to provide economical storage, rapid retrieval of images, access to images acquired with multiple modalities, and simultaneous access at multiple sites.
TouchPHR – Personal Health Record
– This is an abstract definition of copies of patient electronic health record information, such as radiology studies or lab results, which are provided to a clinic by a patient in electronic form. This is relative to any type of portable copy device, such a CDR or USB, and defines import and export guidance for merging copies into a local (practice level) EMR.
TouchTranscription –
Integrates voice recording and digital scripting into the patient record.
TouchPaperlessOffice
– Through the use of a Paperless Office Solution, medical providers can store, index, search, retrieve, and modify all aspects of a patient’s medical records to provide a paperless office that can eliminate bottlenecks in a patient work flow.
Our potential for success will depend upon our ability to:
(i) develop project synergy where our products are designed for projects to work both independently as well as in a multiple product suite;
(ii) develop enhanced workflow and customization by creating a system workflow that will adopt an existing practices workflow as opposed to the practice needing to change their process and ideology based on the systems constraints. While the main portions of the software suite must be standardized, customization will be allowed to accomplish individual practice goals; and
(iii) Training – All our customers will receive training before, during, and after implementation to fully understand how the systems are designed to be used.
PACS
In the 2nd quarter of 2014, we plan bring to market our Enterprise PACS system (TouchPACS) at a competitive price point. The focus of TouchPACS is to keep hardware and subscription costs affordable, making it an option for any size or type of clinical practice. In addition to a traditional PACS system on-site, TouchPACS will also offer offsite content storage, automated backup solutions, and remote software access via a web based portal product. These traditionally have been separate offerings and have represented a significant integration challenge for the small to mid-sized medical practice. We plan that TouchPACS will also provide the ability to link multiple offices, providing practices the ability to have a single system supporting all sites in which they practice.
Clinical Trial Management
In the 3rd quarter of 2014, we plan to launch a Clinical Trial Management Solution or Laboratory Information System (TouchCT). Both the Clinical Trial Management Solutions and the TouchEMR product share many core requirements offering an opportunity to expand functionality of the TouchEMR product to satisfy trial management needs. An electronic Clinical Trial Management system can provide service to drug development and medical research companies who are in the process of bringing clinical products to market in a newly regulated (by government mandate, required by 2014) drug certification process.
Form Factor
Our products will offer multiple suite configurations to fit customer needs. We will offer both traditional wall- mounted displays as well as portable laptops and tablet computers.
Management is of the opinion that having a portable solution will be most useful for physicians who treat patients in multiple locations as well as for other situations where the flexibility of being mobile is required.
We will also provide a web based DICOM viewer that will allow image presentation on smartphones including:
(i) iPhones
(ii) BlackBerry
(iii) Android, and
(iv) other Operating Systems
but these will be used for preliminary diagnostics only (wet read), as such devices must be FDA Class-3 approved by equipment manufacturers in order to be used for final reads in a clinical setting.
Our systems will offer a touch screen display allowing easy manipulation of images without the need to sit at a workstation with a mouse and keyboard except where this is clinically required. Utilizing modern touch screen interface technology will be attractive to physicians who want to be ahead of the technology curve, or where a physician or physician assistant will be more effective without being tied to a keyboarded workspace.
For fully integrated PACS consumers, a multi-monitor diagnostic station solution will be used to assure full conformance with DICOM and diagnostic imaging standards.
Standards
DICOM Standard
Our imaging solutions are based on the DICOM medical imaging standard, as the service is compatible with virtually every digital imaging modality and PACS in use today. This makes it a solution for orthopedists, obstetricians, family practice physicians, dentists, and chiropractors, in addition to the traditional radiology market. Increasingly, small non-radiological clinics make limited use of imaging as part of their everyday practice; we will provide a simplified, but industrial quality, answer to their software needs.
Platform
We will rely on Microsoft technologies as the backbone of our systems. By utilizing the Microsoft Visual C# development tools, and the Microsoft Visual Studio .NET 2008/2010 development environments, management is of the opinion that TouchPACS will be able to leverage Microsoft’s extensive coding library and features, and to provide an assured vendor as a foundation technology partner for our customers. We will use Microsoft Team Foundation Server to enforce an Agile software development and design philosophy. This philosophy emphasizes close collaboration between the programmer team and business experts, face-to-face communication, frequent delivery of new deployable business value and tight, self-organizing teams.
DICOM Viewer
We will provide a DICOM viewer offering advanced layering, image manipulation and other features that are typically used in large-scale implementations. By utilizing touch screen technology, we will provide a feature to a physician looking to demonstrate technology advancement to its patients. We will seeking FDA Class-2 certification for diagnostic imaging modality classifications, and will publish a formal DICOM conformance statement as a function of the development process. We are not seeking certification for use with Digital Mammography (“MG”) during stage one development, but will seek to display high resolution MG in a non-diagnostic format. The viewer product typically will deploy as a multi-monitor diagnostic station, and a touch-based tablet application, and will include a module for internet-based reading as part of the EMR portal project that we are attempting to develop.
Workflow Clients
We will provide support to our clients; in addition to DICOM PACS stations, for supporting medical records as a foundation of our product suite, including but not limited to:
(i) transcription,
(ii) management,
(iii) paperless workstation, and
(iv) export and reporting clients.
The clients’ products will be designed to work within the touch-based format or touch-assisted in cases like transcription, and are intended to be deployed on our branded encapsulated workstations and tablets.
Servers
TouchPACS has products to serve both Health Level 7 (“HL7”), a standard for exchanging information between medical applications and DICOM formatted messages natively, and allows for implementations to be unified to a central server or split into multiple servers, based on the scale needs of each customer. TouchPACS is also developing web based portal system to allow for patient scheduling, non-diagnostic review, referring physician review, and remote diagnostic reading capabilities. The web portal system will be implemented in a compatible way with both DICOM and HL7 needs in mind, allowing for a PACS web product to be developed concurrently with the EMR web product.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applied on a consistent basis. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. In general, management’s estimates are based on historical experience, information from third party professionals, and various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management under different and/or future circumstances.
We believe that our critical accounting policies and estimates include our ability to continue as a going concern, revenue recognition, accounts receivable and allowance for doubtful accounts, inventory obsolescence, accounting for long-lived assets and accounting for stock based compensation.
Ability to Continue as a Going Concern:
Our ability to continue as a going concern is contingent upon our ability to secure additional financing, increase ownership equity, and attain profitable operations. In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in established markets and the competitive environment in which we operate.
Revenue Recognition:
In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Provision for sales returns will be estimated based on the Company's historical return experience.
Accounts Receivable and Allowance for Doubtful Accounts:
Our accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated and specific customer issues are reviewed to arrive at appropriate allowances.
Long-Lived Assets:
The carrying value of long-lived assets is reviewed annually and on a regular basis for the existence of facts and circumstances that may suggest impairment. If indicators of impairment are present, we determine whether the sum of the estimated undiscounted future cash flows attributable to the long-lived asset in question is less than its carrying amount. If less, we measure the amount of the impairment based on the amount that the carrying value of the impaired asset exceeds the discounted cash flows expected to result from the use and eventual disposal of the impaired assets.
Derivative Financial Instrument:
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based simple derivative financial instruments, we use the Black-Scholes option pricing model to value the derivative instruments at inception and subsequent valuation dates. For complex embedded derivatives, we use a Dilution-Adjusted Black-Scholes method to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Share-Based Compensation:
We record share-based compensation in accordance with FASB ASC 718, Stock Compensation. FASB ASC 718 requires that the cost resulting from all share-based transactions are recorded in the financial statements over the respective service periods. It establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement in accounting for share-based payment transactions with employees. FASB ASC 718 also establishes fair value as the measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based payment transactions.
Results of Operations – Comparison of Three Months Periods Ended March 31, 2014 and March 31, 2013
Comparison of Three Months Periods Ended March 31, 2014 and March 31, 2013
Operating Revenues
Operating revenues since the Company’s inception has been $nil.
Operating Expenses,
During the three months ended March
31, 2014, the Company incurred operating expenses of $262,413 compared with $134,214 during the three months ended March
31, 2013. The increase in operating expenses was attributed to an increase in professional fees of $130,950 offset by a general decrease of $2,751 in general and administrative expenses.
Other expenses
Total other expenses for the three months ended March 31, 2014 was $28,800, as compared to total other expenses for the three months ended March 31, 2013 of $11,826. The increase of $16,974 and approximately 144% in total other expenses was as a result of the increase in imputed interest from $11,826 to $14,689 relating to imputed interest at 8% per annum on related party loans, an increase in amortization of debt discount from $0 to $3,111, and an increase in change in fair value of derivatives from $0 to $11,000 relating to the fluctuation of the liability related to convertible debt carried at fair.
Net Loss
For the three months ended March
31, 2014, the Company recorded a net loss of $291,213 compared with $146,040 for the three months ended March
31, 2013.
Working Capital
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March 31,
2014
$
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December 31,
2013
$
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Current Assets
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4,294
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-
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Current Liabilities
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1,024,097
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978,279
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Working Capital (Deficit)
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(1,019,803
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)
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(978,279
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)
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Cash Flows
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Three Months ended
March
31,
2014
$
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Three Months ended
March
31,
2013
$
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Cash Flows used in Operating Activities
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(97,021
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)
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(111,229
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)
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Cash Flows from (used in) Financing Activities
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101,315
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225,900
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Net Increase in Cash During Period
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4,294
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114,671
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Liquidity and Capital Resources
As at March
31, 2014, the Company’s cash and total asset balance was $4,294 compared to $nil at December 31, 2013.
As of March
31, 2014, the Company had total liabilities of $1,024,097 compared with total liabilities of $978,279 at December 31, 2013. The increase in liabilities is primarily due to the derivative liabilities related to the convertible debt carried at fair value.
As of March
31, 2014, the Company had a working capital deficit of $1,019,803 compared with a working capital deficit of $978,279 as of December 31, 2013. The increase in the working capital deficit is primarily attributed to the derivative liabilities related to the convertible debt carried at fair value.
Going Concern
Our ability to continue as a going concern is contingent upon our ability to secure additional financing, increase ownership equity, and attain profitable operations. In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in established markets and the competitive environment in which we operate.
Uncertainties and Trends
Our operations and possible revenues are dependent now and in the future upon the following factors:
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Whether we successfully develop and commercialize products from our research and development activities.
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If we fail to compete effectively in the intensely competitive medical software area, our operations and market position will be negatively impacted.
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If we fail to successfully execute our planned partnering and out-licensing of products or technologies, our future performance will be adversely affected.
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The recent economic downturn and related credit and financial market crisis may adversely affect our ability to obtain financing, conduct our operations and realize opportunities to successfully bring our technologies to market.
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Software industry related litigation is substantial and may continue to rise, leading to greater costs and unpredictable litigation.
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If we fail to comply with extensive legal/regulatory requirements affecting the medical software industry, we will face increased costs, and possibly penalties and business losses.
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Off-Balance Sheet Arrangements
We have not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under whom we have:
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An obligation under a guarantee contract.
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A retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets.
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Any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument.
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Any obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by us and material to us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us.
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We do not have any off-balance sheet arrangements or commitments (other than the potential effect of certain legal contingencies) that have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material.