UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Dec
ember 31, 2009
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to___________
Commission file number
333-137702
PRIMECARE SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE
54-1707928
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
56 Harrison Street, New Rochelle, New York 10801
(Address of principal executive offices)
(914) 576- 8457
(Issuer's telephone number)
(Former name, address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b- 2 of the Exchange Act). [ ]Yes [X] No
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
Class
Shares Outstanding at December 31, 2009
Common Stock ($.001 par value)
84,343,120 Shares
1
Item 1. Financial Statements:
Balance Sheets as of December 31, 2009 (unaudited) and June 30, 2009
F-1
Statements of Operations for the three and six months ended December 31, 2009 and
F-2
2008 (unaudited)
Statements of Cash Flows for the three and six months ended December 31, 2009 and
2008 (unaudited)
F-3
Notes to Financial Statements:
F-4
Item 2. Management’s Discussion and Analysis or Plan of Operation
3
Item 3. Controls and Procedures
7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
7
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
7
Item 6. Exhibits and Reports on Form 8-K
8
2
PrimeCare Systems, Inc.
Balance Sheets
|
|
|
|
|
|
December 31
|
June 30,
|
|
|
2009
|
2009
|
|
Assets
|
(Unaudited)
|
|
|
Current assets:
|
|
|
|
Cash
|
$ 12,530
|
$ 35,486
|
|
Loan receivable
|
10,350
|
10,350
|
|
Total current assets
|
22,880
|
45,836
|
|
Other assets:
|
|
|
|
Property and equipment, net of accumulated depreciation of $128,757 and $125,664, respectively
|
18,814
|
17,424
|
|
Capitalized software costs, net of accumulated amortization of $276,277 and $227,618, respectively
|
311,154
|
302,117
|
|
Other assets
|
4,972
|
4,972
|
|
Total Assets
|
$ 357,820
|
$ 370,349
|
|
|
|
|
|
Liability and Stockholders’ Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued expenses
|
$ 27,394
|
$ 16,395
|
|
Notes payable – current portion
|
--
|
19,491
|
|
Deferred income – current portion
|
6,000
|
11,000
|
|
Total current liabilities
|
33,394
|
46,886
|
|
Notes payable – non-current portion
|
407,500
|
215,000
|
|
Accrued interest payable
|
8,842
|
4,479
|
|
Deferred income – long term portion
|
28,500
|
31,500
|
|
Total liabilities
|
478,236
|
297,865
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
Series A preferred stock, $.01 par value; 10,000,000 shares
authorized, issued and outstanding 66,600 and 66,600,
respectively
|
666
|
666
|
|
Common stock, $.001 par value; 200,000,000 shares
authorized, issued and outstanding 84,343,120
and 84,298,120 shares, respectively
|
84,343
|
84,298
|
|
Additional paid-in capital
|
9,623,326
|
9,622,696
|
|
Accumulated deficit
|
(9,828,751)
|
(9,635,176)
|
|
Total stockholders’ equity
|
(120,416)
|
72,484
|
|
Total liabilities and stockholders’ equity
|
$ 357,820
|
$ 370,349
|
|
|
|
|
|
See notes to financial statements.
|
|
|
F - 1
PrimeCare Systems, Inc.
Statements of Operations
|
|
|
|
|
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|
Three Months Ended
December 31,
|
Six Months Ended
December 31,
|
|
|
2009 2008
(Unaudited) (Unaudited)
|
2009 2008
(Unaudited) (Unaudited)
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Software license fees
|
$ (23,500)
|
$ 26,500
|
3.000
|
$ 53,000
|
|
Sales commissions
|
--
|
102
|
--
|
102
|
|
|
|
|
|
|
|
Total revenues
|
(23,500)
|
26,602
|
3,000
|
53,102
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
Amortization of capitalized software costs
|
24,976
|
18,771
|
48,659
|
35,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of revenues
|
24,976
|
18,771
|
48,659
|
35,816
|
|
|
|
|
|
|
|
Research and development
|
43,297
|
47,021
|
88,872
|
95,222
|
|
|
|
|
|
|
|
Selling, general and administrative
|
20,810
|
17,902
|
50,065
|
43,557
|
|
Depreciation
|
1,540
|
2,372
|
3,093
|
4,555
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
90,623
|
86,066
|
190,689
|
179,150
|
|
|
|
|
|
|
|
Operating loss
|
(114,123)
|
(59,464)
|
(187,689)
|
(126,048)
|
|
|
|
|
|
|
|
Interest income
|
5
|
7
|
5
|
26
|
|
Interest expense
|
(1,994)
|
(180)
|
(5,891)
|
(11,725)
|
|
|
|
|
|
|
|
Net loss
|
(116,112)
|
(59,637)
|
(193,575)
|
(137,747)
|
|
|
|
|
|
|
|
Income(loss) per common share, basic and diluted:
|
$ (.00)
|
$ (.00)
|
$ (.00)
|
$ (.00)
|
|
|
|
|
|
|
|
Weighted average number of common shares
Outstanding, basic and diluted
|
84,299,587
|
82,701,120
|
84,298,854
|
76,361,990
|
See notes to financial statements.
F - 2
PrimeCare Systems, Inc.
Statements of Cash Flows
|
|
|
|
|
|
Six Months Ended December 31,
|
|
|
2009
|
2008
|
|
|
(Unaudited) (Unaudited)
|
|
Cash flow from operating activities:
|
|
|
|
Net loss
|
$ (193,575)
|
$ (137,747)
|
|
Adjustments to reconcile net loss to net cash provided (used in) operating activities:
|
|
|
|
Depreciation of property and equipment
|
3,093
|
4,555
|
|
Amortization of capitalized software costs
|
48,659
|
35,816
|
|
Stock- based compensation
|
675
|
--
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts payable and accrued expenses
|
15,362
|
3,868
|
|
Deferred income
|
(8,000)
|
17,000
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
(133,786)
|
(76,508)
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Additions to property and equipment
|
(4,483)
|
(2,795)
|
|
Additions to capitalized software costs
|
(57,696)
|
(64,427)
|
|
Net cash used in investing activities
|
(62,179)
|
(67,222)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from notes payable, net
|
192,500
|
85,587
|
|
Proceeds from exercise of warrants
|
--
|
62,000
|
|
Increase (decrease) in credit line
|
(19,491)
|
|
|
Net cash provided by (used in) financing activities
|
173,009
|
147,587
|
|
|
|
|
|
Net increase (decrease) in cash
|
(22,956)
|
3,857
|
|
|
|
|
|
Cash, beginning of period
|
35,486
|
2,562
|
|
|
|
|
|
Cash, end of period
|
$ 12,530
|
$ 6,419
|
|
|
|
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|
Supplemental disclosures of cash flow information:
|
|
|
|
Interest paid
|
$ 301
|
$ 64
|
|
Income taxes paid
|
$ --
|
$ --
|
|
|
|
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Non-cash financing activities:
Issuance of 11,200,000 shares of common stock in satisfaction of
$560,000 notes payable and $29,900 accrued interest payable
$ -- $ 589,900
See notes to financial statements.
F - 3
PRIMECARE SYSTEMS, INC.
NOTES TO
FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
PrimeCare Systems, Inc. (“PrimeCare” or the “Company”) was incorporated in Delaware in 1994. PrimeCare has developed and is marketing software and diagnostic products for the healthcare industry.
The accompanying financial statements have been prepared assuming that PrimeCare will continue as a going concern. At December 31, 2009 (unaudited), PrimeCare had negative working capital and stockholders’ equity of $10,514 and $120,416, respectively. Further PrimeCare incurred net losses for the six months ended December 31, 2009 and for the year ended June 30, 2009 of $193,575 (unaudited) and $
385,713
, respectively. These conditions raise substantial doubt as to PrimeCare’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if PrimeCare is unable to continue as a going concern. Management plans on achieving profitable operations through successful marketing of its PrimeCare V9 software. However, there is no assurance that the Company will be successful in this effort.
NOTE 2 – INTERIM FINANCIAL STATEMENTS
The unaudited financial statements as of December 31, 2009 and for the three and six months ended December 31, 2009 and 2008 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of December 31, 2009 and the results of operations and cash flows for the periods ended December 31, 2009 and 2008. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the six months ended December 31, 2009 is not necessarily indicative of the results to be expected for any subsequent quarter or the entire year ending June 30, 2009. The balance sheet at June 30, 2009 has been derived from the audited financial statements at that date.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended June 30, 2009 as included in our Form 10-K filed with the Securities and Exchange Commission on October 9, 2009.
NOTE 3 - NOTES PAYABLE
Notes payable consisted of:
|
|
|
|
|
|
December
31, 2009
(unaudited)
|
June 30, 2009
|
|
Due bank under $20,000 revolving line of credit, interest
payable monthly at bank’s prime rate plus 3%, secured by
the personal guarantee of officer
|
$ --
|
$ 19,491
|
|
Due officers, interest at 6%, interest and balance due on July 31, 2011.
|
332,500
|
215,000
|
|
Due affiliates of Telemedicine International LLC, interest at 6%, interest and
|
|
|
|
balance due on July 31, 2011
|
75,000
|
--
|
|
Total
|
407,500
|
234.491
|
|
Current portion of notes payable
|
--
|
(19,491)
|
|
Non-current portion of notes payable
|
$ 407,500
|
$ 215,000
|
Effective September 30, 2008, notes due to officers and Telemedicine International LLC (totaling $560,000) and accrued interest thereon (totaling $29,900) were satisfied in full through the issuance of the Company’s common stock (see Note 5 - Stockholders’ Equity).
NOTE 4 - SOFTWARE LICENSE AGREEMENT AND DEFERRED INCOME
On September 29, 2005, PrimeCare entered into a ten year license agreement with Telemédica SLR (Licensee), a company based in Argentina. As part of the consideration for becoming the exclusive licensee within the free trade association known as Mercosur, whose members are Argentina, Brazil, Chile, Paraguay and Uruguay, the Licensee paid PrimeCare $60,000 and has agreed to fund the translation and internationalization of PrimeCare V9 in both Spanish and Portuguese. The Spanish version was completed during 2005. The Licensee will sub-license PrimeCare V9 to health care providers in the Mercosur and train them in its use. In the event that the gross revenues derived by Licensee from sub licensing PrimeCare V9 are less than $2,500,000 for the third year of the Term of the agreement, or any year thereafter, the Agreement will become non-exclusive for the balance of the term. The License provides that the fee to be charged to a sub-licensee shall be not less than $4 per annum, per patient of each sub-licensee, without regard to the number of patient uses of the software during that year, unless PrimeCare agrees, in writing, to a lower fee.
PrimeCare recorded the $60,000 as deferred income in September 2005 and is amortizing this amount to income over ten years, the term of the Licensee distribution agreement.
The agreement was amended as of June 30, 2008 to provide that the Licensee will pay PrimeCare a license fee equal to 30% of the gross fees charged by Licensee with an annual minimum License Fee of $100,000 per fiscal year commencing July 1, 2008.
The agreement was amended November 13, 2009, effective June 30, 2009 and now provides that the Licensee will pay PrimeCare a license fee equal to 50% of the gross fees charged by Licensee with no annual minimum License Fee. During the quarter ended September 30, 2009, the Company recorded $25,000 as software license fee revenue. This amount was reversed for the three months ended December 31, 2009.
NOTE 5 - STOCKHOLDERS’ EQUITY
Effective December 29, 2009, the Company issued a total of 45,000 shares of the Company’s Common Stock, par value $0.001 per share, to three employees as additional compensation (15,000 shares each). The market value of the shares issued was $0.015 per share, for an aggregate amount of $675.
Effective September 30, 2008, the Company issued a total of 11,200,000 shares of the Company’s Common Stock, par value $0.001 per share, in full satisfaction of $560,000 of notes payable plus accrued interest thereon of $29,900.
On March 23, 2009 a shareholder converted 970 shares of Series A Preferred Stock into 97,000 shares of Common Stock. The basis of conversion is 100 shares of Common Stock for each share of Series A Preferred Stock being converted.
Each share of Series A Preferred Stock is convertible into 100 shares of the Company’s common stock. In the event that dividends are simultaneously paid or declared on any parity stock, the holders of the Series A Preferred Stock are entitled to receive out of any funds or other property legally available therefore, when and as declared by the Board of Directors, (i) dividends in cash at the annual rate of $0.60 per share, and (ii) in addition, each share of Series A Preferred Stock shall receive 100 times the dividend paid per share of common stock.
NOTE 6 - WARRANTS
Warrants to purchase 3,100,000 shares of the Company’s Common Stock, par value $0.01 per share, with an exercise price of $.02 per share were exercised between October 8, 2008 and November 14, 2008. The aggregate amount received by the Company was $62,000.
On November 17, 2008 warrants to purchase 11,366,262 shares of the Company’s common stock expired. The expired warrants consist of:
|
|
|
|
|
|
|
Grant Date
|
|
Exercise Price
|
|
Number of
Warrants
|
|
November 17, 2005
|
|
$ .02
|
|
1,227,206
|
|
November 17, 2005
|
|
$ .05
|
|
4,925,000
|
|
November 17, 2005
|
|
$ .07
|
|
5,214.056
|
|
|
|
|
|
|
|
Total
|
|
|
|
11,366,262
|
On February 23, 2009, the Company issued warrants to eighteen parties to purchase a total of 10,055,000 shares of common stock (4,425,000 to officers and directors); 1,200,000 are exercisable at $.03 per share and 8,855,000 are exercisable at $.05 per share. The warrants may be exercised at any time or from time to time, prior to February 22, 2011. The $82,197 fair value of the warrants on the date of issue was charged as follows: $75,664 to selling, general and administrative expenses and $6,533 to research and development expenses. The fair value was estimated using the Black-Scholes option pricing model and the following assumptions: expected life of 2 years, expected volatility of 249%, expected dividend yield of 0%, and risk free interest rate of 1.3%.
The Company issued warrants on April 11, 2009 to ten parties to purchase a total of 4,795,000 shares of common stock (3,850,000 to officers and directors) at $.03 per share. The warrants may be exercised at any time or from time to time, prior to April 10, 2012. The $46,144 fair value of the warrants on the date of issue was charged as follows: $29,111 to selling, general and administrative expenses and $17,033 to research and development expenses. The fair value was estimated using the Black-Scholes option pricing model and the following assumptions: expected life of 3 years, expected volatility of 263%, expected dividend yield of 0%, and risk free interest rate of 1.3%.
At December 31, 2009, warrants consist of:
|
|
|
|
|
|
|
Expiration
|
Exercise
|
Number of
|
|
Grant Date
|
Date
|
Price
|
Warrants
|
|
February 23, 2009
|
February 22, 2011
|
$ .03
|
1,200,000
|
|
February 23, 2009
|
February 22, 2011
|
.05
|
8,855,000
|
|
April 11, 2009
|
April 10, 2012
|
.03
|
4,795,000
|
|
|
|
|
|
|
Total
|
|
|
14,850,000
|
The 14,850,000 warrants outstanding and exercisable at December 31, 2009 have a weighted-average exercise price of $.0419 per warrant. The weighted-average grant-date fair value of these warrants was $.0086 per warrant.
NOTE 7 - INCOME TAXES
No provisions for income taxes have been recorded since the Company has incurred net losses since inception. Based on management’s assessment, the Company has not yet determined it to be more likely than not that a deferred tax asset attributable to the future utilization of the net operating loss carry forward will be realized. Accordingly, the Company has provided a 100% allowance against the deferred tax asset in the financial statements. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carry forward of approximately $5,700,000 at June 30, 2009 expires in varying amounts from the year 2010 to year 2029.
Current tax laws limit the amount of loss available to offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
NOTE 8 - COMMITMENTS
PrimeCare leases office space under operating leases. One lease includes provisions requiring PrimeCare to pay a proportionate share of the increase in real estate taxes and operating expenses over base period amounts. The other lease provides for an annual increase of 4%. For the three months ended June 30, 2009 and 2008 (unaudited), rent expense pursuant to such operating leases was $21,250 and $19,667, respectively. At December 31, 2009 (unaudited), the future minimum lease payments under non-cancelable operating leases (all due in the year ending June 30, 2010) were $41,802.
NOTE 9 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the filing date of this Form 10-Q and has determined that there were no subsequent events to recognize or disclose in these financial statements.
F - 4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion and analysis should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere herein. The following discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements include predictions, estimates and other statements that involve a number of risks and uncertainties. While this outlook represents the Company's current judgment on the future direction of the business, such risks and uncertainties could cause actual results to differ materially from any future performance suggested herein.
The Company has experienced recurring losses from operations and has relied on loans and the sale of equity interests in the Company to fund its operations. If necessary, the Company intends to provide additional working capital through the sale of equity interests in the Company. Although, in the past, the Company has been able to provide working capital through the sale of equity interests in the Company, there can be no assurances that the Company will succeed in its efforts, which creates a doubt about its ability to continue as a going concern.
The accompanying financial statements have been prepared assuming that the Company 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 a working capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Overview
In May 1994, the PrimeCare
J
System was MS DOS based. In 1997, PrimeCare completed the development of its Windows
7
95 and Windows
7
NT based version of the PrimeCare
J
System (“PrimeCare
J
V8”). To increase the compatibility and versatility of Version Eight, PrimeCare added an interface that enables PrimeCare
J
V8 to communicate with medical office management systems (billing software, appointment scheduling software, etc.). Shortly thereafter, PrimeCare commenced a test marketing program in areas where it could install and service the product and train the office personnel in the use of the product.
In April 1998, PrimeCare completed development of CodeComplier
J
. During a patient office visit, the CodeComplier
J
organizes each item of the data in the proper classification and, using the CMS) Documentation Guidelines, automatically calculates the E&M code level used for determining the physician
=
s reimbursement from Medicare and other third party payers for the office visit.
During December 1998, PrimeCare completed development of its PrimeCareOnTheWeb (
A
PCW
@
). The PCW Web site enables a physician to have patients answer one or more of PrimeCare
=
s 280 Questionnaires via the Internet. At this time, PrimeCare
=
s V8 was updated to include the changes.
During the period between late 1998 through 2000, PrimeCare exhibited at several industry conferences in an attempt to generate product recognition and to foster sales. The response was positive. Some licenses were sold. However, many private practice physicians were reluctant to make the capital investment for the hardware necessary to operate the software. Software updates were labor intensive. The software had to be updated at each computer. This discouraged large groups from using the system. This reluctance caused PrimeCare to redesign the system to overcome the problems. The feasibility of its product redesign was established in 2001, and the development of PrimeCare
=
s PrimeCare V9 began. PrimeCare discontinued the marketing of its PrimeCare V8, and subsequently ceased supporting it. Therefore, in
3
2003, PrimeCare wrote off as an expense the unamortized capitalized software costs relating to its Version Eight. Since 1994, PrimeCare has written off capitalized software development costs in excess of $5,500,000.
The three-tier architecture of the PrimeCare
J
V9 provides advantages, including easy client installation; reduced on-site hardware and support requirements; enhanced data security; and maximum flexibility. PrimeCare
J
V9's reduced installation and maintenance costs and its flexibility enables it to be adapted to a wide variety of health care organizational uses, potentially including national and local health care systems, military organizations, correctional facilities, HMOs, hospitals with outpatient services, clinics, group practices and solo practitioners. The PrimeCare
J
V9 system is HIPAA compliant.
The Company’s main focus has been, and continues to be, the PrimeCare System. The Company believes that this business segment has excellent growth potential.
PrimeCare has experienced recurring losses from operations, and has relied on OCGT, its former parent company, to fund its operations. Since PrimeCare is no longer a subsidiary of OCGT, it will have to provide its own funding. To improve its financial position, PrimeCare issued 21,570 shares of Series A Preferred Stock in payment of $215,700 of notes payable assumed from OCGT during January 2006. To overcome its cash shortfall, in part, during January 2006, PrimeCare issued 3,000 shares of Series A Preferred Stock in payment of $30,000 of loans payable and thereafter, during the month of July 2006, PrimeCare completed a Private Offering of the Series A Preferred Stock, in which it sold 40,000 shares for $400,000 or $10 per share. $375,000 of the Offering was received during the year ended June 30, 2006 and $25,000 was received during the June 30, 2007 year. During the three months ended September 30, 2007, the Company issued a total of 3,000 shares of Series A Preferred Stock in consideration of $15,000 in cash. On March 23, 2009, a shareholder converted 970 shares of Series A Preferred Stock into 97,000 shares of Common Stock.
These Preferred Shares are convertible into a total of 6,660,000 shares of PrimeCare
=
s common stock. The issuance of shares in payment of the debt was made in reliance on the exemption from registration provided under Section 4(2) of the Securities Act of 1933 (the “Act”) and issuance of shares in the Private Offering was pursuant to the exemption provided under Section 4(2) of the Act and the exemption provided by Rule 504 of Regulation D. The issuances were made in a private transaction without means of any public solicitation. The shares are restricted securities and the certificates representing the ownership of the shares contain a legend restricting further transfer unless the shares are registered or qualify for an exemption. If necessary, PrimeCare intends to provide additional working capital through the sale of additional equity interests, or obtain loans. However, there can be no assurances that it will succeed in its efforts, which creates a doubt as to its ability to continue as a going concern.
During the three months ended September 30, 2008, the Company issued a total of 11,200,000 shares of the Company’s Common Stock, par value $0.001 per share, in full satisfaction of $560,000 of notes payable plus accrued interest thereon of $29,900. The issuance of shares in payment of the debt was made in reliance on the exemption from registration provided under Section 4(2) of the Securities Act of 1933 (the “Act”) and issuance of shares in the Private Offering was pursuant to the exemption provided under Section 4(2) of the Act and the exemption provided by Rule 504 of Regulation D. The issuances were made in a private transaction without means of any public solicitation. The shares are restricted securities and the certificates representing the ownership of the shares contain a legend restricting further transfer unless the shares are registered or qualify for an exemption.
Results of PrimeCare’s Operations for the three and six months ended December 31, 2009, compared to the three and six months ended December 31, 2008:
PrimeCare’s total revenue was $26,602 and $53,102 for the three and six months ended December 31, 2008 compared to ($23,500) and $3,000 for the three and six months ended December 31, 2009. The decrease in revenues was primarily due to the revised license agreement with Telemedica, which
4
eliminated a minimum annual fee of $100,000 per year and decreased their share of the license fee. The $25,000 recorded as revenue during the three months ended September 30, 2009 was reversed to reflect the amendment to the license agreement. $1,500 of the revenues were due to PrimeCare receiving $60,000 on September, 29, 2005, for granting a license to use PrimeCare V9, which amount was booked to deferred income and is being recorded as income over a period of ten years. $1,500 was recognized as income for each three month period.
PrimeCare follows the Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). There was no impairment charge to capitalized software costs during the three and six months ended December 31, 2009 and 2008.
Research and development costs decreased from $47,021 for the three months ended December 31, 2008 to $43,297 for the three months ended December 31, 2009, a decrease of $3,724. Research and development costs decreased to $88,872 for the six months ended December 31, 2009 from $95,222 for the six months ended December 31, 2008, a decrease of $6,350. The decrease primarily resulted from increases in capitalized software development costs for the months ended December 31, 2009.
Selling, general and administrative costs were $50,065 for the six months ended December 31,
2009 compared to $43,557
for the six months ended December 31,
2008, an increase of $6,508. Selling, general and administrative costs were $20,810 for the three months ended December 31,
2009 compared to $17,902
for the three months ended December 31,
2008
, an increase of $2,909.
Amortization of capitalized software costs increased $6,205 and $12,483 from $18,771 and $35,816 for the three and six months ended December 31, 2008 to $24,976
and $48,659
for the three and six months ended December 31, 2009, as a result of the increase in gross capitalized software costs ($587,431 at Dec
ember
31, 2009)
.
Liquidity and Capital Resources
Cash was $12,530 at December 31,
2009. The Company has a $20,000 credit line from its bank, none of which was drawn down as of December 31,
2009. PrimeCare
=
s principal means of overcoming its cash shortfalls, caused by recurring losses from operations, was from loans from related parties, the exercise of warrants and the sale of the Company’s stock. See Notes 3, 5 and 6 of “NOTES TO
FINANCIAL STATEMENTS (Unaudited).” The Company has raised $400,000 in a private placement and has retired debt through the issuance of shares of stock as previously discussed.
During the quarter ended September 30, 2005, PrimeCare entered into a ten year license agreement for the use of PrimeCare
J
V9, with Telemédica, S.L.R., a company organized and based in Argentina (
A
Telemédica
@
). Telemédica has advised PrimeCare that they have successfully completed a very successful pilot project for the use of PrimeCare V9, at Hospital Isola in Puerto Madryn and Puerto Pirámides Rural Hospital in the Province of Chubut, Argentina. In addition, Telemédica signed, a contract with Chubut’s Secretary of Health to provide PrimeCare V9 in the North Sector (el Sector Norte), one of the four health sectors in Chubut (population 450,000). The North Sector contract was signed by the North Sector’s Director with approval from Chubut’s Secretary of Health. The North Sector’s central hospital is Hospital Isola, around which it is organized. The use of the PrimeCare System as a key component of the health care system of the Province of Chubut and the relationship of PrimeCare and the Ministry of Health in the Province of Chubut and its three year history is discussed in an article appearing in a newspaper in the city of Puerto Madryn
, w
hich can be viewed at PrimeCare’s Web site http://www.pcare.com/pcnews/press074.aspx for our translation to English or as published in Spanish, at
http://www.diariodemadryn.com/vernoti.php?ID=94173
.
The contract for the use of PrimeCare V9, as it currently reads, is a one year rolling contract paying a fixed amount to integrate the Sector Norte’s health system. This contract is not considered as a “final” contract. The terms of the final contract have been agreed to and the contract is currently being written.
5
Telemédica has advised that the agreement currently being written will grant a contract to integrate Chubut’s entire healthcare system for a fixed amount per year. The contract will generate significant revenue. The PrimeCare V9 System has been thoroughly evaluated by Chubut’s Secretary of Health and an advisor from Argentina’s Ministry of Health, who has been assigned by Argentina’s President to help Chubut to reform its health system. At the request of the medical authorities of Chubut and to meet the medical system needs of Chubut, in the spirit of cooperation, PrimeCare created and added software programs to the PrimeCare System to give it the ability to: (a) input and store a physician's availability schedule and to display appointment schedules by clinic, location, and physician (It is being used as the basis for appointment scheduling by hospitals in Chubut, Argentina); (b) enable local users to provide internal procedure billing codes for use in the appointment billing module (Note that this is written specifically for insurance requirements in Argentina and does not have applicability in any other locality); (c) track source of patient personal identifier with user specified source options (e.g, the user can create a list of ID sources, such as SSAN, Passport, Driver's License, DNI, LE, LC - the last three are specific to Argentina); (d) enable installations to specify images / logos to show for their users, and to override the default program name with a locally defined name; (e) identify and color code “out of limits” lab values, as well as charting lab values which have numeric results (some lab values are only positive / negative, and cannot be charted graphically); (f) convert Argentina supplied patient demographic information into PrimeCare compatible information; (g) incorporate ICD-10 diagnostic codes in parallel with existing ICD-9 codes, with ability for each installation to supply up to two additional codes for each diagnosis; and (h) record data for patient pregnancies and deliveries, supporting Argentina's Plan Nacer ("Healthy Child" initiative).
Puerto Madryn, which is the North Sector's largest city, has approximately 90,000 residents. The sector's population represents between 15% and 20% of the province's population. The PrimeCare System already has incorporated 60,000 North Sector electronic medical records; has been interfaced with its laboratory; and has been installed in Hospital Isola and four rural hospitals in the communities of Gan Gan, Telsen, Gastre, and Puerto Pirámides.
Telemédica said the fee structure will be changed from the original concept, which anticipated a flat rate of $4 per year, per patient. They say that Chubut prefers to pay a flat, negotiated service fee. Telemédica continues to market PrimeCare V9 in other areas of Argentina and has had expressions of serious interest from places in Patagonia, Santa Fé, and a health system in Buenos Aires province. Telemédica believes that other Provinces in Argentina will follow the lead of Chubut.
Although PrimeCare’s license agreement with Telemédica provides that the fee to be charged to a sub-licensee shall be not less than four US dollars (US$4.00) per annum, per patient of each sub-licensee, without regard to the number of patient uses of the software during that year, PrimeCare has agreed that it will change the basis for charging fees to the end user.
Telemédica anticipates that additional provinces of Argentina will commence using PrimeCare V9 in the near future and the Company’s revenues from such use will keep increasing.
Assuming our current spending levels of approximately $33,000 per month, management believes that PrimeCare can raise the funds that might be necessary to meet cash shortfalls from operations until sufficient revenues will be generated from the Argentine License to overcome the Company’s cash shortfalls. As of December 31, 2009 the Company had cash balances of $12,530 and had the availability of its line of credit in the amount of $20,000. Since January 1, 2007, the Company has received $960,000 in loans, with interest payable thereon at 6% per annum, fromTelemedicine International LLC, the majority shareholder of Telemédica, S.R.L., and affiliates, and PrimeCare’s President to cover the Company’s cash shortfalls, of which $560,000, together with interest thereon, was repaid through the issuance of the Company’s common shares as previously discussed. There can be no assurance that these loans will continue to be available or that they can be repaid through issuing the Company’s stock.
The Company has a $20,000 line of credit from RBC Centura Bank with whom the Company maintains a
6
checking account, all of which was available as of December 31, 2009. The terms of the agreement call for interest to be paid monthly on the outstanding balance computed at the per annum rate of Wall Street Journal Prime Rate plus 3%. The agreement also calls for repayment in monthly installments equal to or greater than 3% of the outstanding balance. The loan is personally guaranteed by an officer of the Company.
PrimeCare
=
s management believes that the Argentina License will provide sufficient revenues from operations to overcome its cash shortfalls caused by recurring losses from operations and will make PrimeCare profitable
Currently, the Company has no material commitments for capital expenditures outstanding.
Item 3. Controls and Procedures
An evaluation was carried out under the supervision and with the participation of the Company's management, including the President/Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the President/CFO have concluded that as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and timely reported as provided in the Securities and Exchange Commission rules and forms. The Company periodically reviews the design and effectiveness of our internal controls over financial reporting, including compliance with various laws and regulations that apply to the Company's operations. The Company makes modifications to improve the design and effectiveness of its internal control structure, and may take other corrective action, if the Company's reviews identify deficiencies or weaknesses in its controls. No changes occurred during the quarter ended December 31, 2004 in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On December 29, 2009, the Company issued, as additional compensation to three employees, a total of 45,000 shares of the Company’s Common Stock, par value $0.001 per share (15,000 shares each). The market value of the shares issued was $0.015 per share, for an aggregate amount of $675. The shares are restricted securities and the certificates representing the ownership of the shares contain a legend restricting further transfer unless the shares are registered or qualify for an exemption.
7
Item 6.
Exhibits and Reports on Form 8-K
(a) Exhibit No.
Exhibit Name
*
3.1(a)
Certificate of Incorporation of Registrant filed May 2, 1994
*
3.1(b)
Certificate of Amendment of Certificate of Incorporation filed January 10, 2005
*
3.1(c)
Certificate of Amendment of Certificate of Incorporation filed March 24, 2005
*
3.2
By-Laws
*
4.1
Instrument defining rights of holders (See Exhibits Nos. 3.1(a) and 3.1(c), Certificate of Amendment of Certificate of Incorporation), Certificate of Designation Creating Series A Preferred Stock of PrimeCare Systems, Inc.
*
4.2
Form of Stock Purchase Warrant
*
10.1
Software License Agreement, dated as of September 29, 2005, by and between PrimeCare Systems, Inc., and Telemédica SRL
*
10.2
Software License Agreement, dated as of September 29, 2005, by and between PrimeCare Systems, Inc., and Nebbe Enterprises, LLC
*
10.3
Share Purchase Agreement, dated as of December 19, 2005, by, between and among OCGT Technology, Inc. and Bobby Vavithis
*
10.4
Distribution Agreement, dated as of December 19, 2005, by, between and among OCGT Technology, Inc. and PrimeCare Systems, Inc.
*
10.5
Agency Agreement, dated as of December 31, 2005
*
10.6
Escrow Agreement, dated as of December 29, 2005
*
10.7
Bank Creditline, dated August 21, 2001
31.1
Certification pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley act of 2002.
31.2
Certification pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley act of 2002.
32.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002.
32.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002.
*
Incorporated by reference to Form SB -2, as amended, filed September 29, 2006
(b)
Reports on Form 8-K
No Report on Form 8-K was filed during the quarter ended September 30, 2009.
8
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
,
thereunto duly authorized.
PRIMECARE SYSTEMS, INC.
By:
/s/Robert A. Shiver
Robert A. Shiver, President
By:
/s/ Edward C. Levine
Edward C. Levine, Treasurer/Chief Financial Officer
DATED: January 29, 2010
9
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Shiver, President of PrimeCare Systems, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of PrimeCare Systems, Inc. for the period ending December 31,
2009;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]
(c) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and
5. The small business issuer’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.
Date: Date: January 29, 2010
By:
/s/Robert A. Shiver
Robert A. Shiver, President
10
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002
I, Edward C. Levine, Treasurer/Chief Financial Officer of the Registrant, PrimeCare Systems, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of PrimeCare Systems, Inc. for the period ending December 31,
2009;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]
(c) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and
5. The small business issuer’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.
Date: Date: January 29, 2010
By:
/s/ Edward C. Levine
Edward C. Levine, Treasurer/Chief Financial Officer
11
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), the undersigned, Robert A. Shiver, President of PrimeCare Systems, Inc., a Delaware corporation, (the "Company"), does hereby certify, to his knowledge, that:
The Quarterly Report on Form 10-Q for the period ended December 31,
2009 of the Company (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and the information contained in the report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: January 29, 2010
By:
/s/Robert A. Shiver
Robert A. Shiver, President
12
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), the undersigned, Edward C. Levine, Treasurer/Chief Financial Officer of PrimeCare Systems, Inc., a Delaware corporation, (the "Company"), does hereby certify, to his knowledge, that:
The Quarterly Report on Form 10-Q for the period ended December 31,
2009 of the Company (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and the information contained in the report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: January 29, 2010
By:
/s/ Edward C. Levine
Edward C. Levine, Treasurer/Chief Financial Officer
13