SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
(Mark
One)
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly period ended September 30, 2005
OR
o TRANSITION
REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF
1934
From
the
transition period from ___________ to ____________.
Commission
File Number 01-28911
NATIONAL
HEALTHCARE TECHNOLOGY, INC.
(Exact
name of small business issuer as specified in its charter)
Colorado
91-1869677
(State
or
other jurisdiction of incorporation or organization)(IRS Employer Identification
No.)
1660
Union Street, Suite 200, San Diego, California 92101
(Address
of principal executive offices)
(619)
398-8470
(Issuer's
telephone number)
Former
fiscal year September 30
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90 days:
Yes
x
No
o
As
of
January 31, 2006, 19,492,759 shares of Common Stock of the issuer were
outstanding.
PART
I.
FINANCIAL INFORMATION
NATIONAL
HEALTHCARE TECHNOLOGY, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
BALANCE
SHEET
September
30, 2005
(Unaudited)
| |
|
|
|
|
ASSETS
|
|
|
|
| |
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
Inventories
|
|
$
|
29,101
|
|
|
Prepaid
expenses and other current assets
|
|
|
200,270
|
|
|
Total
current assets
|
|
|
229,371
|
|
| |
|
|
|
|
|
Property
and equipment—net
|
|
|
35,358
|
|
|
Other
long-term assets
|
|
|
2,087
|
|
|
TOTAL
ASSETS
|
|
$
|
266,816
|
|
| |
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS DEFICIT
|
|
|
|
|
| |
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
Bank
overdraft
|
|
$
|
28,211
|
|
|
Accounts
payable
|
|
|
206,646
|
|
|
Note
payable—related party (see Note 4)
|
|
|
50,140
|
|
|
Accrued
expenses and other current liabilities
|
|
|
220
|
|
|
Total
current liabilities
|
|
|
285,217
|
|
|
Total
liabilities
|
|
|
285,217
|
|
| |
|
|
|
|
|
Commitments
(see Note 8)
|
|
|
|
|
| |
|
|
|
|
|
STOCKHOLDERS’
DEFICIT:
|
|
|
|
|
|
Common
stock ($0.001 par value, 100,000,000 shares authorized; 19,492,759
shares
issued and outstanding)
|
|
|
19,493
|
|
|
Additional
paid-in capital
|
|
|
758,220
|
|
|
Deferred
stock compensation
|
|
|
(89,256
|
)
|
|
Accumulated
deficit
|
|
|
(706,858
|
)
|
|
Total
stockholders’ deficit
|
|
|
(18,401
|
)
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
266,816
|
|
The
accompanying notes are an integral part of these financial
statements
NATIONAL
HEALTHCARE TECHNOLOGY, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS
OF OPERATIONS
Three
Months Ended September 30, 2005 and
Period
from January 27, 2005 (Inception) through September 30,
2005
(Unaudited)
| |
|
|
|
|
|
| |
|
|
|
Period
from
|
|
| |
|
|
|
January
27, 2005
|
|
| |
|
Three
Months Ended
|
|
(inception)
through
|
|
|
|
|
September
30,
|
|
September
30,
|
|
| |
|
2005
|
|
2005
|
|
|
REVENUES
|
|
$
|
—
|
|
$
|
|
|
|
COST
OF GOODS SOLD
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
25,839
|
|
|
33,790
|
|
|
Technology,
support, and development
|
|
|
122,157
|
|
|
139,464
|
|
|
General
and administrative
|
|
|
240,033
|
|
|
533,654
|
|
|
Total
operating expenses
|
|
|
388,029
|
|
|
706,908
|
|
|
Operating
income (loss)
|
|
|
(388,029
|
)
|
|
(706,908
|
)
|
| |
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
270
|
|
|
270
|
|
|
Interest
expense-net
|
|
|
(220
|
)
|
|
(220
|
)
|
| |
|
|
|
|
|
|
|
|
Total
other (expense) income
|
|
|
50
|
|
|
50
|
|
|
NET
INCOME (LOSS)
|
|
$
|
(387,979
|
)
|
$
|
(706,858
|
)
|
| |
|
|
|
|
|
|
|
|
EARNINGS
(LOSS) PER COMMON SHARE, SHARE, BASIC AND DILUTED
|
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
| |
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND
DILUTED
|
|
|
19,218,999
|
|
|
16,597,011
|
|
The
accompanying notes are an integral part of these financial
statements
NATIONAL
HEALTHCARE TECHNOLOGY, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
STATEMENT
OF CASH FLOWS
Period
from January 27, 2005 (Inception) through September 30,
2005
(Unaudited)
| |
|
|
|
| |
|
Period
from
|
|
| |
|
January
27, 2005
|
|
| |
|
(inception)
through
|
|
| |
|
September
30,
|
|
| |
|
2005
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
Net
income (loss)
|
|
$
|
(706,858
|
)
|
|
Adjustments:
|
|
|
|
|
|
Depreciation
|
|
|
3,594
|
|
|
Amortization
of deferred stock compensation
|
|
|
9,657
|
|
|
Changes
in:
|
|
|
|
|
|
Accounts
receivable
|
|
|
(270
|
)
|
|
Inventories
|
|
|
(29,101
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
(200,000
|
)
|
|
Other
long-term assets
|
|
|
(2,087
|
)
|
|
Bank
overdraft
|
|
|
28,211
|
|
|
Accounts
payable
|
|
|
206,646
|
|
|
Accrued
expenses and other current liabilities
|
|
|
220
|
|
|
Total
adjustments
|
|
|
16,870
|
|
|
Net
cash used by operating activities
|
|
|
(689,988
|
)
|
| |
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
Purchase
of equipment
|
|
|
(38,952
|
)
|
| |
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
678,800
|
|
|
Proceeds
from issuance of note payable
|
|
|
50,140
|
|
|
Net
cash provided by financing activities
|
|
|
728,940
|
|
| |
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
|
|
| |
|
|
|
|
|
CASH,
BEGINNING OF PERIOD
|
|
|
|
|
|
CASH,
END OF PERIOD
|
|
$
|
|
|
| |
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
|
|
|
Cash
paid for income taxes
|
|
$
|
|
|
The
accompanying notes are an integral part of these financial
statements
NATIONAL
HEALTHCARE TECHNOLOGY, INC.
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
(unaudited)
| 1. |
Organization
And Basis Of
Presentation
|
This
report includes interim unaudited financial statements of National Healthcare
Technology, Inc., a Colorado corporation (the "Company") for the three month
period ended September 30, 2005 and for the period from January 27, 2005
(Inception) through September 30, 2005.
On
July
19, 2005, the Company completed the acquisition of Special Stone Surfaces,
Es3,
Inc., a Nevada Corporation ("Es3") pursuant to the terms of an Exchange
Agreement (the “Exchange Agreement”) by and among the Company, Crown Partners,
Inc., a Nevada corporation and at such time, the largest stockholder of the
Company (“Crown Partners”), Es3, and certain stockholders of Es3 (the “Es3
Stockholders”). Under the terms of the Exchange Agreement, the Company acquired
all of the outstanding capital stock of Es3 in exchange for the issuance of
19,414,188 shares of the Company’s common stock to the Es3 Stockholders, Crown
Partners and certain consultants. The transactions effected by the Exchange
Agreement have been accounted for as a reverse merger.
Accordingly
the financial statements contained in report include the operations of the
Company in its new line of business. As a result of the transactions
contemplated by the Exchange Agreement, the Company has one active operating
subsidiary—Es3. Es3 was formed in January 2005 and began operations in March
2005 in the business of manufacturing and distributing a range of decorative
stone veneers and finishes based on proprietary Liquid Stone Coatings™ and
Authentic Stone Veneers™.
The
Company has determined that Aronite Industries, Inc., a Nevada corporation
("Aronite"), is a predecessor entity because the Company and Aronite are under
common control, share significant equity ownership interests, and the Company
operates in substantially the same line of business that Aronite operated in.
Aronite was formed in June 2002. It ceased operations in January 2005. Audited
Financial Statements for Aronite for the fiscal years ended December 31, 2004
and 2003 are included in the Company's 8-K/A filed with the Securities and
Exchange Commission on January 24, 2006.
In
addition, the Company changed its accounting year-end from September 30 to
December 31, which is Es3’s accounting year-end. Operations are conducted from
leased premises in San Diego, California.
The
Company's financial statements are prepared using the accrual method of
accounting in accordance with accounting principles generally accepted in the
United States of America and have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities in
the
normal course of business. The Company has incurred a net loss during the period
from inception through September 30, 2005 and expects to incur a net loss for
its fiscal year ending December 31, 2005. In view of these matters, realization
of the assets of the Company is dependent upon the Company's ability to meet
its
financing requirements and the success of its future operations.
The
Company intends to raise additional funds to cover the costs of operations
through public or private offerings of debt or equity securities. However,
no
assurances can be made that current or anticipated future sources of funds
will
enable the Company to finance future periods' operations. These financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets or liabilities that might be necessary should
the Company be unable to continue as a going concern.
| 2. |
Summary
of Significant Accounting
Policies
|
The
financial statements of the Company include the Company’s results from inception
through September 30, 2005, and do not include the results of Aronite Industries
Inc. (“Aronite”), which was deemed to be the Company’s predecessor under the
requirements for the Company’s January 24, 2006, 8-K/A filing. Based on an
evaluation of SFAS No. 141 "Business Combinations", and FIN 46R, "Consolidation
of Variable Interest Entities", the Company has determined that Aronite
activities do not need to be consolidated into the Company's financial
statements, that no further disclosures on Aronite are required.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and 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 period.
Actual results could differ from those estimates. Estimates and assumptions
are
reviewed periodically and the effects of revisions are reflected in the
financial statements in the period they are determined.
| C. |
Cash
and Cash Equivalents
|
When
available, substantially all of the Company's cash and cash equivalents are
deposited with a single large commercial bank.
Accounts
receivable are reported at the amount management expects to collect on balances
outstanding at year-end. There were no accounts receivable balances as of
September 30, 2005.
| E. |
Customer
Concentrations
|
For
the
period from inception through September 30, 2005, the Company recorded no
revenues.
Inventories
are stated at lower of cost or market, with cost determined on a first-in,
first-out basis.
| G. |
Property
and Equipment
|
Property
and equipment are stated at cost and depreciated or amortized using the
straight-line method over the assets' estimated useful lives. Leasehold
improvements are amortized over the shorter of the life of the related asset
or
the life of the lease. Costs of maintenance and repairs are charged to expense
as incurred; significant renewals and betterments are capitalized. Long-lived
assets are assessed for impairment whenever events or changes in circumstances
indicate the assets' carrying amount may not be recoverable. The evaluation
is
based on an estimate of the future undiscounted net cash flows of the related
asset or asset grouping over the assets' remaining life. Long-lived assets
that
are assessed to be impaired are reduced to their estimated net fair
value.
Revenue
is generally recognized when all contractual or transfer obligations have been
satisfied, the collection of the resulting receivable is probable, and the
risks
and rewards of ownership have substantively transferred to customers. This
condition normally is met when the product has been delivered. The Company
records estimated reductions to revenue for customer and distributor incentives,
such as rebates, at the time of the initial sale.
The
Company intends to enter into sales agreements for standard products and
services with customer acceptance occurring upon delivery of the product or
performance of the service. The Company also enters into agreements that contain
multiple-elements (such as product, installation and service) or non-standard
terms and conditions. For multiple-element arrangements, the Company will
recognize revenue for delivered elements when the delivered item has stand-alone
value to the customer, fair values of undelivered elements are known, customer
acceptance has occurred, and there are only customary refund or return rights
related to the delivered elements. For prepaid service contracts, revenue will
be recognized on a straight-line basis over the term of the contract, unless
historical evidence indicates the costs are incurred on other than a
straight-line basis.
The
Company’s principal business activity focuses on the commercialization of
distributing decorative coatings that can be used to resemble stone, which
the
Company licenses from related parties. Minimum annual royalties for these
arrangements have been accrued on the Company's balance sheet. See Notes 9A,
9B
and 9C for additional information on these arrangements.
| J. |
Fair
Value of Financial Instruments
|
The
Company's financial instruments consist of accrued expenses. Pursuant to SFAS
No. 107, "Disclosures About Fair Value of Financial Instruments," the Company
is
required to estimate the fair value of all financial instruments at the balance
sheet date. The Company considers the carrying value of its financial
instruments in the financial statements to approximate their fair value because
of their short-term maturities.
| K. |
Stock-Based
Compensation
|
The
Company accounts for stock based awards to employees as compensatory in
accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock
Issued to Employees (“APB 25”). The Company also issues stock based awards for
services performed by consultants and other non-employees and accounts for
them
in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (“SFAS 123”).
An
employee of the Company, was granted a warrant to purchase 100,000 shares of
the
Company's common stock at an exercise price of $0.70 per share, and vested
upon
the grant date.
Financial
Accounting Standards Board Statement No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure (“SFAS 148”), requires the Company to
provide pro forma information regarding net income and earnings per share as
if
compensation cost for all awards had been determined in accordance with the
fair
value based method prescribed in SFAS 123 as follows:
| |
|
Period
from inception through September
30, 2005
|
|
|
Net
income (loss), as reported
|
|
$
|
(706,858
|
)
|
|
Add:
Stock-based compensation expense included in net income, no tax
effect
|
|
|
|
|
|
Deduct:
Total stock-based compensation expense determined under fair value
method
for all awards, no tax effect
|
|
|
(8,242
|
)
|
|
Pro
forma net income (loss)
|
|
$
|
(715,100
|
)
|
Since
the
difference between the reported and pro forma net income (loss) available to
common shareholders is insignificant, there is no effect on the net earnings
(loss) per common share.
The
Company estimates the fair value of each stock option at the grant date by
using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants for the nine months ended September 30, 2005: no
dividend yield for each year; expected volatility of 0% according to the minimum
value method; weighted-average risk-free interest rates of 4.22%, and
weighted-average expected option lives of 3 years.
The
Company accounts for its income taxes using the Financial Accounting Standards
Board Statements of Financial Accounting Standards No. 109, “Accounting for
Income Taxes,” which requires the establishment of a deferred tax asset or
liability for the recognition of future deductible or taxable amounts and
operating loss and tax credit carryforwards. Deferred tax expense or benefit
is
recognized as a result of timing differences between the recognition of assets
and liabilities for book and tax purposes during the year.
Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Deferred tax assets are recognized for
deductible temporary differences and operating loss, and tax credit
carryforwards. A valuation allowance is established to reduce that deferred
tax
asset if it is “more likely than not” that the related tax benefits will not be
realized.
| M. |
Basic
and Diluted Net Earnings (loss) per
Share
|
The
Company adopted the provisions of SFAS No. 128, "Earnings Per Share" ("EPS").
SFAS No. 128 provides for the calculation of basic and diluted earnings per
share. Basic EPS includes no dilution and is computed by dividing income or
loss
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in the earnings or losses of the entity. For the
period from inception through September 30, 2005, basic and diluted loss per
share are the same since the calculation of diluted per share amounts would
result in an anti-dilutive calculation that is not permitted and therefore
not
included. No EPS calculation is shown for the Company’s predecessor entity,
Aronite.
Comprehensive
loss consists of net loss and other gains and losses affecting shareholders’
equity that, under generally accepted accounting principles, are excluded from
net loss in accordance with Statement of Financial Accounting Standards No.
130,
“Reporting Comprehensive Income.” The Company, however, does not have any
components of other comprehensive loss as defined by SFAS No. 130 and therefore,
for the three months period ended September 30, 2005 and for the period from
January 27, 2005 (Inception) to September 30, 2005, comprehensive loss is
equivalent to the Company’s reported net loss. Accordingly, a statement of
comprehensive loss is not presented.
| O. |
Recent
Accounting Pronouncements
|
In
December 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. ("FIN") 46R, "Consolidation of Variable Interest Entities."
This statement requires that the assets, liabilities and results of the
activities of variable interest entities be consolidated into the financial
statements of the company that has a controlling financial interest. It also
provides the framework for determining whether an entity should be consolidated
based on voting interest or significant financial support provided to it. In
general, for all entities that were previously considered special purpose
entities, FIN 46R should be applied in periods ending after December 15, 2003.
Otherwise, FIN 46R is applicable to all public entities for periods ending
after
March 15, 2004.
In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-Monetary Assets,
an amendment of APB Opinion 29, Accounting for Non-Monetary Transactions."
The
amendments made by SFAS No. 153 are based on the principle that exchanges of
non-monetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
non-monetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of non-monetary assets that do not have
"commercial substance." The provisions in SFAS No. 153 are effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. Early application is permitted and companies must apply the standard
prospectively. The Company adopted this statement on January 1, 2005. The
adoption of the statement should not cause a significant change in the current
manner in which the Company accounts for its exchanges of non-monetary
assets.
In
December 2004, the FASB issued a revision to SFAS 123, “Share-Based Payment, an
amendment of FASB Statements Nos. 123 and 95,” that addresses the accounting for
share-based payment transactions in which a Company receives employee services
in exchange for either equity instruments of the Company or liabilities that
are
based on the fair value of the Company's equity instruments or that may be
settled by the issuance of such equity instruments. This statement would
eliminate the ability to account for share-based compensation transactions
using
the intrinsic method that the Company currently uses and generally would require
that such transactions be accounted for using a fair-value-based method and
recognized as expense in the statement of operations. The effective date of
this
standard is for periods beginning after June 15, 2005. This standard requires
expensing the fair value of stock option grants and stock purchases under
employee stock purchase plan. The Company does not expect the implementation
of
this new standard to have a material impact on its financial position, results
of operations and cash flows.
In
March
2005, the SEC released Staff Accounting Bulletin No. 107, "Share-Based
Payment"("SAB 107"), which provides interpretive guidance related to the
interaction between SFAS 123(R) and certain SEC rules and regulations. It also
provides the SEC staff's views regarding valuation of share-based payment
arrangements. In April 2005, the SEC amended the compliance dates for SFAS
123(R), to allow companies to implement the standard at the beginning of their
next fiscal year, instead of the next reporting period beginning after June
15,
2005. The Company does not expect the implementation of SAB 107 to have a
material impact on its financial position, results of operations and cash
flows.
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate the continuation
of
the Company as a going concern. The Company reported a net loss for the period
from inception through September 30, 2005, and had a working capital deficiency
of approximately $56,000. The Company also has deferred payment of certain
accounts payable.
In
view
of the matters described, there is substantial doubt about the Company’s ability
to continue as a going concern. The recoverability of the recorded assets and
satisfaction of the liabilities reflected in the accompanying balance sheet
is
dependent upon continued operation of the Company, which is in turn dependent
upon the Company’s ability to meet its cash flow requirements on a continuing
basis and to succeed in its future operations. There can be no assurance that
management will be successful in implementing its plans. The financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
From
inception through September 30, 2005, the Company received short-term loans
from
Boston Equities Corporation, owner of 55% of the common stock of the Company
at
September 30, 2005. At September, 2005, the Company owed $50,140 in principal
and $220 in accrued interest pursuant to these loans.
The
Company paid a deposit on June 27, 2005 of $200,000 as part of the reverse
merger transaction (see Note 1). Under the terms of the Exchange Agreement,
the
deposit is to be paid to Crown Partners, Inc. upon satisfaction of certain
conditions to closing including the preparation and filing of financial
statements for Special Stone Surfaces, Es3 that meet the requirements of
Regulation S-X.
In
February 2005, the Company issued 8,380,000 shares of common stock to founding
stockholders for cash at a price of $0.01 per share, including 6,250,000 shares
to Boston Equities Corporation (a related party).
In
April
2005, the Company issued 910,000 shares of common stock for cash at a price
of
$0.50 per share, including 800,000 shares to Boston Equities Corporation (a
related party) and 110,000 to unrelated investors.
In
June
2005, the Company issued 200,000 shares of common stock for cash at a price
of
$0.70 per share to an unrelated investor.
In
June
2005, the Company issued an aggregate of 8,618,750 shares of common stock in
connection with the license of certain trademarks from Aronite Industries Inc.
See Note 9 for a description of this transaction.
B.
Stock
Warrants
In
February 2005 the Company issued 600,000 common stock purchase warrants at
an
exercise price of $0.60 per share to W.B. International, Inc., in exchange
for
consulting services. In June 2005 the Company has issued 600,000 common stock
purchase warrants at an exercise price of $0.70 per share to each of Liquid
Stone Manufacturing, Inc. and Stone Mountain Finishes, Inc. in connection with
certain OEM license agreements, described in Note 9. In June 2005 the Company
issued 100,000 options to purchase common stock to an employee at an exercise
price of $0.70 per share. A summary of the warrant activity for the period
from
inception through September 30, 2005 is as follows:
| |
|
Number
of
Shares
|
|
Weighted
Average Exercise Price
|
|
Exercisable
|
|
|
Outstanding
at January 27, 2005 (inception)
|
|
|
|
|
$
|
|
|
|
|
|
|
Issued
|
|
|
1,900,000
|
|
|
0
.66
|
|
|
1,900,000
|
|
|
Cancelled,
forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2005
|
|
|
1,900,000
|
|
$
|
0.66
|
|
|
1,400,000
|
|
|
Weighted
average fair market value of warrants issued:
|
|
|
|
|
$
|
1.00
|
|
|
|
|
Additional
information regarding the warrants outstanding as of September 30, 2005 is
as
follows:
| |
|
Outstanding
|
|
Exercisable
|
|
|
Exercise
Price
|
|
Number
of
Warrants
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
$0.70
|
|
|
1,300,000
|
|
|
5.0
|
|
$
|
0.70
|
|
|
1,300,000
|
|
$
|
0.70
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.60
|
|
|
600,000
|
|
|
5.0
|
|
$
|
0.60
|
|
|
100,000
|
|
$
|
0.60
|
|
The
Company estimates the fair value of each stock warrant at the grant date by
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants for the nine months ended September 30, 2005: no
dividend yield for each year; expected volatility of 0% according to the minimum
value method; weighted-average risk-free interest rates of 4.22%, and
weighted-average expected option lives of 3 years.
The
fair value of the non-employee warrants is
approximately $99,000, and is being amortized over the warrants' expected
lives.
There
is
no provision for income taxes in these financial statements because the Company
has incurred operating losses since inception and no recoverable taxes have
been
paid.
| 8. |
Commitments
and Contingencies
|
The
Company is not currently aware of any formal legal proceedings or claims that
the Company believes will have, individually or in the aggregate, a material
adverse effect on the Company's financial position or results of operations.
| B. |
OEM
License Agreements
|
Future
minimum annual license payments under the OEM license agreements (see Note
9)
for the next five years ending December 31 are as follows:
|
2006
|
|
$
|
450,000
|
|
|
2007
|
|
|
540,000
|
|
|
2008
|
|
|
648,000
|
|
|
2009
|
|
|
777,600
|
|
|
2010
|
|
|
933,120
|
|
| |
|
$
|
3,348,720
|
|
On
March
1, 2005, the Company entered into a lease commitment for office and warehouse
space in San Diego, California. The terms of the lease provide for monthly
rental payments of $3,367.46 through January 2006 and increasing to $3,679
through January 31, 2009.
Future
minimum rental payments under the facility lease for the years ending December
31 are as follows:
| |
|
|
|
|
|
2006
|
|
$
|
41,521
|
|
|
2007
|
|
|
42,766
|
|
|
2008
|
|
|
44,049
|
|
|
2009
|
|
|
3,680
|
|
| |
|
$
|
132,016
|
|
| D. |
Indemnities
and Guarantees
|
The
Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party in relation
to
certain actions or transactions. The Company indemnifies its directors,
officers, employees and agents, as permitted under the laws of the State of
Colorado. The duration of the guarantees and indemnities varies, and is
generally tied to the life of the agreement. These guarantees and indemnities
do
not provide for any limitation of the maximum potential future payments the
Company could be obligated to make. Historically, the Company has not been
obligated nor incurred any payments for these obligations and, therefore, no
liabilities have been recorded for these indemnities and guarantees in the
accompanying balance sheet.
| 9. |
Other
Related Party
Transactions
|
| A. |
OEM
License Agreement - Liquid Stone Manufacturing,
Inc.
|
On
June
15, 2005, the Company acquired an exclusive license to manufacture, use and
distribute Liquid Stone™ coatings in North America, Central America and South
America, under an OEM License Agreement with Liquid Stone Manufacturing, Inc.
a
Nevada corporation. Liquid Stone Manufacturing, Inc. is controlled by Boston
Equities Corporation (the Company’s controlling stockholder) and William
Courtney, an officer and director of the Company.
Under
the
terms of the OEM License Agreement, the Company is required to pay a royalty
of
up to 7% of net sales of Liquid Stone™ products, subject to minimum annual
royalties of $200,000 increasing at a rate of 20% per annum. In addition, the
Company granted Liquid Stone Manufacturing, Inc. a five year warrant to purchase
600,000 shares of its common stock at $0.70 per share. The Company has an option
to buy out the royalty payments in exchange for $2 million if paid before the
second anniversary of the license, $4 million if paid before the third
anniversary of the license and $8 million thereafter. Royalties paid during
the
term do not apply to the buy out option. Liquid Stone Manufacturing, Inc. has
the right to demand payment of the buy out option in fully registered stock
at
an effective price of $0.75 per share in lieu of cash payment.
As
of
September 30, 2005, the Company had accrued approximately $58,000 of royalties
under this arrangement.
| B. |
OEM
License Agreement - Stone Mountain Finishes,
Inc.
|
On
June
15, 2005, the Company acquired an exclusive license to manufacture, use and
distribute Authentic Stone Veneers™ in North America, Central America and South
America, under an OEM License Agreement with Stone Mountain Finishes, Inc.
a
Nevada corporation. Stone Mountain Finishes, Inc. is controlled by Boston
Equities Corporation (the company’s controlling tockholder and William Courtney,
an officer and director of the Company.
Under
the
terms of the OEM License Agreement, the Company is required to pay a royalty
of
up to 7% of net sales of Stone Mountain™ products, subject to minimum annual
royalties of $250,000 increasing at a rate of 20% per annum. In addition, the
Company granted Stone Mountain Finishes, Inc. a five year warrant to purchase
600,000 shares of its common stock at $0.70 per share. The Company has an option
to buy out the royalty payments in exchange for $2 million if paid before the
second anniversary of the license, $4 million if paid before the third
anniversary of the license and $8 million thereafter. Royalties paid during
the
term do not apply to the buy out option. Stone Mountain Finishes, Inc. has
the
right to demand payment of the buy out option in fully registered stock at
an
effective price of $0.75 per share in lieu of cash payment.
The
Company paid a consultant $80,000 for business development services for the
period from inception to September 30, 2005. The consultant continues to
work
with the Company based on an oral agreement on a month-to-month advisory
basis.
As
of
September 30, 2005, the Company had accrued approximately $72,000 of royalties
under this arrangement.
| C. |
Trademark
License and Contract Assignment and Assumption Agreement - Aronite
Industries, Inc.
|
On
June
15, 2005, the Company entered into a Trademark License and Contract Assignment
and Assumption Agreement with Aronite Industries, Inc., a Nevada
corporation. Under the terms of the agreement, the Company acquired an
exclusive license to use Aronite Industries, Inc.'s trademarks, tradenames
and
marketing collateral in North America, Central America and South America.
The Company also received an assignment from Aronite of a Distribution Agreement
that it had entered into with a third party for the distribution of stone
coatings. Aronite Industries, Inc. is controlled by Boston Equities
Corporation (the Company's largest stockholder) and William Courtney.
Under
the
terms of the Trademark License and Contract Assignment and Assumption Agreement,
the Company is required to pay a royalty of up to 3% of net sales of products
sold under the Aronite Industries Inc. trademarks, subject to minimum annual
royalties of $100,000 increasing at a rate of 20% per annum. In addition,
the Company issued to Aronite Industries, Inc. a total of 8,618,750 shares
of
the Company's common stock to Aronite Industries, Inc. The equity issuance
was
recorded in the Company’s financial statements at $0, or Aronite’s basis in the
stock. The Company has an option to buy out the royalty payments in exchange
for
$1.25 million. Royalties paid during the term do not apply to the buy out
option. Aronite Industries, Inc. has the right to demand payment of the
buy out option in fully registered stock at an effective price of $0.75 per
share in lieu of cash payment.
As
of
September 30, 2005, the Company had accrued approximately $29,000 of royalties
under this arrangement.
| D. |
Boston
Equities Corporation Consulting
Services
|
The
Company accrued $35,000 of management and financial consulting fees due to
Boston Equities Corporation for the period from inception through September
30,
2005.
ITEM
2.
MANAGEMENT’S DISCUSSION AND ANALYSIS
This
report contains forward looking statements within the meaning of Section 27A
of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. When used in this Form 10-QSB, the words
"anticipate", "estimate", "expect", "project" and similar expressions are
intended to identify forward-looking statements. Such statements are subject
to
certain risks, uncertainties and assumptions including the possibility that
the
Company's proposed plan of operation will fail to generate projected revenues.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially
from
those anticipated, estimated or projected. The Company’s actual results could
differ materially from those set forth on the forward looking statements as
a
result of the risks set forth in the Company’s filings with the Securities and
Exchange Commission, general economic conditions, and changes in the assumptions
used in making such forward looking statements.
GENERAL
On
July
19, 2005, the Company completed the acquisition of Special Stone Surfaces,
Es3,
Inc., a Nevada Corporation ("Es3") pursuant to the terms of an Exchange
Agreement (the “Exchange Agreement”) by and among the Company, Crown Partners,
Inc., a Nevada corporation and at such time, the largest stockholder of the
Company (“Crown Partners”), Es3, and certain stockholders of Es3 (the “Es3
Stockholders”). Under the terms of the Exchange Agreement, the Company acquired
all of the outstanding capital stock of Es3 in exchange for the issuance of
19,414,188 shares of the Company’s common stock to the Es3 Stockholders, Crown
Partners and certain consultants. The transactions effected by the Exchange
Agreement have been accounted for as a reverse merger.
Accordingly
the financial statements contained in report include the operations of the
Company in its new line of business. As a result of the transactions
contemplated by the Exchange Agreement, the Company has one active operating
subsidiary—Es3. Es3 was formed in January 2005 and began operations in March
2005 in the business of manufacturing and distributing a range of decorative
stone veneers and finishes based on proprietary Liquid Stone Coatings™ and
Authentic Stone Veneers™.
The
Company has determined that Aronite Industries, Inc., a Nevada corporation
("Aronite"), is a predecessor entity because the Company and Aronite are under
common control, share significant equity ownership interests, and the Company
operates in substantially the same line of business that Aronite operated in.
Aronite was formed in June 2002. It ceased operations in January 2005. Audited
Financial Statements for Aronite for the fiscal years ended December 31, 2004
and 2003 are included in the Company's 8-K/A filed with the Securities and
Exchange Commission on January 24, 2006.
PLAN
OF
OPERATIONS
The
Company plans to market its coatings and veneers to both commercial and
residential markets. The Company intends to use the public markets to secure
additional working capital and to make acquisitions using either Common Stock
or
cash. A significant component of the Company's intermediate term growth strategy
is the acquisition and integration of companies in related building materials
fields. The Company expects to take advantage of synergies among related
businesses to increase revenues and take advantage of economies of scale to
reduce operating costs.
The
Company was formed in January 2005 and began operations in March 2005. It has
not generated any revenues from operations and has incurred $706,858 in expenses
from inception through September 30, 2005 in connection with its formation
and
initial operations. All of the Company's operations to date have been funded
by
the sale of its common stock. As of September 30, 2005, Es3 had a working
capital deficiency of approximately $56,000.
The
Company anticipates that it will have to raise additional capital to fund
operations in the next 12 months. To the extent that the Company is required
to
raise additional funds to cover the costs of operations, it intends to do so
through additional public or private offerings of debt or equity securities.
There are no commitments or arrangements for other offerings in place and no
guaranties that any such financings would be forthcoming, or as to the terms
of
any such financings. Any future financing may involve substantial dilution
to
existing investors.
A
significant component of the the Company's intermediate term growth strategy
is
the acquisition and integration of companies in related building materials
fields. The Company expects to take advantage of synergies among related
businesses to increase revenues and take advantage of economies of scale to
reduce operating costs. The execution of this strategy depends upon the
development of an active trading market for the Company's common stock. The
Company intends to make acquisitions with common stock and anticipates that
the
sellers of those entities will demand an active market as a condition of the
transaction.
The
Company's Es3 subsidiary holds the exclusive rights to manufacture, use and
distribute Liquid Stone™ coatings in North America, Central America and South
America, under an OEM License Agreement with Liquid Stone Manufacturing, Inc.
a
Nevada corporation and an affiliate of Es3. Liquid Stone™ is a water-based
polymeric stone coating that can be applied to a variety of surfaces including
wood, stucco, metal, concrete or asphalt. It is a flexible, durable all weather
surface coating.
Es3
also
holds the excusive rights to manufacture, use and distribute Authentic Stone
Veneer™ panels in North America, Central America and South America, under an OEM
License Agreement with Stone Mountain Manufacturing, Inc. a Nevada corporation
and an affiliate of Es3. Authentic Stone Veneer™ panels can be formulated in
rough stone or smooth stone finishes. Authentic Stone Veneer™ panels are made
from proprietary materials and are molded to form the detailed contours and
profiles of natural stone surfaces. The rough stone veneers are approximately
1/10th
the
weight of concrete, while the smooth stone are approximately 1/7th
the
weight of concrete.
Es3
will
conduct research and development on both the Liquid Stone Coatings and Authentic
Stone Veneer panels over the next 12 months. It also plans to understake product
testing and certification as it prepares for commercial launch. Es3 currently
operates out of leased facilities in San Diego, and presently has two full
time
employees. Any additional plant or equipment expenditures, and any significant
increase in employees will be dependent upon the company's capital resources
and
the development of channel and market activity for its products.
ITEM
3.
CONTROLS AND PROCEDURES
Based
on
the evaluation of the Company's disclosure controls and procedures by both
the
chief executive officer and chief accounting officer of the company, as of
a
date within 90 days of the filing date of this quarterly report, such officer
has concluded that the Company's disclosure controls and procedures are
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the Securities and Exchange Act
of
1934, as amended, is recorded, processed, summarized and reported, within the
time period specified by the Securities and Exchange Commission's rules and
forms.
There
were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date
of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART
II - OTHER INFORMATION
ITEM
1.
LEGAL
PROCEEDINGS
None.
ITEM
2.
UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
In
connection with the Exchange, on July 19, 2005, the Company acquired all of
the
outstanding capital stock of Es3 in exchange for the Company's issuance to
Es3
Stockholders of 18,108,750 shares of the Company's common stock, (iii) issue
to
Crown Partners 905,438 shares of common stock, and (iii) issue to the
Consultants 400,000 shares of common stock. The issuance of the Company's common
stock to Es3 Stockholders and Crown Partners is intended to be exempt from
registration under the Securities Act, pursuant to Section 4(2) thereof. The
Company has agreed to register the common stock being issued to the Consultants
on a Registration Statement on Form S-8.
ITEM
3.
DEFAULTS UPON SENIOR SECURITIES
None
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM
5.
OTHER INFORMATION
None
ITEM
6.
EXHIBITS AND REPORTS ON FORM 8-K
On
July
5, 2005, the Company filed a report on Form 8-K with respect to the entry into
the Exchange Agreement, the issuance of securities in connection with the
Exchange Agreement and the Change of Control resulting from the transactions
under the Exchange Agreement.
On
July
25, 2005, the Company filed a report on Form 8-K with respect to the closing
of
the transactions contemplated by the Exchange Agreement, the issuance of
securities in connection with the Exchange Agreement and the Change of Control
resulting from the transactions under the Exchange Agreement.
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
NATIONAL
HEALTHCARE TECHNOLOGY, INC.
Date:
February 1, 2006
Ross
Lyndon-James, CEO
Date:
February 1, 2006
Brian
Harcourt, CFO