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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
Commission File Number: 024768
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Ramp Corporation
----------------
(Exact name of issuer as specified in its charter)
Delaware 84-123311
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
33 Maiden Lane, New York, New York 10038
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 440-1500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of November 3, 2004.
Common Stock, $0.001 par value 283,191,587
- ------------------------------ ----------------
Class Number of Shares
Ramp Corporation
INDEX
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2004 (Unaudited) and December
31, 2003
Unaudited Consolidated Statements of Operations for the three and nine months
ended September 30, 2004 and 2003
Unaudited Consolidated Statements of Cash Flows for the nine months ended
September 30, 2004 and 2003
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits
Signatures
Index to Exhibits
PART I
Item 1. Financial Statements
Ramp Corporation (formerly Medix Resources, Inc.)
Consolidated Balance Sheets
September 30, December 31,
2004 2003
--------------------------------
(Unaudited)
Assets
Current assets
Cash $ 386,000 $ 1,806,000
Accounts receivable 304,000 182,000
Unamortized debt issuance costs 251,000 --
Prepaid expenses and other 161,000 321,000
-----------------------------------
Total current assets 1,102,000 2,309,000
-----------------------------------
Non-current assets
Property and equipment, net 730,000 731,000
Security deposits 254,000 398,000
Goodwill 1,605,000 4,853,000
Other intangible assets, net 52,000 1,382,000
-----------------------------------
Total non-current assets 2,641,000 7,364,000
-----------------------------------
Total assets $ 3,743,000 $ 9,673,000
===================================
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Convertible promissory notes net of debt discount of $910,000 $ 5,210,000 $ --
Promissory notes and current portion of long term debt 153,000 232,000
Accounts payable 2,545,000 847,000
Accounts payable - related parties -- 261,000
Accrued expenses 4,363,000 2,067,000
Deferred revenue 143,000 --
-----------------------------------
Total current liabilities 12,414,000 3,407,000
-----------------------------------
Long-term debt, net of current portion and
debt discount of $143,000 and $169,000 57,000 269,000
Commitments and contingencies
Stockholders' equity (deficit)
1996 Preferred stock, 10% cumulative convertible, $1 par value,
488 shares authorized, 155 shares issued, 1 share outstanding,
liquidation preference $10,000 plus accrued and unpaid dividends -- --
2003 Series A convertible stock, $1 par value, 3,200 shares authorized,
3,112 shares issued and outstanding at December 31, 2003 -- 3,000
Common stock, $0.001 par value, 400,000,000 shares authorized,
239,398,443 and 145,244,392 issued and outstanding at September 30, 2004
and December 31, 2003, respectively 239,000 145,000
Deferred compensation (246,000) (86,000)
Additional paid-in capital 98,465,000 78,303,000
Accumulated deficit (107,186,000) (72,368,000)
-----------------------------------
Total stockholders' equity (deficit) (8,728,000) 5,997,000
-----------------------------------
$ 3,743,000 $ 9,673,000
===================================
See notes to unaudited consolidated financial statements.
Ramp Corporation (formerly Medix Resources, Inc.)
Unaudited Consolidated Statements of Operations
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------------------------------------------
2004 2003 2004 2003
------------------------------------------------------------------
Revenues $ 94,000 $ 1,000 $ 194,000 $ 174,000
Costs and expenses
Software and technology costs 1,850,000 789,000 4,884,000 1,980,000
Selling, general and administrative expenses 5,410,000 4,134,000 16,909,000 7,899,000
Costs associated with terminated acquisition -- -- -- 142,000
------------------------------------------------------------------
Total operating expenses 7,260,000 4,923,000 21,793,000 10,021,000
------------------------------------------------------------------
Other income (expense)
Other income 5,000 24,000 8,000 42,000
Interest expense (74,000) (162,000) (87,000) (171,000)
Financing costs (8,520,000) (364,000) (9,046,000) (499,000)
------------------------------------------------------------------
Total other income (expense) (8,589,000) (502,000) (9,125,000) (628,000)
------------------------------------------------------------------
Loss from continuing operations (15,755,000) (5,424,000) (30,724,000) (10,475,000)
------------------------------------------------------------------
Loss from discontinued operations (29,000) -- (174,000) --
Loss on sale of discontinued operations (3,920,000) -- (3,920,000) --
------------------------------------------------------------------
Loss from discontinued operations (3,949,000) 0 (4,094,000) 0
------------------------------------------------------------------
Net loss (19,704,000) (5,424,000) (34,818,000) (10,475,000)
------------------------------------------------------------------
Disproportionate deemed dividend issued
to certain warrant holders (149,000) (113,000) (990,000) (1,246,000)
------------------------------------------------------------------
Net loss applicable to common stockholders $(19,853,000) $ (5,537,000) $(35,808,000) $(11,721,000)
==================================================================
Net loss per share basic and diluted:
Loss from continuing operations applicable
to common stockholders ($0.08) ($0.06) ($0.18) ($0.14)
Discontinued operations (0.02) 0.00 (0.02) 0.00
------------------------------------------------------------------
Net loss applicable to common stockholders ($0.10) ($0.06) ($0.20) ($0.14)
==================================================================
Basic and diluted weighted average
common shares outstanding 202,377,020 90,906,261 177,235,749 84,015,402
See notes to unaudited consolidated financial statements.
Ramp Corporation (formerly Medix Resources, Inc.)
Unaudited Consolidated Statements of Cash Flows
For the Nine Months
Ended September 30,
-----------------------------------
2004 2003
-----------------------------------
Cash flows from operating activities
Net loss $ (34,818,000) $ (10,475,000)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Loss on sale of discontinued operations 3,920,000 --
Depreciation and amortization 546,000 42,000
Impairment of long-lived assets 407,000 --
Amortization of deferred issuance costs 144,000 318,000
Common stock, options, warrants and promissory note
issued for services, consulting and settlements 4,194,000 587,000
Common stock, warrants and promissory note issued for
interest and other financing costs, non-cash portion 8,884,000 169,000
Net changes in operating assets and liabilities 4,119,000 1,784,000
-----------------------------------
Net cash used in operating activities (12,604,000) (7,575,000)
-----------------------------------
Cash flows from investing activities:
Net proceeds from sale of discontinued operations 449,000 --
Purchase of property and equipment (810,000) (93,000)
Note receivable -- (67,000)
Business acquisition costs, net of cash acquired -- (300,000)
-----------------------------------
Net cash used in investing activities (361,000) (460,000)
-----------------------------------
Cash flows from financing activities:
Net proceeds from issuance of debt and notes payable 5,441,000 2,833,000
Principal payments on debt and notes payable (1,763,000) (89,000)
Proceeds from issuance of preferred and
common stock, net of offering costs 5,526,000 3,180,000
Proceeds from the exercise of options and warrants 2,341,000 773,000
-----------------------------------
Net cash provided by financing activities 11,545,000 6,697,000
-----------------------------------
Net decrease in cash (1,420,000) (1,338,000)
Cash, beginning of period 1,806,000 1,369,000
-----------------------------------
Cash, end of period $ 386,000 $ 31,000
===================================
See Notes 8-10 and 12 for discussion of non-cash investing activities for the
nine months ended September 30 2004.
Non-cash financing activities for the nine months ended September 30, 2003:
Issuance of 100,000 shares of $0.001 par value common stock valued at $48,000
along with cash of $300,000; the total being the purchase price of the
ePhysician assets Issuance of warrants to placement agent valued at $215,000
in a private placement
See notes to unaudited consolidated financial statements.
Ramp Corporation (formerly Medix Resources, Inc.)
Notes to Unaudited Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments), which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods presented. They comply
with Regulation S-X and the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required under generally accepted
accounting principles for complete financial statements. The consolidated
balance sheet as of December 31, 2003 has been derived from the audited
financial statements. The unaudited consolidated financial statements contained
herein should be read in conjunction with the financial statements and notes
thereto contained in the Company's Form 10-K for the fiscal year ended December
31, 2003. The results of operations for the three and nine months ended
September 30, 2004 are not necessarily indicative of the results for the entire
fiscal year ending December 31, 2004 or for any other interim period in the
fiscal year ending December 31, 2004.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has
experienced substantial recurring losses to date which raise substantial doubt
about its ability to continue as a going concern. In addition, at September 30,
2004, the Company had a working capital deficit of $11,312,000. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. Management continues to pursue fund-raising
activities, including private placements, to continue to fund the Company's
operations until such time as revenues are sufficient to support operations.
There can be no assurances that additional funds will be raised or that the
Company will ever be profitable.
2. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Total goodwill at September 30, 2004, includes $1,605,000 related to the
balance of goodwill acquired through the acquisition of Cymedix in 1998. The
Company has tested the goodwill in accordance with SFAS 142 and has found no
indication of impairment. The Company anticipates recording additional goodwill
in the fourth quarter of 2004 as the result of its acquisition of Berdy Medical
Systems, Inc. on October 22, 2004 - see note 13, Subsequent Events.
In connection with the Company's acquisitions of ePhysician in March 2003,
the Company recorded certain other intangible assets. At September 30, 2004, the
Company's other intangible assets, net, consisted of the following:
Accumulated
-----------
Cost Amortization Average useful lives
---- ------------ --------------------
Trade name and related marks $50,000 $ 40,000 2 years
Customer-related intangibles 50,000 40,000 2 years
Software and other technology 150,000 118,000 2 years
------- -------
Total $250,000 $198,000
-------- --------
Amortization expense for continuing operations during the three and nine
months ended September 30, 2004 was $31,000 and $94,000, respectively.
3. DISCONTINUED OPERATIONS
On September 30, 2004, the Company closed a transaction pursuant to a
certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated as of
September 29, 2004, by and between the Company, The Duncan Group, Inc.
("Duncan"), M. David Duncan (a former employee of the Company) and Nancy L.
Duncan (a former Executive Vice President of the Company), to sell the assets of
the Company previously acquired from Duncan on November 10, 2003 (including
intellectual property, tangible personal property, accounts receivable, and
other assets) related to the business of Duncan known as Frontline Physicians
Exchange and Frontline Communications ("Frontline"). In accordance with the
Asset Purchase Agreement, the Company agreed to sell all of the assets of the
Company's Frontline division, now known as the OnRamp division, in consideration
of (i) the Company's receipt of $500,000 in cash paid at closing; (ii)
termination of the employment agreement between the Company and each of M. David
Duncan and Nancy L. Duncan; (iii) release and discharge of the Company's
obligations to Duncan under a certain Asset Purchase Agreement dated as of
November 7, 2003, between the Company and Duncan (the "2003 Purchase
Agreement"), to issue Incentive Shares (as defined in the Asset Purchase
Agreement) to Duncan; (iv) release and discharge of the Company's obligations to
Duncan under the 2003 Purchase Agreement to pay Duncan a royalty equal to 15% of
the gross revenue of the OnRamp business during 2003 and 2004 (of which $326,000
was accrued and unpaid as of September 30, 2004); and (v) release and discharge
of the Company's obligations under the 2003 Purchase Agreement to pay Duncan any
shortfall amount following the sale of certain shares of the Company's common
stock by Duncan.
The sale of OnRamp results in a loss of approximately $3.9 million.
Goodwill of $3,357,000 was removed from the balance sheet in the sale of OnRamp.
Absent the sale of OnRamp during the third quarter, the Company would likely
have written down goodwill and other intangible assets associated with its
OnRamp operations in response to changing business conditions during the third
quarter. Since the sale of OnRamp was in fact consummated during the third
quarter, the entire impact of OnRamp's operations have been reclassified to
discontinued operations in the Company's financial statements for the three and
nine-month periods ended September 30, 2004.
Revenues and loss from the discontinued OnRamp segment operations were as
follows:
Three Months Ended Nine Months Ended
September 30, 2004 September 30, 2004
-----------------------------------------
Revenues $ 379,000 $ 1,081,000
Loss from discontinued operations (29,000) (174,000)
4. LIFERAMP FAMILY FINANCIAL, INC.
In 2003, the Company formed a wholly-owned subsidiary, LifeRamp Family
Financial, Inc. ("LifeRamp"), in Utah and commenced exploring the feasibility of
using LifeRamp to commence a new business, making non-recourse loans to
terminally ill cancer patients secured by their life insurance policies. In May
2004, the Company decided to proceed with the launch of LifeRamp and had
previously retained Shattuck Hammond Partners as its investment banker and
financial advisor in the structuring and capitalization of LifeRamp.
During 2003 and for the first nine months of 2004, the Company invested
approximately $1.1 million and $2.2 million in LifeRamp, respectively. In July
2004, the Company decided to indefinitely delay LifeRamp's continued development
and commencement of operations until adequate funding is obtained or other
strategic alternative measures could be implemented by the Company.
In September 2004, the Company ceased all operations of LifeRamp and
terminated the employment of the remaining employees and commenced vacating its
office facilities in Texas and Utah. In connection with these lease
abandonments, the Company recorded an accrual for expected losses on the leases
equal to the present value of the remaining lease payments, net of reasonable
sublease income, of approximately $73,000, which was recorded in the third
quarter of 2004. In addition, the Company recorded an asset impairment charge of
approximately $229,000 relating to the long-lived assets of LifeRamp (including
fixed assets and leasehold improvements).
The Company is continuing to explore strategic alternatives for the
possible development of LifeRamp. There can be no assurance that the Company
will find such a strategic alternative or that if one were found that the
Company would be able to recoup a material portion of its investment in
LifeRamp.
5. REDUCTION IN WORK FORCE
In June and September 2004, the Company implemented a reduction in work
force and salary reduction program, pursuant to which 73 employees were
terminated and, with respect to the June 2004 reduction in work force, some of
the remaining employees agreed to accept, during the six-month period ending
November 30, 2004, in lieu of a portion of their base salaries, a retention
bonus equal to an individually negotiated multiple of the amount of their
reduction in pay in the form of shares of common stock, payable only if they
remained employed with us on November 30, 2004. Included in operating expenses
for the three and nine months ended September 30, 2004 are non cash expenses of
$1.2 million and $1.5 million, respectively, that have been accrued and will be
paid in shares of common stock.
6. EMPLOYMENT AND RETAINER AGREEMENTS
On April 25, 2004, Darryl R. Cohen resigned as a director, Chairman and
Chief Executive Officer and Andrew Brown, the Company's then current President,
was appointed Chairman and Chief Executive Officer of the Company. In connection
with Mr. Cohen's resignation, the Company recorded a compensation charge of
approximately $15,000 related to accrued bonus and tax benefit on his restricted
stock awards during the second quarter of 2004. Additionally, in the second
quarter of 2004, the Company recorded a charge of approximately $400,000 with
respect to the benefit Mr. Cohen received upon his termination as a result of
the Company's having earlier accelerated the vesting of his stock-based awards,
pursuant to a promissory note of the Company collateralized by the pledge of
those shares. As a result of the terms of the agreement with Mr. Cohen, because
the Company did not pay him the amounts due by August 30, 2004 the exercise
price of all of his options to purchase 4,740,000 shares of common stock were
reduced to $0.01. This modification resulted in a charge of $142,000 in the
third quarter of 2004. As a result of the modification the Company will apply
variable accounting to Mr. Cohen's options until they are exercised, cancelled
or expire.
On June 1, 2004, the Company entered into an employment agreement with
Andrew Brown. During the employment period, which will end on June 30, 2006, Mr.
Brown will be paid a base salary at an annual rate of $240,000 per year;
provided that, during the six-month period ending November 30, 2004, Mr. Brown
will be paid a base salary at the rate of $120,000 per year and receive a
retention bonus of three times the amount of his reduction in pay payable in the
form of shares of the Company's common stock, but only if he remains employed as
Chief Executive Officer on November 30, 2004, is terminated before that date
without "cause" or resigns before that date for "good reason". The employment
agreement also provides for the payment of performance-based bonuses tied to the
growth of the Company's gross revenues, the grant of up to 6,000,000 options
under the 2004 Stock Incentive Plan, with an exercise price of $0.18 per share,
and the issuance to Mr. Brown of a warrant whereby he will be entitled to
purchase up to one-nineteenth of the outstanding shares, at an exercise price to
be determined. The employment agreement also provides that in the event that Mr.
Brown's employment is terminated for good reason within six months or his
employment is terminated
within one year without cause after any person or group acquires more than 25%
of the combined voting power of the Company's then outstanding Common Stock, all
of Mr. Brown's options will become fully vested and immediately exercisable and
Mr. Brown will be paid an amount equal to twice his annual base salary and twice
his bonus compensation received during the twelve months immediately preceding
the date of termination of Mr. Brown's employment; provided that if the change
in control resulted from the sale of the Company for less than $31 million, the
payments to Mr. Brown will be in amounts as described above in this paragraph as
if the word "twice" had been deleted.
In June 2004, the Company entered into amendments of its employment
agreements with Louis Hyman, Chief Technology Officer, and Mitchell M. Cohen,
former Chief Financial Officer, which provide that in the event that Mr. Hyman's
or Mr. Cohen's employment is terminated within one year without cause after any
person or group acquires more than 25% of the combined voting power of the
Company's then outstanding Common Stock, all of his options will become fully
vested and immediately exercisable and he will be paid an amount equal to twice
his annual base salary and twice his bonus compensation received during the
twelve months immediately preceding the date of termination of his employment;
provided that if the change in control resulted from the sale of the Company for
less than $31 million, the payments to Mr. Hyman and/or Mr. Cohen will be in
amounts as described above in this paragraph as if the word "twice" had been
deleted. Effective on September 8, 2004, Mr. Cohen resigned his position as the
Company's Chief Financial Officer and his employment agreement was terminated.
On October 12, 2004, the Company entered into an employment agreement with
Ronald C. Munkittrick, Chief Financial Officer. Mr. Munkittrick will be paid an
annual base salary of $195,000 provided, however, that Mr. Munkittrick has
agreed to a salary reduction to $120,000 per annum through December 31, 2004 and
a salary reduction to $150,000 per annum from January 1, 2005 through March 31,
2005. The employment agreement also provides that in the event that Mr.
Munkittrick's employment is terminated within one year without cause after any
person or group acquires more than 25% of the combined voting power of the
Company's then outstanding Common Stock, all of his options and/or restricted
stock awards will become fully vested and immediately exercisable and he will be
paid an amount equal to twice his annual base salary and twice his bonus
compensation that he was entitled to receive during the twelve months
immediately preceding the date of termination of his employment; provided that
if the change in control resulted from the sale of the Company for less than $31
million, the payments to Mr. Munkittrick will be in amounts as described above
in this paragraph as if the word "twice" had been deleted.
On May 25, 2004, the Company entered into retainer agreements with Steven
Berger and Jeffrey Stahl, M.D., two independent directors. Pursuant to these
agreements, each independent director was granted a five-year option to purchase
200,000 shares of the Company's common stock at an exercise price of $0.19 per
share, and will be paid a quarterly fee of $7,500 in arrears, except that in the
case of Dr. Stahl the quarterly payments due on August 25, 2004 and November 25,
2004 were paid in advance in the form of 78,947 performance shares of common
stock, which will vest as to 50% on each of such dates. The Company has
arrangements with Anthony Soich and Steven Shorr whereby each has been awarded
options and will be paid quarterly fees on substantially similar terms as Mr.
Berger and Dr. Stahl.
In connection with the sale of OnRamp on September 30, 2004, Nancy
Duncan's two-year employment agreement with the Company which provided that Ms.
Duncan will be compensated at an annual salary of $140,000 was terminated. In
connection with the sale of OnRamp, the employment relationship with M. David
Duncan, previously employed by the Company at an annual salary of $140,000, was
also terminated.
7. PROMISSORY NOTES
In May and June 2004 the Company issued an aggregate of $1,650,000 of
promissory notes which bear interest at the prime rate plus 2%. The notes plus
accrued interest were repaid on July 14, 2004 from the proceeds of the issuance
of $4,200,000 of convertible promissory notes (see Note 8). In connection with
investment advisory services, Richard Rosenblum and David Stefansky received an
aggregate of 1,000,000 shares of the Company's unregistered common stock and
1,000,000 unregistered common stock purchase warrants at an exercise price of
$0.18. The fair value of these issuances of $478,000 was recorded as debt
issuance costs.
8. CONVERTIBLE PROMISSORY NOTES AND RELATED TRANSACTIONS
On July 14, 2004, the Company entered into a Note and Warrant Purchase
Agreement (the "Note Purchase Agreement") with Cottonwood Ltd. and Willow Bend
Management Ltd., each an accredited investor. Under the terms of the Note
Purchase Agreement, the Company issued a convertible promissory note due January
14, 2005 in the aggregate principal amount of $2,100,000 to each of Cottonwood
Ltd. and Willow Bend Management Ltd. Each promissory note is convertible into
shares of common stock at an initial conversion price of $0.30 cents per share,
or 7,000,000 shares of common stock. In addition, the Company issued to each of
Cottonwood Ltd. and Willow Bend Management Ltd. warrants exercisable into
4,683,823 shares of common stock at an exercise price of $0.11 cents per share,
warrants exercisable into 4,683,823 shares of common stock at an exercise price
of $0.15 cents per share, warrants exercisable into 4,683,823 shares of common
stock at an exercise price of $0.35 cents per share and warrants exercisable
into 4,683,823 shares of common stock at an exercise price of $0.40 cents per
share. The warrants have a term of one year. The issuance of the warrants along
with convertible debt created a debt discount of $1,580,000 which is being
amortized to financing expense over the six month term of the notes. In October
2004, the Company and the noteholders entered into an agreement with respect to
lowering the exercise price of the warrants to $0.0325 - see Note 13, Subsequent
Events.
Redwood Capital Partners, Inc. acted as the Company's placement agent in
connection with the Note Purchase Agreement. As compensation to Redwood for its
services as placement agent and in addition to payment in cash of $320,000 to
Redwood, the Company agreed to issue to Redwood warrants exercisable into
350,000 shares of common stock exercisable at $0.11 cents per share for a one
year term, warrants exercisable into 350,000 shares of common stock exercisable
at $0.15 cents per share for a one year term, warrants exercisable into 350,000
shares of common stock exercisable at $0.35 cents per share for a one year term
and warrants exercisable into 350,000 shares of common stock exercisable at
$0.40 cents per share for a one year term. The placement agent fees paid in cash
and warrants were recorded as additional deferred financing costs in the third
quarter, and are being amortized over the maturity of the related notes or upon
the notes' conversion, if such conversion occurs earlier.
On July 14, 2004, the Company entered into a Letter Agreement (the "Letter
Agreement") with Hilltop Services, Ltd. ("Hilltop") in connection with the
anti-dilution provisions contained in that certain Common Stock and Warrant
Purchase Agreement, dated March 4, 2004, between Hilltop and the Company (the
"Hilltop Agreement"). Under the terms of the Letter Agreement and in
consideration for the waiver by Hilltop of its anti-dilution rights, the Company
issued to Hilltop an additional 24,130,435 shares of common stock, a convertible
promissory note in the aggregate principal amount of $1,920,000 convertible into
shares of the Company's common stock at a conversion price of $0.30 cents per
share, or 6,400,000 shares of common stock, and warrants exercisable into
4,282,354 shares of common stock at an exercise price of $0.11 cents per share,
warrants exercisable into 4,282,354 shares of common stock at an exercise price
of $0.15 cents per share, warrants exercisable into 4,282,354 shares of common
stock at an exercise price of $0.35
cents per share and warrants exercisable into 4,282,354 shares of common stock
at an exercise price of $0.40 cents per share. The warrants have a term of one
year. In October 2004, the Company and Hilltop entered into an agreement with
respect to lowering the exercise price of the warrants to $0.0325 - see Note 13,
Subsequent Events. In connection with the above issuance of the common stock and
warrants under the Hilltop agreement, two placement agents received an aggregate
of 1,720,360 shares of the Company's Common Stock.
The issuance of the additional shares of common stock, the convertible
promissory note and the warrants to Hilltop resulted in non cash financing costs
of approximately $7.3 million which were recorded in the third quarter of 2004.
In addition, on the condition that the Hilltop warrants issued in March 2004
with respect to all of the 2,173,913 shares of Common Stock underlying such
warrant was exercised and the aggregate exercise price of $2,174 was received by
the Company within three (3) days from the date thereof, the exercise price with
respect to all of the shares of common stock underlying the original Hilltop
warrant issued in March 2004 then being exercised was reduced from $.80 cents
per share to $.001 cent per share. This repricing resulted in a deemed dividend
of $118,000 which was recorded in the third quarter of 2004.
9. EQUITY TRANSACTIONS
Stockholder Rights Plan
On May 27, 2004 the Company adopted a stockholder rights plan (commonly
known as a "poison pill") in order to deter possibly abusive tactics by a
stockholder or group. The stockholder rights plan is set forth in a Rights
Agreement dated May 27, 2004 between Ramp and Computershare Trust Company, Inc.,
as Rights Agent. The Rights Agreement provides for the distribution of one
preferred share purchase right ("Right") on each share of Common Stock issued
and outstanding as of the close of business on June 4, 2004. Initially the
Rights will trade with the Common Stock and will not be represented by separate
certificates. Each Right represents the right to purchase, for an exercise price
of $40 per Right, one one-hundredth (1/100) share of Ramp Series B Participating
Preferred Stock, par value $.001 per share, but will not be exercisable unless
and until certain events occur.
Option and Warrant Exercises
During the three and nine months ended September 30, 2004, the Company
received net proceeds of $51,000 and $2,341,000, respectively, from the exercise
of stock options and warrants resulting in the issuance of 2,868,000 shares and
13,838,000 shares, respectively, of common stock. The exercise of warrants
during the three months ended September 30, 2004 was the result of the
modification of several warrants held by investors to induce them to exercise.
In the comparable periods of 2003, the Company received proceeds of $50,000 and
$773,000, respectively, from the exercise of stock options and warrants
resulting in the issuance of 223,000 and 3,703,000 shares, respectively, of
common stock.
Company Purchase of Stock Options
On April 14, 2004, Samuel H. Havens and David Friedensohn resigned as
directors. In connection with the board members' resignations, their stock
options were purchased by the Company and a related compensation charge of
approximately $355,000 was recognized during the three months ended June 30,
2004.
Contingent Warrants
The Company has entered into an agreement with an unrelated third party
for marketing services with the third party's sole compensation under the
agreement limited to warrants to purchase shares of common stock
of the Company. The third party pays all of its expenses. Issuance of the
warrants is based on a formula related to the success of the third party in
selling the services of the Company. No services have been sold to date and
therefore no warrants have been issued under this agreement. If, as and when the
third party is entitled to receive such warrants the warrants to purchase the
first 2,000,000 shares of common stock shall be exercisable at $0.57 per share
and shall expire on February 6, 2008. Warrants to purchase shares in excess of
2,000,000 shall have terms identical to the first warrants but have an exercise
price equal to the closing price of the Company's common stock on the day
preceding the day of issuance of the warrants.
Warrant Modifications and Other Related Transactions
During the first nine months of 2004, the Company modified certain
warrants previously issued in connection with its Series C Preferred and other
financing transactions. Warrants to exercise a total of approximately 400,000
shares were modified to extend the periods in which they could be exercised.
Additionally, of this group of warrants, those representing approximately
8,783,266 shares were modified to reduce their exercise prices from a range of
$0.82 to $0.30, to a new exercise price range of $0.40 to $0.001. These
modifications were primarily made to increase the likelihood of the holders
exercising such warrants. The Company has applied the modification principles in
SFAS 123, using the Black-Scholes model to determine the value of these changes
in warrants which resulted in recording deemed dividends totaling $149,000 and
$654,000 for the three and nine months ended September 30, 2004, respectively.
In connection with a settlement agreement with an existing investor, the
Company issued approximately 1.3 million shares to this investor during the
second quarter of 2004. The Company accounted for this as a disproportionate
deemed dividend in the amount of $336,000 which increased the net loss
applicable to common shareholders and basic and diluted net loss per share for
the nine month period ended September 30, 2004.
Private Placements
In March 2004, the Company sold 10,869,565 shares of common stock to
Hilltop at a purchase price of $0.46 per share, raising proceeds of $4,751,000,
net of $249,000 in offering costs. In connection with the private placement,
Hilltop also received a five-year warrant to purchase 2,173,913 shares of common
stock at an exercise price of $0.80 per share. The Company also issued a
five-year warrant to purchase 173,912 shares of common stock at $0.80 per share
to a finder and five-year warrants to purchase an aggregate of 831,391 shares of
our common stock at $0.80 per share to the placement agent and its affiliates
for its services in the placement. In addition, finders and placement agents
received an aggregate of 407,000 shares of the Company's common stock. The fair
value of warrants and common stock issued to finders and placement agents was
approximately $520,000. The investor has an anti-dilutive feature in the event
the Company raises funds at a price of less than $0.46 per share (see Note 8 for
discussion of events occurring in July 2004 regarding the issuance of additional
shares of Common Stock, convertible promissory note, and warrants relating to
this anti-dilutive feature, as well as the reduction in the exercise price of
the warrant described above).
Also, during the quarter ended March 31, 2004, the Company completed a
private placement of its common stock and raised net proceeds of $763,000. A
total of 191,250 units were placed, each consisting of ten shares of common
stock and two warrants. Subscribers purchased each unit for $4.00 and are
entitled to exercise warrant rights to purchase one share of common stock at a
purchase price of $0.60 per share for a five-year period commencing on or after
July 1, 2004 and terminating on June 30, 2009.
10. STOCK OPTIONS
During the third quarter of 2004, the Company issued to employees and
directors options to purchase 560,000 shares of common stock at exercise prices
ranging from $0.11 to $0.17. Such options were granted under the Company's 2003
Stock Incentive Plan. The weighted-average estimated grant date fair value, as
defined by SFAS No. 123, Stock-Based Compensation, of options granted in the
third quarter of 2004, was $0.11. The Company used the Black-Scholes
option-pricing model to estimate the options' fair value by considering the
following assumptions: the options exercise price and expected life, the
underlying current market price of the stock and expected volatility, expected
dividends and the risk free interest rate corresponding to the term of the
option.
The Company has adopted the disclosure-only provisions of SFAS No. 123 and
continues to apply the accounting principles prescribed by APB No. 25 to its
employee stock-based compensation awards. Had compensation cost for the
Company's options issued to such employee been determined based on the fair
value at the grant date for awards consistent with the provisions of SFAS No.
123, as amended by SFAS No. 148, the Company's net loss and basic loss per
common share would have been changed to the pro forma amounts indicated below:
--------------------------------------------------------------------------------
For the Three Months For the Nine Months
--------------------------------------------------------------------------------
Ended September 30, Ended September 30,
--------------------------------------------------------------------------------
2004 2003 2004 2003
Net loss applicable to common ($19,853,000) ($5,537,000) ($35,808,000) ($11,721,000)
stockholders - as reported
Add back: Employee stock 41,000 -- 81,000 --
compensation expense as reported
Less: fair value of employee stock (157,000) (66,000) (551,000) (61,000)
compensation expense
Net loss applicable to common ($19,969,000) ($5,603,000) ($36,278,000) ($11,782,000)
stockholders - pro forma
Basic and diluted loss per common ($0.10) ($0.06) ($0.20) ($0.14)
share - as reported
Basic and diluted loss per common ($0.10) ($0.06) ($0.20) ($0.14)
share - pro forma
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used:
---------------------------
For the Nine Months
Ended September 30,
---------------------------
2004 2003
---- ----
Approximate risk free rate 3.69% 2.25%
Average expected life 5 years 5 years
Dividend yield 0% 0%
Volatility 118% 118%
11. RELATED PARTY TRANSACTIONS
Until his appointment as the Company's President and Chief Operating
Officer in October 2003, Andrew Brown was employed by External Affairs, Inc. In
August 2003, the Company entered into a consulting agreement with External
Affairs for a term which ended June 30, 2004, under which External Affairs
agreed to act as the Company's investor relations and strategy consultant and
assist the Company with capital raising efforts. The agreement provided for
payments to External Affairs of $328,000, with a discretionary bonus of
potentially up to $275,000 based upon the Company attaining a specified level of
revenue during the term of the agreement. On October 10, 2003, Mr. Brown was
appointed as the Company's President and Chief Operating Officer, and Mr. Brown,
External Affairs and the Company agreed to reduce the compensation payable to
External Affairs under the August 2003 Consulting Agreement to $20,000 per
month, with the remainder payable as employee compensation to Mr. Brown as
President and Chief Operating Officer. External Affairs was granted 500,000
restricted shares of the Company's common stock in July 2003. Pursuant to the
agreement, External Affairs also received a five-year option to purchase an
aggregate 1,500,000 shares of the Company's common stock at $0.25 per share, of
which (i) options to purchase 500,000 shares vest in 25% increments every three
months beginning September 9, 2003 conditioned on Mr. Brown continuing to render
services to the Company at the end of each three-month period, and (ii) options
to purchase 1 million shares which will vest on July 9, 2008, subject to earlier
vesting in June 2004 based upon a formula contained in the agreement. The
agreement is terminable by either the Company or External Affairs for any reason
on ninety days prior written notice, subject to certain offset rights in the
event of termination by External Affairs for other than "good reason". External
Affairs transferred all of its options and restricted shares to Mr. Brown
effective October 10, 2003. In November 2003, all of these options and
restricted shares became fully vested in return for Mr. Brown collateralizing a
promissory note. During 2003 and the first six months of 2004, the Company paid
$310,000 and $102,000, respectively, to External Affairs in consulting fees.
On October 12, 2004, the Board of Directors of the Company appointed
Ronald Munkittrick as Chief Financial Officer replacing Mitchell Cohen who
resigned in September, 2004. Prior to the appointment, Mr. Munkittrick worked as
a consultant to the Company's HealthRamp division beginning in June 2004. In
exchange for his consulting services, Mr. Munkittrick was paid a total of
approximately $56,000 and received warrants to purchase 75,000 shares of the
Company's common stock an exercise price of $ 0.25 per share.
12. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is involved in claims and litigation that
arise out of the normal course of business. Currently, other than as discussed
below, there are no pending matters that in management's judgment are expected
to have a material impact on the Company's financial statements.
On June 3, 2003 two former executive officers, John Prufeta and Patricia
Minicucci commenced an action against the Company by filing a Complaint in the
Supreme Court of the State of New York for Nassau County (Index No. 03-008576)
in which they alleged that the Company breached separation agreements entered
into in December 2002 with each of them, and that the Company failed to repay
amounts loaned by Mr. Prufeta to the Company. Mr. Prufeta sought approximately
$395,000 (including a loan of $120,000) and Ms. Minicucci sought approximately
$222,000. The Complaint was served on July 23, 2003. On July 15, 2003, the
Company paid in full the $120,000 so loaned together with interest, without
admitting the claimed default. On February 2, 2004, the Supreme Court of the
State of New York for Nassau County issued an order for partial summary judgment
in favor of Ms. Minicucci for the unpaid severance obligations of $138,064. The
Company made severance payments to both former executives through May 2004 but
due to capital constraints has not made any payments since then. The Company is
continuing negotiations with the plaintiffs to settle the dispute amicably. The
amounts payable to Mr. Prufeta and Ms. Minicucci are included in accrued
expenses in the accompanying balance sheet as of September 30, 2004.
In February 2004 the Company relocated its executive offices (under a
sublease that expires on June 29, 2008) to 33 Maiden Lane, New York, New York.
By stipulation the Company has surrendered the premises located at 410 Lexington
Avenue. In connection with this lease abandonment, the Company recorded an
accrual for expected losses on the lease equal to the present value of the
remaining lease payments, net of reasonable sublease income, of approximately
$168,000, which was recorded in the first quarter of 2004 in selling, general
and administrative expenses in the accompanying statements of operations. During
the second quarter of 2004 the Company revised its estimate of the expected
lease loss and recorded an additional accrual of $60,000. In addition, the
Company's landlord agreed to offset the Company's security deposit of $130,000
in satisfaction of a portion of the amounts due under the lease. The remaining
obligation to the landlord is included in accrued expenses in the Company's
balance sheet as of September 30, 2004.
On or about July 16, 2004, Clinton Group, Inc., as plaintiff and sub
sub-landlord, filed a summons and complaint against the Company, as defendant,
with the Supreme Court of the State of New York, County of New York (Index No.
110371) alleging, among other things, breach of an alleged sublease agreement
for non-payment of the security deposit and one month's rent for the premises
located at 55 Water Street, New York, New York. In the summons and complaint,
Clinton sought repossession of the premises, damages for non-payment of rent in
the sum of $128,629.16, additional damages under the sublease through the date
of trial for the remainder of the term of the Sublease, plus interest and
attorney's fees. On August 20, 2004, the Company entered into a Settlement
Agreement and Release with Clinton pursuant to which, in full settlement of, and
release from, any and all claims against the Company by Clinton relating to the
alleged sublease, the Company agreed to pay to Clinton, an accredited investor,
(i) the amount of $75,000 in cash, (ii) the amount of $150,000 due upon the
earlier of the one year anniversary of the agreement or upon the Company's
raising an aggregate of $5,000,000 in gross proceeds from third party investors,
and (iii) issue to Clinton 1,150,000 shares of common stock. The issuance of the
common stock, promissory note and cash payment resulted in a settlement expense
of $343,000 which was recorded in the third quarter.
In the second quarter of 2004 the Company decided to vacate its office
facilities in Florida. In connection with this lease abandonment, the Company
recorded an accrual for expected losses on the lease equal to the present value
of the remaining lease payments, net of reasonable sublease income, of
approximately $83,000, which was recorded in the second quarter of 2004 in
selling, general and administrative expenses in the accompanying statements of
operations. During the third quarter of 2004 the Company revised its estimate of
the expected lease loss and recorded an additional accrual of $195,000.
In June 2004, the Company's former law firm commenced and action against
the Company by filing a complaint in the Supreme Court of the State of New York
for the county of New York (Index No. 108499/04) in which they alleged we
breached our retainer agreement by failing to pay $435,280 for legal services
allegedly performed. The Company believes it has valid defenses and/or counter
claims which the Company intends to vigorously pursue.
In the third quarter of 2004, the Company ceased all remaining operations
of its wholly-owned subsidiary, LifeRamp - see Note 4, LifeRamp Family
Financial, Inc.
13. SUBSEQUENT EVENTS
In October 2004, the Company entered into a letter agreement with two of
its existing convertible noteholders, Willow Bend Management Ltd. and Cottonwood
Ltd., with respect to the reduction of the exercise price of outstanding
warrants to purchase an aggregate of 37,470,584 shares of common stock, par
value $.001 per share ("Common Stock"), from prices ranging from $0.11 to $0.40,
to $.0325 cents per share. In connection with the exercise of warrants to
purchase an aggregate of 25,262,096 shares of common stock, the noteholders
agreed to a reduction of principal amount of outstanding notes in the aggregate
amount of $571,000 and to pay cash proceeds to the Company in the aggregate
amount of $250,000. The reduction in the exercise prices of the warrants will be
recorded as deemed dividends in the fourth quarter.
In October 2004, the Company entered into a letter agreement with an
existing convertible noteholder, Hilltop Services Ltd., with respect to the
reduction of the exercise price of outstanding warrants to purchase an aggregate
of 17,129,416 shares of Common Stock, from prices ranging from $0.11 to $0.40,
to $.0325 cents per share. In connection with the exercise of warrants to
purchase an aggregate of 12,631,048 shares of Common Stock, the noteholder
agreed to a reduction of the principal amount of outstanding notes in the
aggregate amount of $410,509. The reduction in the exercise prices of the
warrants will be recorded as deemed dividends in the fourth quarter.
On October 18, 2004 the Company distributed a proxy to its shareholders to
vote for three proposals at the annual meeting to be held on November 18, 2004.
The proposals include the election of two directors, approval of an amendment to
the Company's Restated Certificate of Incorporation to effect a reverse stock
split of the Company's Common Stock at a ratio of one (1) for sixty (60), and to
approve the Company's 2005 Stock Incentive Plan.
On October 22, 2004, the Company completed a transaction pursuant to an
asset purchase agreement with Berdy Medical Systems, Inc. ("Berdy") for the
purchase of the tangible and intangible assets of Berdy. The purchase price
consisted of an aggregate amount of $400,000 payable through the issuance of
restricted shares of the Company's common stock, par value $.001. In addition,
Berdy shall receive five (5%) percent of maintenance fees collected in
connection with the SmartClinic electronic medical records system business
purchased by the Company over a two-year period pursuant to the terms and
conditions of an escrow agreement. In connection with the closing, each of
Berdy's principal executive officers, Jack Berdy, MD and Mr. Rick Holtmeier have
entered into employment agreement with Ramp's wholly-owned subsidiary
HealthRamp, Inc., on terms and conditions agreed upon by both parties.
On October 29, 2004, the Company issued to Oakwood Financial Services,
LLC, a secured convertible promissory note in the principal amount of $50,000
bearing interest at the rate of ten percent (10.0%) per annum, due January 25,
2005, convertible at the option of the holder, into shares of the Company's
common
stock at a conversion price of $.02 cents per share. Interest is payable
in cash. Additionally, the Company issued to Oakwood a warrant to purchase
2,500,000 shares of the registrant's common stock at an exercise price of $.03
cents per share. Oakwood may exercise the warrant at any time through October
29, 2009. The Company is obligated to register for resale the shares of common
stock issuable upon conversion of the note and upon exercise of the warrant on a
registration statement filed with the Securities and Exchange Commission on or
before December 31, 2004. In addition, on November 10, 2004 the Company received
a loan in the amount of $150,000 from an investor.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
We develop and market healthcare connectivity software centered around our
CarePoint Suite of healthcare communication technology products for electronic
prescribing of drugs, laboratory orders and results, Internet-based
communication, data integration and transaction processing through a handheld
device or browser, at the patient point-of-care. Our products enable
communication of healthcare information among physicians' offices, pharmacies,
hospitals, pharmacy benefit managers, health management organizations,
pharmaceutical companies and health insurance companies. Our technology is
designed to provide access to safer, better healthcare and more accurate and
less expensive patient point-of-care information gathering and processing.
On September 30, 2004, we closed a transaction pursuant to a certain Asset
Purchase Agreement, dated as of September 29, 2004, by and between the Company,
The Duncan Group, Inc. ("Duncan"), M. David Duncan and Nancy L. Duncan, to sell
the assets of the Company previously acquired from Duncan on November 10, 2003
(including intellectual property, tangible personal property, accounts
receivable, and other assets) related to the business of Duncan known as
Frontline Physicians Exchange and Frontline Communications ("Frontline"). In
accordance with the Asset Purchase Agreement, the Company agreed to sell all of
the assets of the Company's Frontline division, now known as the OnRamp
division, in consideration of (i) the Company's receipt of $500,000 in cash paid
at closing; (ii) termination of the employment agreement between the Company and
each of M. David Duncan and Nancy L. Duncan; (iii) release and discharge of the
Company's obligations to Duncan under that certain Asset Purchase Agreement
dated as of November 7, 2003, between the Company and Duncan (the "2003 Purchase
Agreement"), to issue Incentive Shares (as defined in the Asset Purchase
Agreement) to Duncan; (iv) release and discharge of the Company's obligations to
Duncan under the 2003 Purchase Agreement to pay Duncan a royalty equal to 15% of
the gross revenue of the OnRamp business during 2003 and 2004 (of which $326,000
was accrued and unpaid as of June 30, 2004); and (v) release and discharge of
the Company's obligations under the 2003 Purchase Agreement to pay Duncan any
shortfall amount following the sale of certain shares of the Company's common
stock by Duncan. The sale of OnRamp results in a loss of approximately $3.9
million.
The sale of OnRamp is part of refocusing the Company's financial resources
and management efforts on its core HealthRamp operations. The company believes
that focusing on HealthRamp's long-term potential and evolving opportunities is
in the best interest of its stockholders.
In 2003 the Company formed a wholly-owned subsidiary, LifeRamp Family
Financial, Inc. ("LifeRamp"), in Utah and commenced exploring the feasibility of
using LifeRamp to commence a new business, making non-recourse loans to
terminally ill cancer patients secured by their life insurance policies. In May
2004 the Company decided to proceed with the launch of LifeRamp and had
previously retained Shattuck Hammond Partners as its investment banker and
financial advisor in the structuring and capitalization of LifeRamp.
During 2003 and for the first nine months of 2004 the Company invested
approximately $1.1 million and $2.2 million in LifeRamp, respectively. In July
2004 the Company decided to indefinitely delay LifeRamp's continued development
and commencement of operations until adequate funding is obtained or other
strategic alternative measures could be implemented by the Company. In September
2004 the Company ceased all operations of LifeRamp and terminated the employment
of the remaining employees and commenced vacating its office facilities in Texas
and Utah. In connection with these lease abandonments, the Company recorded an
accrual for expected losses on the leases equal to the present value of the
remaining lease payments, net of reasonable sublease income, of approximately
$73,000, which was recorded in the third quarter of 2004. In addition, the
Company recorded an asset impairment charge of approximately $229,000 relating
to the long-lived assets of LifeRamp (including fixed assets and leasehold
improvements). The Company is continuing to explore strategic alternatives for
the possible development of LifeRamp. There can be no assurance that the Company
will find such a strategic alternative or that if one were found that the
Company would be able to recoup a material portion of its investment in
LifeRamp.
Forward-Looking Statements and Associated Risks
To the extent that any statements made in this Form 10-Q contain
information that is not historical, these statements are essentially
forward-looking. Forward-looking statements can be identified by the use of
words such as "expects," "plans," "will," "may," "anticipates", "believes,"
"should," "intends," "estimates," and other words of similar meaning. These
statements are subject to risks and uncertainties that cannot be predicted or
quantified and consequently, actual results may differ materially from those
expressed or implied by such forward-looking statements. Such risks and
uncertainties include, without limitation, our ability to raise capital to
finance the development of our Internet services and related software, the
effectiveness, profitability and the marketability of those services, our
ability to protect our proprietary information and to retain and expand our user
base, the establishment of an efficient corporate operating structure as we grow
and, other risks detailed from time-to-time in our filings with the Securities
and Exchange Commission ("SEC"). We do not intend to undertake any obligation to
publicly update any forward-looking statements.
We have reported significant recurring net losses applicable to common
shareholders which endanger our viability as a going concern and caused our
accountants to issue a "going concern" explanatory paragraph in their reports in
connection with their audits of our financial statements for the years ended
December 31, 2003, 2002 and 2001. We have reported net losses applicable to
common stockholders of $(31,321,000), $(9,014,000) and $(10,636,000) for the
years ended December 31, 2003, 2002 and 2001, respectively, and $(35,808,000)
for the nine months ended September 30, 2004. At September 30, 2004, we had an
accumulated deficit of $(107,186,000).
We rely on investments and financings to provide working capital which may
not be available to us in the future and may result in increased net losses and
accumulated deficit. While we believe that we can continue to sell our
securities to raise the cash needed to continue operating until cash flow from
operations can support our business, there can be no assurance that this will
occur. There can be no assurance that additional investments in our securities
or other debt or equity financings will be available to us on favorable terms,
or at all, to adequately support the development and deployment of our
technology. Moreover, failure to obtain such capital on a timely basis could
result in lost business opportunities. In addition, the terms of our debt or
equity financings have included, and in the future may include, contingent
anti-dilution provisions and the issuance of warrants, the accounting for which
have resulted, and for future financings may result, in significant non-cash
increases in our net losses and accumulated deficit. Such non cash expenses
totaled $8.5 million and $9.0 million for the three and nine months ended
September 30, 2004, respectively.
While the Company believes that it has the ability to successfully attract
new customers, the ultimate deployment of these new customers frequently
requires up front capital. There can be no assurance that the Company will
obtain that capital. In recent months the Company has not obtained sufficient
capital to meet its obligations and as a result has not been able to pay its
vendors on a timely basis and is significantly in arrears in making such
payments. While the Company has been working with its creditors to make
arrangements to satisfy its obligations, there can be no assurance that it will
be able to do so and as a result may be subject to litigation or disruption in
its business operations.
Our independent registered public accounting firm has advised our
management and our Audit Committee that there were material weaknesses in our
internal controls and procedures during fiscal year 2003, which management
believes have continued through the fiscal period ended September 30, 2004. The
Company has taken steps and has a plan to correct the material weaknesses.
Progress was made in the first three quarters of 2004; however, management
believes that if these material weaknesses are not corrected, a potential
misapplication of generally accepted accounting principles or potential
accounting error in our consolidated financial statements could occur. Enhancing
our internal controls to correct the material weaknesses has and will result in
increased costs to us.
Based upon management's review of internal controls and procedures, our
management, including our current chief executive officer and current chief
financial officer, has determined that we had inadequate controls and procedures
constituting material weaknesses as of December 31, 2003 which persisted during
the first three quarters of fiscal year 2004. These inadequate controls and
procedures included:
- Inadequate accounting staffing and records to identify and record
all accounting entries.
- Lack of management review of our bank reconciliations, timely review
of expense reports, and timely review of agreements governing
complex financing transactions, employee and non-employee stock
based compensation arrangements and other transactions having
accounting ramifications.
- Failure to perform an adequate internal review of financial
information in periodic reports to ensure accuracy and completeness.
- Inadequate segregation of duties consistent with our internal
control objectives.
- Ineffective utilization of existing administrative personnel to
perform ministerial accounting functions, which would allow our
accounting department the opportunity to perform bookkeeping,
recordkeeping and other accounting functions effectively.
- Lack of management review of entries to the general ledger.
Our management has implemented and continues to implement enhancements to
our internal controls and procedures that it believes will remedy the
inadequacies in our internal controls and procedures.
The following sets forth the steps we have taken through the fiscal period
ended September 30, 2004:
- In November 2003, we hired a permanent chief financial officer with
public company reporting experience. This chief financial officer
resigned in September 2004 and was replaced in October 2004.
- In December 2003, we hired a staff accountant responsible for, among
other things, recording accounts payable. The individual assists the
chief financial officer and controller to identify, report and
record transactions in a timely manner and provides additional
segregation of duties consistent with our internal control
objectives.
- Management reassigned certain tasks among the expanded accounting
department, as well as existing administrative personnel to perform
ministerial accounting functions, to improve and better accomplish
bookkeeping, recordkeeping and other accounting functions.
- In August 2004 we hired a Vice President of Finance who will be
wholly dedicated to the areas of internal control, financial
accounting and reporting.
- The review and sign off on all monthly bank reconciliations by the
chief financial officer has been instituted.
- The review of all underlying agreements, contracts and financing
arrangements prior to execution for accounting ramifications has
already been undertaken by the chief financial officer to the extent
possible.
- We strengthened certain controls over cash disbursements, including
adopting a policy that requires dual signatures of two senior
officers, at least one of whom is not involved in a transaction, on
disbursements in excess of $10,000.
- We strengthened certain controls over expense authorization and
imposed financial oversight on all expenditure decisions.
- We implemented a policy requiring attendance by outside counsel at
all Board and Audit Committee meetings, including the timely
preparation of minutes of such meetings and reports to management to
discuss our implementation of any plans to address conditions
constituting the material weaknesses in its internal controls.
- We have implemented and intend on implementing the following plans
to enhance our internal controls in the fiscal quarter ending
September 30, 2004 and in subsequent fiscal periods:
- The addition of the new Vice President Finance (hired on August 2,
2004) has allowed further redistribution of responsibilities among
the expanded accounting department and, more specifically, provide
the chief financial officer with the necessary time to perform
oversight and supervisory functions in future periods. This includes
timely review of all underlying agreements, contracts and financing
arrangements, expense reports, entries to the general ledger and
periodic filings with the Securities and Exchange Commission.
- Our implementation of formal mechanized month-end, quarter-end and
year-end closing and consolidation processes.
- In July 2004 we appointed two additional independent directors to
serve on our Audit Committee.
- As a result of the resignation of our chief financial officer in
September 2004, we have hired Ronald C. Munkittrick as our new chief
financial officer, effective October 12, 2004.
While we believe that the remedial actions that have been or will be taken
will result in correcting the conditions constituting the material weaknesses in
our internal controls as soon as practicable, the exact timing of when the
conditions will be corrected is dependent upon future events which may or may
not occur. We are making every effort to correct the conditions expediently and
expect to correct the conditions, thereby eliminating the material weaknesses no
later than the fourth quarter of fiscal year 2004. It is estimated that the cost
to implement the actions set forth above will be approximately $300,000 for our
fiscal year ending December 31, 2004 and approximately $200,000 for each fiscal
year thereafter. In addition, substantial additional costs may be necessary to
implement the provisions of section 404 of the Sarbanes-Oxley Act of 2003 as
relates to the company's documentation and testing of the effectiveness of
internal controls in 2005.
The success of the development, distribution and deployment of our
technology is dependent to a significant degree on our key management and
technical personnel. We believe that our success will also depend upon our
ability to attract, motivate and retain highly skilled, managerial, sales and
marketing, and technical personnel, including software programmers and systems
architects skilled in the computer languages in which our technology operates.
Competition for such personnel in the software and information services
industries is intense. On October 18, 2004 the Company distributed a proxy to
its shareholders requesting approval of the Company's 2005 Stock Incentive Plan.
Should the plan not be approved it could have a detrimental effect on employee
retention. The loss of key personnel, or the inability to hire or retain
qualified personnel, could have a material adverse effect on our results of
operations, financial condition or business.
We expect to continue to experience losses until such time as our
technology can be successfully deployed and produce revenues. The continuing
development, marketing and deployment of our technology will depend upon our
ability to obtain additional financing. Our technology has generated limited
recurring revenues to date. We are funding our operations now through the sale
of our securities.
We may not be able to retain our listing on the American Stock Exchange.
On September 13, 2004, we received a written notice (the "Notice") from the
American Stock Exchange (the "Amex") informing us, in relevant part, that we are
not in compliance with (i) Section 1003(a)(i) of the Amex rules as a result of
our stockholder's equity less than $2,000,000 and losses from continuing
operations and/or net losses in two out of three of its three most recent fiscal
years, (ii) Section 1003(a)(ii) of the Amex rules as a result of our
stockholder's equity of less than $4,000,000 and losses from continuing
operations and/or net losses in three out of its four most recent fiscal years,
(iii) Section 1003(a)(iv) of the Amex rules whereby, as a result of our
substantial sustained losses in relation to our overall operations or our
existing financial resources, or our impaired financial condition, it appears
questionable, in the opinion of Amex, as to whether we will be able to continue
operations and/or meet our obligations as they mature, and (iv) Section
1003(f)(v) of the Amex rules as a result of our common stock selling for a
substantial period at a low price per share. The Notice is not a notice of
delisting from the Amex or a notice by Amex to initiate delisting proceedings.
Specifically, the Notice provides that, in order to maintain the listing
of our common stock, we must submit a plan to the Amex by October 14, 2004
(extended by the AMEX to October 21, 2004), advising Amex of the action we have
taken, or the action we will take, to bring us into compliance with the
continued listing standards of the Amex within a maximum of eighteen months from
the date the Notice was received. On October 20, 2004, the Company timely
submitted its plan to the AMEX which is currently under review. Amex will accept
our plan if we provide a reasonable demonstration of an ability to regain
compliance with the continued listing standards within such eighteen month
period. If our plan is accepted, we will be able to maintain our listing on the
Amex during the plan period for up to eighteen months, subject to periodic
review by Amex to determine whether we are making progress in accordance with
our plan. Our management intends to timely provide Amex with our plan to achieve
compliance with all Amex listing criteria within such eighteen month period and
believes we will be able to maintain our Amex listing at all times during such
eighteen month period however, there can be no assurance that we will be able to
maintain our Amex listing throughout such eighteen month period.
Subject to our right of appeal of any Amex staff determination, Amex may
initiate delisting proceedings, as appropriate, if (i) we do not submit a plan,
(ii) our plan is not accepted, (iii) we do not make progress consistent with the
plan during the plan period, or (iv) we are not in compliance with the continued
listing standards at the conclusion of the plan period.
Trading in our common stock after a delisting, if any, would likely be
conducted in the over-the-counter markets in the so-called "pink sheets" or on
the National Association of Securities Dealers' Electronic Bulletin Board. As a
consequence of a delisting our shareholders would find it more difficult to
dispose of, or
to obtain accurate quotations as to the market value of, our common stock, and
our common stock would become substantially less attractive as collateral for
margin and purpose loans, for investment by financial institutions under their
internal policies or state investment laws or as consideration in future capital
raising transactions.
Although we have had operations since 1988, because of our move away from
temporary healthcare staffing to provide healthcare connectivity solutions at
the point of care, we have a relatively short operating history in the
healthcare connectivity solutions business and limited financial data to
evaluate our business and prospects. In addition, our business model is likely
to continue to evolve as we attempt to develop our product offerings and enter
new markets. As a result, our potential for future profitability must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies that are attempting to move into new markets
and continuing to innovate with new and unproven technologies. We are still in
the process of gaining experience in marketing physician connectivity products,
providing support services, evaluating demand for products, financing a
technology business and dealing with government regulation of health information
technology products. While we are putting together a team of experienced
executives, they have come from different backgrounds and may require some time
to develop an efficient operating structure and corporate culture for our
company. Furthermore, our executive management and Board of Directors have been
subject to change as executives have left or been terminated and others have
been hired to take their places and directors have left and others have been
elected or appointed to take their places. Such changes can cause disruption and
distraction.
Although we have focused our business on healthcare connectivity, we may
decide to explore new business models before our core business generates cash
flow, if at all. Until feasibility is proven for any such new business models
some of our scarce resources may be allocated to endeavors which may never be
commercialized.
The success of our products and services in generating revenue may be
subject to the quality and completeness of the data that is generated and stored
by the physician or other healthcare professionals and entered into our
interconnectivity systems, including the failure to input appropriate or
accurate information. Failure of the Company and its vendors to maintain the
quality and completeness of the data or unwillingness by the healthcare
professional to generate the required information may result in our losing
revenue.
As a developer of connectivity technology products, we will be required to
anticipate and adapt to evolving industry standards and regulations and new
technological developments. The market for our technology is characterized by
continued and rapid technological advances in both hardware and software
development, requiring ongoing expenditures for research and development, and
timely introduction of new products and enhancements to existing products. Our
future success, if any, will depend in part upon our ability to enhance existing
products, to respond effectively to technology changes and changes in applicable
regulations, and to introduce new products and technologies that are functional
and meet the evolving needs of our clients and users in the healthcare
information systems market.
We rely on a combination of internal development, strategic relationships,
licensing and acquisitions to develop our products and services. The cost of
developing new healthcare information services and technology solutions is
inherently difficult to estimate. Our development of proposed products and
services may take longer than originally expected, require more testing than
originally anticipated and require the acquisition of additional personnel and
other resources. In addition, there can be no assurance that the products or
services we develop or license will be able to compete with the alternatives
available to our customers.
New or newly integrated products and services will not become profitable
unless they achieve sufficient levels of market acceptance. There can be no
assurance that healthcare providers will accept from us new products and
services, or products and services that result from integrating existing and/or
acquired products and services, including the products and services we are
developing to integrate our services into the physician's office or other
medical facility, such as our handheld solution. In addition, there can be no
assurance that any pricing strategy that we implement for any such products and
services will be economically viable or acceptable to the target markets.
Failure to achieve broad penetration in target markets with respect to new or
newly integrated products and services could have a material adverse effect on
our business prospects. The market for our connectivity products and services in
the healthcare information systems may be slow to develop due to the large
number of practitioners who are resistant to change, as well as the financial
investment and workflow interruptions associated with change, particularly in a
period of rising pressure to reduce costs in the marketplace.
Achieving market acceptance of new or newly integrated products and
services is likely to require significant efforts and expenditures. Achieving
market acceptance for new or newly integrated products and services is likely to
require substantial marketing efforts and expenditure of significant funds to
create awareness and demand by participants in the healthcare industry. In
addition, deployment of new or newly integrated products and services may
require the use of additional resources for training our existing sales force
and customer service personnel and for hiring and training additional
salespersons and customer service personnel. There can be no assurance that the
revenue opportunities from new or newly integrated products and services will
justify amounts spent for their development, marketing and roll-out.
We could be subject to breach of warranty claims if our software products,
information technology systems or transmission systems contain errors,
experience failures or do not meet customer expectations. We could face breach
of warranty or other claims or additional development costs if the software and
systems we sell or license to customers or use to provide services contain
undetected errors, experience failures, do not perform in accordance with their
documentation, or do not meet the expectations that our customers have for them.
Undetected errors in the software and systems we provide or those we use to
provide services could cause serious problems for which our customers may seek
compensation from us. We attempt to limit, by contract, our liability for
damages arising from negligence, errors or mistakes. However, contractual
limitations on liability may not be enforceable in certain circumstances or may
otherwise not provide sufficient protection to us from liability for damages.
If our systems or the Internet experience security breaches or are
otherwise perceived to be insecure, our business could suffer. A security breach
could damage our reputation or result in liability. We retain and transmit
confidential information, including patient health information. Despite the
implementation of security measures, our infrastructure or other systems that we
interface with, including the Internet, may be vulnerable to physical break-ins,
hackers, improper employee or contractor access, computer viruses, programming
errors, attacks by third parties or similar disruptive problems. Any compromise
of our security, whether as a result of our own systems or systems that they
interface with, could reduce demand for our services.
Our products provide applications that relate to patient medication
histories and treatment plans. Any failure by our products to provide and
maintain accurate, secure and timely information could result in product
liability claims against us by our clients or their affiliates or patients. We
maintain insurance that we believe currently is adequate to protect against
claims associated with the use of our products, but there can be no assurance
that our insurance coverage would adequately cover any claim asserted against
us. A successful claim brought against us in excess of our insurance coverage
could have a material adverse effect on our results of operations, financial
condition and/or business. Even unsuccessful claims could result in the
expenditure of funds in litigation, as well as diversion of management time and
resources. Certain of our
products are subject to compliance with the Health Insurance Portability And
Accountability Act Of 1996 (HIPAA). Failure to comply with HIPAA may have a
material adverse effect on our business.
Government regulation of healthcare and healthcare information technology
is in a period of ongoing change and uncertainty that creates risks and
challenges with respect to our compliance efforts and our business strategies.
The healthcare industry is highly regulated and is subject to changing
political, regulatory and other influences. Federal and state legislatures and
agencies periodically consider programs to reform or revise the United States
healthcare system. These programs may contain proposals to increase governmental
involvement in healthcare or otherwise change the environment in which
healthcare industry participants operate. Particularly, compliance with HIPAA
and related regulations are causing the healthcare industry to incur substantial
costs to change its procedures. Healthcare industry participants may respond by
reducing their investments or postponing investment decisions, including
investments in our products and services. Although we expect these regulations
to have the beneficial effect of spurring adoption of our software products, we
cannot predict with any certainty what impact, if any, these and future
healthcare reforms might have on our business. Existing laws and regulations
also could create liability, cause us to incur additional costs or restrict our
operations. The effect of HIPAA on our business is difficult to predict and
there can be no assurance that we will adequately address the business risks
created by the HIPAA. We may incur significant expenses relating to compliance
with HIPAA. Furthermore, we are unable to predict what changes to HIPAA, or the
regulations issued pursuant to HIPAA, might be made in the future or how those
changes could affect our business or the costs of compliance with HIPAA. In
addition, changes in Medicare and Medicaid regulations could have an adverse
effect on the operations and future prospects of our CarePoint business
operations.
Government regulation of the Internet could adversely affect our business.
The Internet and its associated technologies are subject to government
regulation. Our failure to accurately anticipate the application of applicable
laws and regulations, or any other failure to comply, could create liability for
us, result in adverse publicity, or negatively affect our business. In addition,
new laws and regulations may be adopted with respect to the Internet or other
online services covering user privacy, patient confidentiality, consumer
protection and other services. We cannot predict whether these laws or
regulations will change or how such changes will affect our business. Government
regulation of the Internet could limit the effectiveness of the Internet for the
methods of healthcare e-commerce that we are providing or developing or even
prohibit the sale of particular products and services.
Our Internet-based services are dependent on the development and
maintenance of the Internet infrastructure and data storage facilities
maintained by third parties. Our ability to deliver our Internet-based products
and services is dependent on the development and maintenance of the
infrastructure of the Internet and the maintenance of data storage facilities by
third parties. This includes maintenance of a reliable network backbone and data
storage facilities with the necessary speed, data capacity and security, as well
as timely development of complementary products such as high-speed modems, for
providing reliable Internet access and services. If the Internet continues to
experience increased usage, the Internet infrastructure may be unable to support
the demands placed on it. In addition, the performance of the Internet may be
harmed by increased usage. The Internet has experienced a variety of outages and
other delays as a result of damages to portions of its infrastructure, and it
could face outages and delays in the future. These outages and delays could
reduce the level of Internet usage as well as the availability of the Internet
to us for delivery of our Internet-based products and services.
Some of our products and services will not be widely adopted until
broadband connectivity is more generally available. Some of our products and
services and planned services require a continuous broadband connection between
the physician's office or other healthcare provider facilities and the Internet.
The availability of broadband connectivity varies widely from location to
location and even within a single geographic area. The future availability of
broadband connections is unpredictable and is not within our
control. While we expect that many physicians' offices and other healthcare
provider facilities will remain without ready access to broadband connectivity
for some period of time, we cannot predict how long that will be. Accordingly,
the lack of these broadband connections will continue to place limitations on
the number of sites that are able to utilize our Internet-based products and
services and the revenue we can expect to generate form those products and
services.
Although the Company has ceased operations at its LifeRamp subsidiary,
Compliance with legal and regulatory requirements will be critical to LifeRamp's
operations should the Company in the future elect to restart the operations. If
we, directly or indirectly through our subsidiaries, erroneously disclose
information that could be confidential and/or protected health information, we
could be subject to legal action by the individuals involved, and could possibly
be subject to criminal sanctions. In addition, if LifeRamp is launched and fails
to comply with applicable insurance and consumer lending laws, states could
bring actions to enforce statutory requirements, which could limit its business
practices in such states, including, without limitation, limiting or eliminating
its ability to charge or collect interest on its loans or related fees, or limit
or eliminate its ability to secure its loans with its borrowers' life insurance
policies. Any such actions, if commenced, would have a material and adverse
impact on LifeRamp's business, operations and financial condition.
We have been granted certain patent rights, trademarks and copyrights
relating to our software. However, patent and intellectual property legal issues
for software programs, such as our products, are complex and currently evolving.
Since patent applications are secret until patents are issued in the United
States, or published in other countries, we cannot be sure that we are first to
file any patent application. In addition, there can be no assurance that
competitors, many of which have far greater resources than we do, will not apply
for and obtain patents that will interfere with our ability to develop or market
product ideas that we have originated. Furthermore, the laws of certain foreign
countries do not provide the protection to intellectual property that is
provided in the United States, and may limit our ability to market our products
overseas. We cannot give any assurance that the scope of the rights we have are
broad enough to fully protect our technology from infringement.
Litigation or regulatory proceedings may be necessary to protect our
intellectual property rights, such as the scope of our patent. Such litigation
and regulatory proceedings are very expensive and could be a significant drain
on our resources and divert resources from product development. There is no
assurance that we will have the financial resources to defend our patent rights
or other intellectual property from infringement or claims of invalidity
We also rely upon unpatented proprietary technology and no assurance can
be given that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to or disclose
our proprietary technology or that we can meaningfully protect our rights in
such unpatented proprietary technology. No assurance can be given that efforts
to protect such information and techniques will be successful. The failure to
protect our intellectual property could have a material adverse effect on our
operating results, financial position and business.
As of November 3, 2004, we had 283,191,587 outstanding shares of common
stock and 77,023,713 shares of common stock reserved for issuance upon the
exercise of options, warrants, and shares of our convertible preferred stock and
convertible debentures outstanding on such date, leaving 39,784,700 shares
available for future issuance. Most of these shares will be immediately saleable
upon exercise or conversion under registration statements we have filed with the
SEC. The exercise prices of options, warrants or other rights to acquire common
stock presently outstanding range from $0.01 per share to $4.97 per share.
During the respective terms of the outstanding options, warrants, preferred
stock and other outstanding derivative securities, the holders are given the
opportunity to profit from a rise in the market price of our common stock, and
the exercise of any options, warrants or other rights may dilute the book value
per share
of our common stock and put downward pressure on the price of our common stock.
The existence of the options, conversion rights, or any outstanding warrants may
adversely affect the terms on which we may obtain additional equity financing.
Moreover, the holders of such securities are likely to exercise their rights to
acquire common stock at a time when we would otherwise be able to obtain capital
on terms more favorable than could be obtained through the exercise or
conversion of such securities.
On October 18, 2004 the Company distributed a proxy to its shareholders
requesting approval of an amendment to the Company's Restated Certificate of
Incorporation to effect a reverse stock split of the Company's Common Stock at a
ratio of one (1) for sixty (60). The Board of Directors believes that it is
necessary and desirable to reduce the number of outstanding shares of Common
Stock through a reverse split, thereby increasing the number of shares of Common
Stock available for issuance to investors in a capital raising transaction and
to ensure that the Company has a sufficient number of shares of Common Stock
issuable upon the exercise of all outstanding options and warrants, including
shares which will be reserved for issuance under its stock incentive plans. If
the reverse split is not approved, the low market price of the Company's common
stock together with the limited number of shares available for future issuance
would make it difficult to raise additional capital.
We have raised substantial amounts of capital in private placements from
time to time. The securities offered in such private placements were not
registered under the Securities Act or any state "blue sky" law in reliance upon
exemptions from such registration requirements. Such exemptions are highly
technical in nature and if we inadvertently failed to comply with the
requirements of any of such exemptive provisions, investors would have the right
to rescind their purchase of our securities or sue for damages. If one or more
investors were to successfully seek such rescission or prevail in any such suit,
we could face severe financial demands that could materially and adversely
affect our financial position. Financings that may be available to us under
current market conditions frequently involve sales at prices below the prices at
which our common stock currently trades on the American Stock Exchange, as well
as the issuance of warrants or convertible securities at a discount to market
price.
Investors in our securities may suffer dilution. The issuance of shares of
common stock or shares of common stock underlying warrants, options or preferred
stock or convertible notes will dilute the equity interest of existing
stockholders and could have a significant adverse effect on the market price of
our common stock. The sale of common stock acquired at a discount could have a
negative impact on the market price of our common stock and could increase the
volatility in the market price of our common stock. In addition, we may seek
additional financing which may result in the issuance of additional shares of
our common stock and/or rights to acquire additional shares of our common stock.
The issuance of our common stock in connection with such financing may result in
substantial dilution to the existing holders of our common stock. Those
additional issuances of common stock would result in a reduction of your
percentage interest in our company.
Historically, our common stock has experienced significant price
fluctuations. One or more of the following factors influence these fluctuations:
o unfavorable announcements or press releases relating to the
technology sector;
o regulatory, legislative or other developments affecting us or the
healthcare industry generally;
o conversion of our preferred stock and convertible debt into common
stock at conversion rates based on then current market prices or
discounts to market prices of our common stock and exercise of
options and warrants at below current market prices;
o sales by those financing our company through convertible
securities the underlying common stock of which have been registered
with the SEC and may be sold into the public market immediately upon
conversion; and
o market conditions specific to technology and internet companies,
the healthcare industry and general market conditions.
In addition, in recent years the stock market has experienced significant
price and volume fluctuations. These fluctuations, which are often unrelated to
the operating performance of specific companies, have had a substantial effect
on the market price for many healthcare related technology companies. Factors
such as those cited above, as well as other factors that may be unrelated to our
operating performance, may adversely affect the price of our common stock.
We have not had earnings, but if earnings were available, it is our
general policy to retain any earnings for use in our operations. Therefore, we
do not anticipate paying any cash dividends on our common stock in the
foreseeable future despite the recent reduction of the federal income tax rate
on dividends. Any payment of cash dividends on our common stock in the future
will be dependent upon our financial condition, results of operations, current
and anticipated cash requirements, preferred rights of holders of preferred
stock, plans for expansion, as well as other factors that our Board of Directors
deems relevant. We anticipate that our future financing agreements may prohibit
the payment of common stock dividends without the prior written consent of those
investors.
We may have to lower prices or spend more money to compete effectively
against companies with greater resources than ours, which could result in lower
revenues. The eventual success of our products in the marketplace will depend on
many factors, including product performance, price, ease of use, support of
industry standards, competing technologies and customer support and service.
Given these factors we cannot assure you that we will be able to compete
successfully. For example, if our competitors offer lower prices, we could be
forced to lower prices which could result in reduced or negative margins and a
decrease in revenues. If we do not lower prices we could lose sales and market
share. In either case, if we are unable to compete against our main competitors,
which include established companies with significant financial resources, we
would not be able to generate sufficient revenues to grow our company or reverse
our history of operating losses. In addition, we may have to increase expenses
to effectively compete for market share, including funds to expand our
infrastructure, which is a capital and time intensive process. Further, if other
companies choose to aggressively compete against us, we may have to increase
expenses on advertising, promotion, trade shows, product development, marketing
and overhead expenses, hiring and retaining personnel, and developing new
technologies. These lower prices and higher expenses would adversely affect our
operations and cash flows.
As with any business, growth in absolute amounts of selling, general and
administrative expenses or the occurrence of extraordinary events could cause
actual results to vary materially and adversely from the results contemplated by
the forward-looking statements. Budgeting and other management decisions are
subjective in many respects and thus susceptible to incorrect decisions and
periodic revisions based on actual experience and business developments, the
impact of which may cause us to alter our marketing, capital expenditures or
other budgets, which may, in turn, affect our results of operations. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate, and therefore, there can be no assurance that the
results contemplated in the forward-looking statements will be realized.
In light of the significant uncertainties inherent in the forward-looking
information included in this report, the inclusion of such information should
not be regarded as a representation by us or any other person that our
objectives or plans of our company will be achieved.
Critical Accounting Policies and Items Affecting Comparability
Quality financial reporting relies on consistent application of our
accounting policies that are based on accounting principles generally accepted
in the United States. The policies discussed below are considered by management
to be critical to understanding our financial statements and often require
management judgment and estimates regarding matters that are inherently
uncertain.
Revenue Recognition
We recognize revenue from subscription and other fees as services are
performed, provided that the following revenue recognition criteria are met: -
Persuasive evidence of an arrangement exists - Service is provided - The fee is
fixed and determinable - Collectibility is probable
Software and Technology Costs
We incur costs for software research and development efforts. Such costs
primarily include payroll, employee benefits and other headcount-related costs
associated with product development. Technological feasibility for our software
products is reached shortly before the products are released commercially. Costs
incurred after technological feasibility is established are not material, and
accordingly, we expense all software and technology costs as incurred.
Segment Information
We follow SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information, which establishes standards for reporting and displaying
certain information about reportable segments. As a result of our sale of
certain assets of OnRamp, as of September 30, 2004, we manage and evaluate our
operations in one reportable segment: Technology.
Goodwill
Goodwill represents acquisition costs in excess of the fair value of net
tangible assets of businesses purchased. In conjunction with our adoption of
SFAS No. 142, Goodwill and Other Intangible Assets, we evaluate our goodwill
annually for impairment, or earlier if indicators of potential impairment exist.
The determination of whether or not goodwill or other intangible assets have
become impaired involves a significant level of judgment in the assumptions
underlying the approach used to determine the value of the reporting units.
Changes in our strategy and/or market conditions could significantly impact
these judgments and require adjustments to recorded amounts of intangible
assets. We will continue to evaluate our goodwill for impairment on an annual
basis or sooner if indicators of potential impairment exist.
Long-lived Assets
We review our long-lived assets, including our property and equipment and
our intangible assets other than goodwill, for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recovered in accordance with SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Term Assets. We look primarily to the undiscounted future
cash flows in our assessment of whether or not long-lived assets have been
impaired.
Contingencies
We are subject to legal proceedings, lawsuits and other claims related to
labor, service and other matters. We are required to assess the likelihood of
any adverse judgments or outcomes to these matters as well as potential ranges
of probable losses. A determination of the amount of reserves required, if any,
for these contingencies are made after careful analysis of each individual
issue. The required reserves may change in the future due to new developments in
each matter or changes in approach, such as a change in settlement strategy in
dealing with these matters.
Equity Transactions
In many of our financing transactions, warrants have been issued.
Additionally, we issue options and warrants to nonemployees from time to time as
payment for services. In all these cases, we apply the principles of SFAS No.
123 to value these awards, which inherently include a number of estimates and
assumptions including stock price volatility factors. We based our estimates and
assumptions on the best information available at the time of valuation, however,
changes in these estimates and assumptions could have a material effect on the
valuation of the underlying instruments.
RESULTS OF OPERATIONS
In June and September 2004, the Company implemented a reduction in work
force and salary reduction program, pursuant to which 73 employees were
terminated and, with respect to the June 2004 reduction in work force, some of
the remaining employees agreed to accept, during the six-month period ending
November 30, 2004, in lieu of a portion of their base salaries, a retention
bonus equal to an individually negotiated multiple of the amount of their
reduction in pay in the form of shares of common stock, payable only if they
remained employed with us on November 30, 2004. Included in operating expenses
for the three and nine months ended September 30, 2004 are non cash expenses of
$1.2 million and $1.5 million, respectively, that have been accrued and will be
paid in shares of common stock.
Comparison of the three months ended September 30, 2004 to the three months
ended September 30, 2003
Revenues - Total revenues from continuing operations for the three months
ended September 30, 2004 increased to $94,000, as compared to $1,000 in 2003.
Substantially all of this amount was earned from a distribution partner in
connection with marketing our product to a targeted group of physicians pursuant
to an agreement, the initial phase of which ended in August 2004.
Expenses - Total operating expenses for the three months ended September
30, 2004 were $7.3 million, compared to $4.9 million for the three months ended
September 30, 2003, an increase of $2.4 million.
Software and technology costs increased $1.1 million, or 134%, from the
three months ended September 30, 2003, to $1.8 million. The increase is due to
the growth in personnel, including $469,000 relating to the six month retention
bonus program that commenced in June 2004 and $700,000 higher salaries and wages
including our engineering and quality assurance groups, which were formed in
December 2003 and the second quarter of 2004, respectively.
Selling, general and administrative expenses increased $1.3 million, or
31%, from the three months ended September 30, 2003, to $5.4 million. The
increase is due to offsetting factors which are summarized
as follows: (a) increases in expenses of approximately $3.1 million relating
primarily to: non cash expenses of approximately $1.1 million relating to the
reduction in the value of stock previously issued to vendors, consultants and
employees for services rendered, $689,000 relating to the six month retention
bonus program that commenced in June 2004, $600,000 increase in total rent
expense including lease abandonment charges of $346,000, $339,000 increase in
legal and professional fees, and 314,000 relating to asset impairment charges,
offset in part by (b) reductions in expenses of approximately $1.9 million
relating primarily to reductions in salaries and wages of $0.8 million,
advertising expenses of $545,000, and consulting fees of $121,000.
Other income (expense) for the three months ended September 30, 2004 were
$(8.6 million), compared to $(502,000) for the quarter ended September 30, 2003,
an increase of $8,087,000. The increase is primarily due to financing costs
incurred in July 2004 relating to additional issuances of debt and equity
instruments in connection with the anti-dilutive provisions of our March 2004
financing transactions and debt issuance costs relating to the issuance of
warrants along with convertible promissory notes which is being amortized over
the six month term of the notes.
The three months ended September 30, 2004 reflects a loss from
discontinued operations of $3.9 million relating to the sale of OnRamp on
September 30, 2004 and its operating loss for the three months. Goodwill of
$3,357,000 was removed from the balance sheet in the sale of OnRamp.
The three months ended September 30, 2004 was impacted by disproportionate
deemed dividends totaling $149,000, caused by the modification of warrants held
by certain warrant holders, to induce these investors to exercise their warrants
and continue to invest in future periods.
As a result of the above factors, the net loss applicable to our common
shareholders for the three months ended September 30, 2004 increased to $19.9
million, as compared to $5.5 million in 2003.
Comparison of the nine months ended September 30, 2004 to the nine months ended
September 30, 2003
Revenues - Total revenues for the nine months ended September 30, 2004
increased to $194,000, or 11%, as compared to $174,000 in 2003. Approximately 84
percent of the 2004 amount was earned from a distribution partner in connection
with marketing our product to a targeted group of physicians pursuant to an
agreement, the initial phase of which ended in August 2004. The revenues in 2003
were in connection with prior software customization agreements with third
parties.
Expenses - Total operating expenses for the nine months ended September
30, 2004 were $21.8 million, compared to $10.0 million for the nine months ended
September 30, 2003, an increase of $11.8 million.
Software and technology costs increased $2.9 million, or 147%, from the
nine months ended September 30, 2003, to $4.9 million. The increase is due to
the growth in personnel, including $498,000 relating to the six month retention
bonus program that commenced in June 2004, approximately $700,000 attributable
to our engineering and quality assurance groups, which were formed in December
2003 and the second quarter of 2004, respectively, $420,000 relating to higher
consulting and travel related costs and $1.4 million relating to technology
tools and communication costs.
Selling, general and administrative expenses increased $9.0 million, or
114%, from the nine months ended September 30, 2003, to $16.9 million. The
increase relates in part to operating expenses incurred by the Company in the
period relating to the development of LifeRamp of approximately $2.1 million.
The remainder of the increase in the 2004 period over the 2003 period is
attributable primarily to the following: increased salaries and related costs
for sales, marketing, customer care, executive and administrative personnel of
approximately $1.5 million (including non-cash compensation charges of $1.4
million), $1.1
million relating to the six month retention bonus program that commenced in June
2004, non cash expenses totaling $1.1 million relating to the reduction in the
value of stock previously issued to vendors, consultants and employees for
services rendered, increased legal and professional fees of approximately $1.4
million, $701,000 relating to increased rent and lease abandonment costs; asset
impairment charges of $314,000, $365,000 for expansion of the marketing and
sales departments, and increased advertising and promotion costs of
approximately $153,000.
Other income (expense) for the nine months ended September 30, 2004 were
$(9.1 million), compared to $(0.6 million) for the period ended September 30,
2003, an increase of $8.5 million. The increase is primarily due to financing
costs incurred in July 2004 relating to additional issuances of debt and equity
instruments in connection with the anti-dilutive provisions of our March 2004
financing transactions and debt issuance costs relating to the issuance of
warrants along with convertible promissory notes which is being amortized over
the six month term of the notes.
The nine months ended September 30, 2004 reflects a loss from discontinued
operations of $4.1 million relating to the sale of OnRamp on September 30, 2004
and its operating loss for the nine months. Goodwill of $3,357,000 was removed
from the balance sheet in the sale of OnRamp.
The nine months ended September 30, 2004 was impacted by disproportionate
deemed dividends totaling $1.0 million, caused by the modification of warrants
held by certain warrant holders and the issuance of additional shares of common
stock to previous investors, to induce these investors to exercise their
warrants and continue to invest in future periods.
As a result of the above factors, the net loss applicable to our common
shareholders for the nine months ended September 30, 2004 increased to $35.8
million, as compared to $11.7 million in 2003.
Liquidity and Capital Resources
We had $386,000 in cash as of September 30, 2004 compared to $1,806,000 as
of December 31, 2003. The net working capital deficit was $(11,312,000) as of
September 30, 2004 compared to a deficit of $(1,098,000) as of December 31,
2003.
During the nine months ended September 30, 2004, we made capital
expenditures to purchase property and equipment of $810,000. During the period
we raised net proceeds of approximately $11.5 million from financing activities;
reflecting $5.5 million from the issuance of our preferred and common stock, net
of offering costs, $1.65 million from the issuance of promissory notes, $4.2
million from the issuance of convertible promissory notes and $2.3 million from
the exercise of options and warrants. Partially offsetting this were payments of
debt and notes payable of $1.8 million.
We have incurred operating losses for the past several years, the majority
of which are related to the development of the Company's healthcare connectivity
technology and related marketing efforts. These losses have produced operating
cash flow deficiencies, and negative working capital, which raise substantial
doubt about our ability to continue as a going concern. Our future operations
are dependent upon management's ability to source additional equity capital.
We expect to continue to experience losses in the near term, until such
time that our technologies can be successfully deployed with physicians to
produce revenues. The continuing deployment, marketing and the development of
our technologies will depend on our ability to obtain additional financing. We
have not generated any significant revenue to date from this technology. We are
currently funding operations through the sale of common stock, and there are no
assurances that additional investments or financings will be available as needed
to support the development and deployment of merged technologies. The need for
us to
obtain additional financing is acute and failure to obtain adequate financing
could result in lost business opportunities, the sale of our company at a
distressed price or may lead to the financial failure of our company.
We are currently funding our operations through the sale of our
securities, and continued to do so in the nine months ended September 30, 2004.
In order to raise funds, the Company has typically issued deeply discounted
securities in terms of beneficial conversion prices of, and/or additional
warrants issued with, the underlying securities. Under our financing agreements,
when we sell securities convertible into our common stock we are required to
register those securities so that the holder will be free to sell them in the
open market. There can be no assurance that additional investments or financings
will be available to us on favorable terms, or at all, as needed to support the
development and deployment of our technology. Failure to obtain such capital on
a timely basis could result in lost business opportunities, the sale of our
technology at a distressed price or the financial failure of our Company. See
"Forward Looking Statements and Associated Risks".
The following table summarizes, as of September 30, 2004, the general
timing of future payments under our outstanding loan agreements, lease
agreements that include noncancellable terms, and other long-term contractual
obligations.
PAYMENTS DUE BY PERIOD
TOTALS 2004 2005 2006 2007 THEREAFTER
------ ---- ---- ---- ---- ----------
Promissory note $ 150,000 $ 150,000
Convertible debt 6,320,000 6,120,000 $ 200,000
Operating leases 2,388,000 $216,000 614,000 $558,000 $490,000 510,000
========== ======== ========== ======== ======== =========
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not hold or engage in transactions with market risk sensitive
instruments.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, including our chief executive officer and chief financial
officer, has carried out an evaluation of the effectiveness of our disclosure
controls and procedures as of September 30, 2004, pursuant to Exchange Act Rules
13a-15(e) and 15(d)-15(e). Our auditors, BDO Seidman, LLP, have advised us that,
under standards established by the American Institute of Certified Public
Accountants ("AICPA"), reportable conditions involve matters that come to the
attention of auditors that relate to significant deficiencies in the design or
operation of internal controls of an organization that, in the auditors'
judgment, could adversely affect the organization's ability to record, process,
summarize and report financial data consistent with the assertions of management
in the consolidated financial statements.
BDO Seidman, LLP has advised our management and our Audit Committee that,
in BDO Seidman, LLP's opinion, there were reportable conditions during 2003,
some of which persisted throughout the first three quarters of 2004, which
constituted material weaknesses in internal control. The Company has taken steps
and has a plan to correct the material weaknesses. More specifically, our
accounting staffing, records and controls were insufficient to identify and
record all accounting entries necessary to reflect our financial position,
results of operations and cash flows in accordance with generally accepted
accounting principles in
the United States, and prepare financial reports in compliance with the rules
and regulations of the SEC. In particular, there were numerous accounting errors
and misapplications of accounting principles generally accepted in the United
States, due in large measure, to the absence of a chief financial officer or
other individual with the appropriate experience and background to handle
accounting and financial reporting matters arising from the complexity of a
number of our transactions. However, BDO Seidman, LLP has advised the Audit
Committee that these conditions were considered in determining the nature,
timing, and extent of the procedures performed for the audit of our financial
statements as of and for the year ended December 31, 2003 and the SAS 100 review
of our financial statements for the quarterly periods ended March 31, June 30
and September 30, 2004, and that these conditions did not affect its audit
report dated April 4, 2004 with respect to our financial statements as of and
for the year ended December 31, 2003, which includes an explanatory paragraph
indicating that our recurring losses from operations and working capital deficit
raise substantial doubt about our ability to continue as a going concern.
Based upon management's review of our internal controls and procedures,
our management, including our current chief executive officer and current chief
financial officer, has determined that we had inadequate controls and procedures
constituting material weaknesses as of December 31, 2003 which persisted during
the first three quarters of fiscal year 2004. Our management has implemented and
continues to implement potential enhancements to our internal controls and
procedures that it believes will remedy the inadequacies in our internal
controls and procedures.
The following sets forth the steps we have taken through the fiscal period
ended September 30, 2004:
- In November 2003, we hired a permanent chief financial officer with
public company reporting experience. This chief financial officer
resigned in September 2004 and was replaced in October 2004.
- In December 2003, we hired a staff accountant responsible for, among
other things, recording accounts payable. The individual assists the
chief financial officer and controller to identify, report and
record transactions in a timely manner and provides additional
segregation of duties consistent with our internal control
objectives.
- Management reassigned certain tasks among the expanded accounting
department, as well as existing administrative personnel to perform
ministerial accounting functions, to improve and better accomplish
bookkeeping, recordkeeping and other accounting functions.
- In August 2004 we hired a Vice President of Finance who will be
wholly dedicated to the areas of internal control, financial
accounting and reporting.
- The review and sign off on all monthly bank reconciliations by the
chief financial officer has been instituted.
- The review of all underlying agreements, contracts and financing
arrangements prior to execution for accounting ramifications has
already been undertaken by the chief financial officer to the extent
possible.
- We strengthened certain controls over cash disbursements, including
adopting a policy that requires dual signatures of two senior
officers, at least one of whom is not involved in a transaction, on
disbursements in excess of $10,000.
- We strengthened certain controls over expense authorization and
imposed financial oversight on all expenditure decisions.
- We implemented a policy requiring attendance by outside counsel at
all Board and Audit Committee meetings, including the timely
preparation of minutes of such meetings and reports to management to
discuss our implementation of any plans to address conditions
constituting the material weaknesses in its internal controls.
We have implemented and intend on implementing the following plans to
enhance our internal controls in the fiscal quarter ending September 30, 2004
and in subsequent fiscal periods:
- The addition of the new Vice President Finance (hired on August 2,
2004) has allowed further redistribution of responsibilities among
the expanded accounting department and, more specifically, provide
the chief financial officer with the necessary time to perform
oversight and supervisory functions in future periods. This includes
timely review of all underlying agreements, contracts and financing
arrangements, expense reports, entries to the general ledger and
periodic filings with the Securities and Exchange Commission.
- Our implementation of formal mechanized month-end, quarter-end and
year-end closing and consolidation processes.
- In July 2004 we appointed two additional independent directors to
serve on our Audit Committee.
- As a result of the resignation of our chief financial officer in
September 2004, we have hired Ronald C. Munkittrick as our new chief
financial officer, effective October 12, 2004.
While we believe that the remedial actions that have been or will be taken
will result in correcting the conditions constituting the material weaknesses in
our internal controls as soon as practicable, the exact timing of when the
conditions will be corrected is dependent upon future events which may or may
not occur. We are making every effort to correct the conditions expediently and
expect to correct the conditions, thereby eliminating the material weaknesses no
later than the fourth quarter of fiscal year 2004. It is estimated that the cost
to implement the actions set forth above will be approximately $300,000 for our
fiscal year ending December 31, 2004 and approximately $200,000 for each fiscal
year thereafter. In addition, substantial additional costs may be necessary to
implement the provisions of section 404 of the Sarbanes-Oxley Act of 2003 as
relates to the company's documentation and testing of the effectiveness of
internal controls in 2005.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in claims and litigation that
arise out of the normal course of business. Currently, other than as noted below
there are no pending matters that in management's judgment may be considered
potentially material to us.
On June 3, 2003 two former executive officers, John Prufeta and Patricia
Minicucci commenced an action against the Company by filing a Complaint in the
Supreme Court of the State of New York for Nassau County (Index No. 03-008576)
in which they alleged that the Company breached separation agreements entered
into in December 2002 with each of them, and that the Company failed to repay
amounts loaned by Mr. Prufeta to the Company. Mr. Prufeta sought approximately
$395,000 (including a loan of $120,000) and Ms. Minicucci sought approximately
$222,000. The Complaint was served on July 23, 2003. On July 15, 2003, the
Company paid in full the $120,000 so loaned together with interest, without
admitting the claimed default. On February 2, 2004, the Supreme Court of the
State of New York for Nassau County issued an order for partial summary judgment
in favor of Ms. Minicucci for the unpaid severance obligations of $138,064. The
Company made severance payments to both former executives through May 2004 but
due to
capital constraints has not made any payments since then. We are continuing
negotiations with the plaintiffs to settle the dispute amicably.
In June 2004, the Company's former law firm commenced and action against
the Company by filing a complaint in the Supreme Court of the State of New York
for the county of New York (Index No. 108499/04) in which they alleged we
breached our retainer agreement by failing to pay $435,280 for legal services
allegedly performed. The Company believes it has valid defenses and/or counter
claims which the Company intends to vigorously pursue.
Item 2. Changes in Securities and Use of Proceeds
On July 14, 2004, the Company entered into a Note and Warrant Purchase
Agreement (the "Note Purchase Agreement") with Cottonwood Ltd. and Willow Bend
Management Ltd., each an accredited investor. Under the terms of the Note
Purchase Agreement, the Company issued a convertible promissory note due January
14, 2005 in the aggregate principal amount of $2,100,000 to each of Cottonwood
Ltd. and Willow Bend Management Ltd. Each promissory note is convertible into
shares of common stock at an initial conversion price of $0.30 cents per share,
or 7,000,000 shares of common stock. In addition, the Company issued to each of
Cottonwood Ltd. and Willow Bend Management Ltd. warrants exercisable into
4,683,823 shares of common stock at an exercise price of $0.11 cents per share,
warrants exercisable into 4,683,823 shares of common stock at an exercise price
of $0.15 cents per share, warrants exercisable into 4,683,823 shares of common
stock at an exercise price of $0.35 cents per share and warrants exercisable
into 4,683,823 shares of common stock at an exercise price of $0.40 cents per
share. The warrants have a term of one year
Redwood Capital Partners, Inc. acted as the Company's placement agent in
connection with the Note Purchase Agreement. As compensation to Redwood for its
services as placement agent and in addition to payment in cash of $320,000 to
Redwood, the Company agreed to issue to Redwood warrants exercisable into
350,000 shares of common stock exercisable at $0.11 cents per share for a one
year term, warrants exercisable into 350,000 shares of common stock exercisable
at $0.15 cents per share for a one year term, warrants exercisable into 350,000
shares of common stock exercisable at $0.35 cents per share for a one year term
and warrants exercisable into 350,000 shares of common stock exercisable at
$0.40 cents per share for a one year term
On July 14, 2004, the Company entered into a Letter Agreement (the "Letter
Agreement") with Hilltop Services, Ltd. ("Hilltop") in connection with the
anti-dilution provisions contained in that certain Common Stock and Warrant
Purchase Agreement, dated March 4, 2004, between Hilltop and the Company (the
"Hilltop Agreement"). Under the terms of the Letter Agreement and in
consideration for the waiver by Hilltop of its anti-dilution rights, the Company
issued to Hilltop an additional 24,130,435 shares of common stock, a convertible
promissory note in the aggregate principal amount of $1,920,000 convertible into
shares of the Company's common stock at a conversion price of $0.30 cents per
share, or 6,400,000 shares of common stock, and warrants exercisable into
4,282,354 shares of common stock at an exercise price of $0.11 cents per share,
warrants exercisable into 4,282,354 shares of common stock at an exercise price
of $0.15 cents per share, warrants exercisable into 4,282,354 shares of common
stock at an exercise price of $0.35 cents per share and warrants exercisable
into 4,282,354 shares of common stock at an exercise price of $0.40 cents per
share. In connection with the above issuance of the common stock and warrants
under the Hilltop agreement, two placement agents received an aggregate of
1,720,360 shares of the Company's Common Stock.
In August 2004 two individuals each received 500,000 shares of our common
stock and warrants exercisable into 1,000,000 shares of common stock at an
exercise price of $0.18 cents per share as
compensation for financial advisory services performed for the Company. The
warrants have a term of five years.
In August and September 2004 the Company issued an aggregate of 16,766,816
shares of common stock to various vendors and consultants in connection with
settlement and satisfaction of the Company's obligations to such parties.
The sale and issuance of the above securities were determined to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act or Regulation D promulgated thereunder, as transactions by an
issuer not involving a public offering, where the purchasers were either
accredited or sophisticated and represented their intention to acquire
securities for investment purposes only and not with a view to or for sale in
connection with any distribution thereof, and where the purchasers received or
had access to adequate information about the Company.
Item 6. Exhibits
a. Exhibits
EXHIBIT DESCRIPTION
NO.
4.1 Note and Warrant Purchase Agreement, dated as of July 14, 2004,
relating to the sale of convertible promissory notes by and between the
Company, Cottonwood Ltd. and Willow Bend Management Ltd., incorporated
by reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-3 filed with the SEC on September 24, 2004.
4.2 Convertible Promissory Note dated July 14, 2004 issued to Cottonwood
Ltd. in the aggregate principal amount of $2,100,000, incorporated by
reference to Exhibit 4.2 to the Company's Registration Statement on
Form S-3 filed with the SEC on September 24, 2004.
4.3 Convertible Promissory Note dated July 14, 2004 issued to Willow Bend
Management Ltd. in the aggregate principal amount of $2,100,000,
incorporated by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-3 filed with the SEC on September 24, 2004.
4.4 Convertible Promissory Note dated July 14, 2004 issued to Hilltop
Services, Ltd. in the aggregate principal amount of $1,920,000,
incorporated by reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-3 filed with the SEC on September 24, 2004.
4.5 Warrant dated July 14, 2004 issued to each of Cottonwood Ltd. and
Willow Bend Management Ltd. at an exercise price of $0.11 cents,
incorporated by reference to Exhibit 4.5 to the Company's Registration
4.6 Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant
dated July 14, 2004 issued to each of Cottonwood Ltd. and Willow Bend
Management Ltd. at an exercise price of $0.15 cents, incorporated by
reference to Exhibit 4.6 to the Company's Registration
4.7 Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant
dated July 14, 2004 issued to each of Cottonwood Ltd. and Willow Bend
Management Ltd. at an exercise price of $0.35 cents, incorporated by
reference to Exhibit 4.7 to the Company's Registration
4.8 Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant
dated July 14, 2004 issued to each of Cottonwood Ltd. and Willow Bend
Management Ltd. at an exercise price of $0.40 cents, incorporated by
reference to Exhibit 4.8 to the Company's Registration
4.9 Statement on Form S-3 filed with the SEC on September 24, 2004. Warrant
dated July 14, 2004 issued to Hilltop Services, Ltd. at an exercise
price of $0.11 cents, incorporated by reference to Exhibit 4.9 to the
Company's Registration Statement on Form S-3 filed with the SEC on
September 24, 2004.
4.10 Warrant dated July 14, 2004 issued to Hilltop Services, Ltd. at an
exercise price of $0.15 cents, incorporated by reference to Exhibit
4.10 to the Company's Registration Statement on Form S-3 filed with the
SEC on September 24, 2004.
4.11 Warrant dated July 14, 2004 issued to Hilltop Services, Ltd. at an
exercise price of $0.35 cents, incorporated by reference to Exhibit
4.11 to the Company's Registration Statement on Form S-3 filed with the
SEC on September 24, 2004.
4.12 Warrant dated July 14, 2004 issued to Hilltop Services, Ltd. at an
exercise price of $0.40 cents, incorporated by reference to Exhibit
4.12 to the Company's Registration Statement on Form S-3 filed with the
SEC on September 24, 2004.
4.13 Warrant dated July 14, 2004 issued to Redwood Capital Partners, Inc. at
an exercise price of $0.11 cents, incorporated by reference to Exhibit
4.13 to the Company's Registration Statement on Form S-3 filed with the
SEC on September 24, 2004.
4.14 Warrant dated July 14, 2004 issued to Redwood Capital Partners, Inc. at
an exercise price of $0.15 cents, incorporated by reference to Exhibit
4.14 to the Company's Registration Statement on Form S-3 filed with the
SEC on September 24, 2004.
4.15 Warrant dated July 14, 2004 issued to Redwood Capital Partners, Inc. at
an exercise price of $0.35 cents, incorporated by reference to Exhibit
4.15 to the Company's Registration Statement on Form S-3 filed with the
SEC on September 24, 2004.
4.16 Warrant dated July 14, 2004 issued to Redwood Capital Partners, Inc. at
an exercise price of $0.40 cents, incorporated by reference to Exhibit
4.16 to the Company's Registration Statement on Form S-3 filed with the
SEC on September 24, 2004.
4.17 Warrants dated August 18, 2004 issued to Mr. Richard Rosenblum at an
exercise price of $0.18 cents, incorporated by reference to Exhibit
4.17 to the Company's Registration Statement on Form S-3 filed with the
SEC on September 24, 2004.
4.18 Warrants dated August 18, 2004 issued to Mr. David Stefansky at an
exercise price of $0.18 cents, incorporated by reference to Exhibit
4.18 to the Company's Registration Statement on Form S-3 filed with the
SEC on September 24, 2004.
4.19 Letter Agreement, dated as of July 14, 2004, by and between the Company
and Hilltop Services, Ltd, incorporated by reference to Exhibit 4.19 to
the Company's Registration Statement on Form S-3 filed with the SEC on
September 24, 2004.
4.20 Settlement Agreement and Release, dated as of August 20, 2004, by and
between the Company and Clinton Group, Inc., incorporated by reference
to Exhibit 4.25 to the Company's Registration Statement on Form S-3
filed with the SEC on September 24, 2004.
10.1 Asset Purchase Agreement among Ramp Corporation and Berdy Medical
Systems, Inc., dated October 18, 2004.
10.2 Employment Agreement between the Company and Ronald C. Munkittrick,
dated as of October 12, 2004.
31.1 Certification by Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification by Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification by Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, and the undersigned has also signed in
his capacity as principal financial officer of the Registrant.
Dated: November 15, 2004
Ramp Corporation
----------------
(Registrant)
/s/ Ron Munkittrick
-------------------
Ron Munkittrick
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
4.1 Note and Warrant Purchase Agreement, dated as of July 14, 2004,
relating to the sale of convertible promissory notes by and
between the Company, Cottonwood Ltd. and Willow Bend Management
Ltd., incorporated by reference to Exhibit 4.1 to the Company's
Registration = Statement on Form S-3 filed with the SEC on
September 24, 2004. 4.2 Convertible Promissory Note dated July 14,
2004 issued to Cottonwood Ltd. in the aggregate principal amount
of $2,100,000, incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-3 filed with the SEC on
September 24, 2004.
4.3 Convertible Promissory Note dated July 14, 2004 issued to Willow
Bend Management Ltd. in the aggregate principal amount of
$2,100,000, incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-3 filed with the SEC on
September 24, 2004.
4.4 Convertible Promissory Note dated July 14, 2004 issued to Hilltop
Services, Ltd. in the aggregate principal amount of $1,920,000,
incorporated by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-3 filed with the SEC on September
24, 2004.
4.5 Warrant dated July 14, 2004 issued to each of Cottonwood Ltd. and
Willow Bend Management Ltd. at an exercise price of $0.11 cents,
incorporated by reference to Exhibit 4.5 to the
4.6 Company's Registration Statement on Form S-3 filed with the SEC on
September 24, 2004. Warrant dated July 14, 2004 issued to each of
Cottonwood Ltd. and Willow Bend Management Ltd. at an exercise
price of $0.15 cents, incorporated by reference to Exhibit 4.6 to
the
4.7 Company's Registration Statement on Form S-3 filed with the SEC on
September 24, 2004. Warrant dated July 14, 2004 issued to each of
Cottonwood Ltd. and Willow Bend Management Ltd. at an exercise
price of $0.35 cents, incorporated by reference to Exhibit 4.7 to
the
4.8 Company's Registration Statement on Form S-3 filed with the SEC on
September 24, 2004. Warrant dated July 14, 2004 issued to each of
Cottonwood Ltd. and Willow Bend Management Ltd. at an exercise
price of $0.40 cents, incorporated by reference to Exhibit 4.8 to
the
4.9 Company's Registration Statement on Form S-3 filed with the SEC on
September 24, 2004. Warrant dated July 14, 2004 issued to Hilltop
Services, Ltd. at an exercise price of $0.11 cents, incorporated
by reference to Exhibit 4.9 to the Company's Registration
Statement on Form S-3 filed with the SEC on September 24, 2004.
4.10 Warrant dated July 14, 2004 issued to Hilltop Services, Ltd. at an
exercise price of $0.15 cents, incorporated by reference to
Exhibit 4.10 to the Company's Registration Statement on
4.11 Form S-3 filed with the SEC on September 24, 2004. Warrant dated
July 14, 2004 issued to Hilltop Services, Ltd. at an exercise
price of $0.35 cents, incorporated by reference to Exhibit 4.11 to
the Company's Registration Statement on
4.12 Form S-3 filed with the SEC on September 24, 2004. Warrant dated
July 14, 2004 issued to Hilltop Services, Ltd. at an exercise
price of $0.40 cents, incorporated by reference to Exhibit 4.12 to
the Company's Registration Statement on
4.13 Form S-3 filed with the SEC on September 24, 2004. Warrant dated
July 14, 2004 issued to Redwood Capital Partners, Inc. at an
exercise price of $0.11 cents, incorporated by reference to
Exhibit 4.13 to the Company's Registration
4.14 Statement on Form S-3 filed with the SEC on September 24, 2004.
Warrant dated July 14, 2004 issued to Redwood Capital Partners,
Inc. at an exercise price of $0.15 cents, incorporated by
reference to Exhibit 4.14 to the Company's Registration
4.15 Statement on Form S-3 filed with the SEC on September 24, 2004.
Warrant dated July 14, 2004 issued to Redwood Capital Partners,
Inc. at an exercise price of $0.35 cents, incorporated by
reference to Exhibit 4.15 to the Company's Registration
4.16 Statement on Form S-3 filed with the SEC on September 24, 2004.
Warrant dated July 14, 2004 issued to Redwood Capital Partners,
Inc. at an exercise price of $0.40 cents, incorporated by
reference to Exhibit 4.16 to the Company's Registration
4.17 Statement on Form S-3 filed with the SEC on September 24, 2004.
Warrants dated August 18, 2004 issued to Mr. Richard Rosenblum at
an exercise price of $0.18 cents, incorporated by reference to
Exhibit 4.17 to the Company's Registration Statement on
4.18 Form S-3 filed with the SEC on September 24, 2004. Warrants dated
August 18, 2004 issued to Mr. David Stefansky at an exercise price
of $0.18 cents, incorporated by reference to Exhibit 4.18 to the
Company's Registration Statement on Form S-3 filed with the SEC on
September 24, 2004.
4.19 Letter Agreement, dated as of July 14, 2004, by and between the
Company and Hilltop Services, Ltd, incorporated by reference to
Exhibit 4.19 to the Company's Registration Statement on Form S-3
filed with the SEC on September 24, 2004.
4.20 Settlement Agreement and Release, dated as of August 20, 2004, by
and between the Company and Clinton Group, Inc., incorporated by
reference to Exhibit 4.25 to the Company's Registration Statement
on Form S-3 filed with the SEC on September 24, 2004.
*10.1 Asset Purchase Agreement among Ramp Corporation and Berdy Medical
Systems, Inc., dated October 18, 2004.
*10.2 Employment Agreement between the Company and Ronald C.
Munkittrick, dated as of October 12, 2004.
*31.1 Certification by Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
*31.2 Certification by Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
*32 Certification by Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
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* Filed herewith