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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
OR
[ ] 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 0-10909
PHASE III MEDICAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2343568
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
330 SOUTH SERVICE ROAD, SUITE 120, MELVILLE, NEW YORK 11747
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 631-574-4955
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act of 1934). Yes __ No X
29,256,460 SHARES, $.001 PAR VALUE, AS OF APRIL 30, 2004
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
I N D E X
Page No.
Part I - Financial Information: -------
Item 1. Financial Statements (Unaudited):
Balance Sheets
At March 31, 2004 and December 31, 2003 3
Statements of Operations
For the three months
ended March 31, 2004 and 2003 4
Statements of Cash Flows
for the three months ended
March 31, 2004 and 2003 5
Notes to Unaudited Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of 10-11
Operations
Item 3. Quantitative and Qualitative Disclosures 12
About
Market Risk
Item 4. Controls and Procedures 12
Part II - Other Information:
Item 1. Legal Proceedings 13
Item 3. Defaults Upon Senior Securities 13
Item 6. Exhibits and Reports on Form 8-K. 13
Signatures 14
2
PHASE III MEDICAL, INC.
BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
2004 2003
------------------------
Current assets:
Cash and equivalents $23,645 $210,947
Prepaid expenses and other current
assets 30,791 18,024
------------------------
Total current assets 54,436 228,971
Property and equipment, net 2,740 1,935
Deferred acquisition costs 58,509 77,782
Other assets 3,000 3,000
------------------------
$118,685 $311,688
========================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Interest and dividends payable -
preferred stock $445,117 $433,196
Accounts payable 125,398 87,896
Accrued liabilities 104,001 92,115
Notes payable 520,000 400,000
Current portion of long-term debt 3,549 9,513
-------------------------
Total current liabilities 1,198,065 1,022,720
Unearned revenues 83,226 110,568
Series A mandatorily redeemable
convertible preferred stock 681,174 681,174
Stockholders' Deficit:
Preferred stock; authorized,
5,000,000 shares
Series B convertible redeemable
preferred stock,
liquidation value, 10 shares of
common stock per
share; $0.01 par value;
authorized, 825,000 shares;
issued and outstanding, 10,000
shares 100 100
Common stock, $.001 par value;
authorized,
250,000,000 shares; issued and
outstanding,
27,506,460 shares at March 31,
2004 and
26,326,460 shares at December
31, 2003 27,507 26,327
Additional paid-in capital 9,346,773 9,232,753
Accumulated deficit (11,218,160)(10,761,954)
-------------------------
Total stockholders' deficit (1,843,780) (1,502,774)
-------------------------
$118,685 $311,688
=========================
See accompanying notes to financial statements
3
PHASE III MEDICAL, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
2004 2003
---- ----
Earned revenues $ 27,342 $ 18,004
Direct costs (19,273) (12,923)
---------------------------------
Gross profit 8,069 5,081
Selling, general and administrative (149,083) (128,578)
Purchase of medical royalty stream (240,000) -
---------------------------------
Operating loss (381,014) (123,497)
Other income (expense):
Interest income 159 4
Interest expense (63,430) (19,487)
Interest expense - Series A mandatorily redeemable
convertible preferred stock (11,921) -
---------------------------------
Net loss (456,206) (142,980)
Preferred dividend - (11,921)
---------------------------------
Net loss attributable to common stockholders $ (456,206) $ (154,901)
=================================
Net loss per common share $ (.02) $ (.01)
=================================
Weighted average
common shares outstanding 26,650,636 22,517,599
=================================
See accompanying notes to financial statements.
4
PHASE III MEDICAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three
Months Ended
March 31,
--------------------------
2004 2003
--------------------------
Cash flows from operating activities:
Net loss $(456,206) $(142,980)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common shares issued and stock
options granted for services rendered and
interest expense 19,200 16,255
Depreciation 308
Deferred acquisition costs 19,273 12,923
Changes in operating asset and
liabilities:
Prepaid expenses and other current assets (12,767) (9,006)
Unearned revenues (27,342) (18,004)
Accounts payable, accrued expenses,
and other current liabilities 61,309 81,737
--------------------------
Net cash used in operating activities (396,225) (59,075)
--------------------------
Cash flows from investing activities:
Acquisition of property and equipment (1,113) (587)
--------------------------
Net cash used in investing activities (1,113) (587)
--------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 96,000 750
Net proceeds from advances on notes payable 120,000 60,000
Repayment of long-term debt (5,964) (5,466)
--------------------------
Net cash provided by financing activities 210,036 55,284
--------------------------
Net decrease in cash and cash equivalents (187,302) (4,378)
Cash and cash equivalents at beginning of period 210,947 19,255
--------------------------
Cash and cash equivalents at end of period $23,645 $14,877
==========================
Three Month Ended March 31,
-------------------------------
2004 2003
-------------------------------
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for:
Interest $17,299 $663
===============================
Supplemental Schedule of Non-cash
Financing Activities:
Net accrual of dividends on Series A
Preferred Stock $- $11,921
===============================
Issuance of common stock for services
rendered $- $3,124
===============================
Compensatory element of stock options $47,629 $13,131
===============================
See accompanying notes to financial statements.
5
PHASE III MEDICAL, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Phase III Medical, Inc. ("Phase III" or the "Company") (formerly known as
Corniche Group Incorporated) provides capital and guidance to companies,
within the medical sector, in exchange for revenues, royalties and other
contractual rights known as "royalty interests", that entitle it to receive
a portion of revenue from the sale of pharmaceuticals, medical devices and
biotechnology products. Previously, the Company was a provider of extended
warranties and service contracts via the Internet at warrantysuperstore.com
through June 30, 2002. The business of the Company today comprises the "run
off" of its sale of extended warranties and service contracts via the
Internet and the new business opportunity it is pursuing in the
medical/bio-tech sector.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, the statements
contain all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial position as of March 31, 2004 and
December 31, 2003, the results of operations for the three months ended
March 31, 2004 and 2003 and the cash flows for the three months ended March
31, 2004 and 2003. The results of operations for the three months ended
March 31, 2004 are not necessarily indicative of the results to be expected
for the full year.
The Company's financial statements have been prepared assuming the Company
will continue as a going concern. Accordingly, the Company currently has no
operations and limited financial resources to pay its current expenses and
liabilities. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
The December 31, 2003 balance sheet has been derived from the audited
financial statements at that date included in the Company's Annual Report on
Form 10-K. These unaudited financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K.
NOTE 3 -STOCK OPTIONS
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting
for Stock-Based Compensation-Transition and Disclosure - an amendment of
FASB Statement No. 123 ("SFAS 148"). SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation and does
not permit the use of the original SFAS No. 123 prospective method of
transition in fiscal years beginning after December 15, 2003. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and the
effect of the method used on reported results,regardless of whether, when,
or how an entity adopts preferable fair value based method of accounting.
SFAS No. 148 improves the prominence and clarity of the pro forma
disclosures required by SFAS No. 123 by prescribing a specific tabular
format and by requiring disclosure in the "Summary of Significant Accounting
Policies" or its equivalent and improves the timeliness of those disclosures
by requiring their inclusion in financial reports for interim periods. The
Company has adopted the disclosure requirements of SFAS No. 148. The Company
will continue to account for stock-based employee compensation under APB
Opinion No. 25 and its related interpretations.
6
The following table illustrates the effect on net loss and net loss per
share if the Company had applied the fair value recognition provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based
employee compensation for all periods:
Three Months Ended March 31,
-------------------------------------
2004 2003
---------------- ----------------
Net loss as reported $ (456,206) $ (154,901)
Additional compensation (300,795) (7,490)
---------------- ----------------
Adjusted net loss $ (757,001) $ (162,391)
================ ================
Net loss per share as reported $ (.02) $ (.01)
================ ================
Adjusted net loss per share $ (.03) $ (.01)
================ ================
NOTE 4 - NOTES PAYABLE
In September 2002, the Company sold to accredited investors five 60-day
promissory notes in the principal sum of $25,000 each, resulting in net
proceeds to the Company of $117,500, net of offering costs. The notes bear
interest at 15% per annum payable at maturity. The notes include a default
penalty pursuant to which if the notes are not paid on the due date the
holder shall have the option to purchase twenty five thousand shares of the
Company's common stock for an aggregate purchase price of $125. If the non
payment continues for 30 days, then on the 30th day, and at the end of each
successive 30-day period until the note is paid in full, the holder shall
have the option to purchase an additional twenty five thousand shares of the
Company's common stock for an aggregate purchase price of $125. During the
three months ended March 31, 2004, options for 200,000 shares of common
stock were exercised by the note holders. At March 31, 2004, the Company had
reserved 875,000 shares of the Company's common stock for issuance against
exercise of the options granted pursuant to the default penalty. At March
31, 2004, $125,000 of these notes were unpaid along with $28,879 of accrued
interest.
On March 17, 2003, the Company commenced a private placement offering which
raised $250,000 in 6-month promissory notes in increments of $5,000 bearing
interest at 15% per annum. Only selected investors which qualify as
"accredited investors" as defined in Rule 501(a) under the Securities Act of
1933, as amended, are eligible to purchase these promissory notes. As of
March 31, 2004, $250,000 remains outstanding. All of these notes are in
default, and accordingly the interest rate has been increased to 20%. All
interest payments on these notes have been made.
On August 26, 2003, the Company borrowed $25,000 from a then consultant to
the Company. The loan bears interest at 8% and as of March 31, 2004,
$25,953, including accrued interest of $953, remains unpaid.
In February 2004, the Company commenced a sale of 30 day 20% notes in the
amount of $125,000 to three accredited investors to fund current operations.
It is anticipated that these notes will be repaid from the proceeds of the
amended equity private placement. Two of these notes have a default
provision that if they are not paid within 30 days, there is an additional
interest payment of $250 per $25,000 for each 30 day period or part thereof.
As of March 31, 2004, $120,000 of these notes remains unpaid. All interest
payments have been paid timely.
NOTE 5 - SERIES "A" MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Certificate of Designation for the Company's Series A Preferred Stock
provides that at any time after December 1, 1999 any holder of Series A
Preferred Stock may require the Company to redeem his shares of Series A
Preferred Stock (if there are funds with which the Company may legally do
so) at a price of $1.00 per share. Notwithstanding the foregoing redemption
provisions, if any dividends on the Series A Preferred Stock are past due,
no shares of Series A Preferred Stock may be redeemed by the Company unless
all outstanding shares of Series A Preferred Stock are simultaneously
redeemed. The holders of Series A Preferred Stock may convert their Series A
Preferred Stock into shares of Common Stock of the Company at a price of
$5.20 per share. At March 31, 2004 and December 31, 2003, 681,174 shares of
Series A Preferred Stock were outstanding.
7
NOTE 6 - STOCKHOLDERS' EQUITY
(a) Common Stock:
During the three months ended March 31, 2004, the Company issued 30,000
shares of its common stock whose fair value was $4,200 to two note
holders as additional interest.
The Company amended its equity private placement to raise up to $4
million through the sale of up to 40 million shares of Common Stock in
increments of $5,000 or 50,000 shares. Only selected investors which
qualify as "accredited investors" as defined in Rule 501(a) under the
Securities Act of 1933, as amended, are eligible to purchase these
shares. The initial placement closed on December 31, 2003. During the
three months ended March 31, 2004, the Company sold 950,000 common
shares resulting in net proceeds to the Company of $95,000. Such shares
have not been registered under the Securities Act and may not be offered
or sold in the United States absent registration or an applicable
exemption of registration requirements.
As described in Note 4, the Company granted purchasers of the Company's
September 2002 60-day promissory notes, options to purchase shares of
common stock if the Company defaulted on the payment of principal or
interest on such promissory notes. For each 30 day period, the purchaser
is granted the option to purchase 25,000 shares of common stock for an
aggregate price of $125 on the 30th day. In January 2004, two holders of
such promissory notes exercised their options and purchased 200,000
shares of common stock resulting in net proceeds to the Company of
$1,000.
(b) Warrants:
The Company has issued common stock purchase warrants from time to time
to investors in private placements, certain vendors, underwriters, and
directors and officers of the Company. A total of 326,500 shares of
common stock are reserved for issuance upon exercise of outstanding
warrants as of March 31, 2004 at prices ranging from $0.12 to $8.10 and
expiring through December 2008. In connection with the September 2003
equity private placement, the Company issued a 5 year warrant to
purchase 282,500 shares of its Common Stock at an exercise price of
$0.12 per share to its retained placement agent, Robert M. Cohen &
Company. The warrant contains piggyback registration rights.
(c) Stock Option Plans:
In February 2003, the Company adopted the 2003 Equity Participation Plan,
which was approved by stockholders at the Company's Annual Meeting on
July 24, 2003. Under this plan, the Company has reserved 15,000,000
shares of common stock for the grant of incentive stock options and
non-statutory stock options to employees and non-employee directors,
consultants and advisors.
Information with respect to options under the 2003 Equity Participation
Plan is summarized as follows:
For the Three Months Ended
March 31, 2004
-------------- --------------
Shares Prices
-------------- --------------
Outstanding at beginning of period 3,700,000 $0.03 to $0.18
Granted 1,710,000 $0.10 to $0.15
Expired - -
Cancelled - -
-------------- --------------
Outstanding at end of period 5,410,000 $0.03 to $0.18
============== ==============
Options are granted at an exercise price equal to the fair value of the
common stock at the grant date. However, included above are 300,000
options to purchase the Company's common stock at $ .10 per share
granted at an exercise price of $.10 when the fair value on that date
was $.15. Therefore the Company recorded an expense of $15,000
associated with that transaction. Options to purchase 800,000 of the
Company's common stock were granted to four members of the Company's
Board of Advisors pursuant to their agreements. Each advisor was issued
options to purchase 200,000 shares of the Company's common stock at an
exercise price of $.15 per share. The balance of the options granted
were issued for services to consultants and directors of the Company.
8
NOTE 7 - COMMITMENTS AND CONTINGENCIES
On March 20, 2004,the Company entered into a consulting agreement which
will provide the Company with advice as to business development
possibilities for the services and technology of NeoStem Inc. (See
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS). The agreement provides for the issuance of options to
purchase 300,000 shares of the Company's common stock at an exercise
price of $.10 per share. This option is immediately vested and expires
ten years from the date of issue. The agreement also provides for the
payment of $2,500 per month for each month after the Company has
received capital contributions of $1,000,000 from the date of the
agreement. If certain performance levels are met, the Company is
obligated to issue an additional option to purchase 500,000 shares of
the Company's common stock for an exercise price of $.10 per share.
On December 12, 2003, the Company signed a royalty agreement with
Parallel Solutions, Inc. "(PSI") to develop a new bioshielding platform
technology for the delivery of therapeutic proteins and small molecule
drugs in order to extend circulating half-life to improve
bioavailability and dosing regimen, while maintaining or improving
pharmacologic activity. The agreement provides for PSI to pay the
Company a percentage of the revenue received from the sale of certain
specified products or licensing activity. The Company is providing
capital and guidance to PSI to conduct a proof of concept study to
improve an existing therapeutic protein with the goal of validating the
bioshielding technology for further development and licensing the
technology. During the quarter ended March 31, 2004, the Company paid
$240,000 as specified in the agreement which brought the total paid
through March 31, 2004 to $320,000.
NOTE 8 - INDUSTRY AND GEOGRAPHICAL SEGMENTAL INFORMATION
The Company's operations are currently in one segment, namely the "run
off" of its sale of extended warranties and service contracts via the
Internet. Additionally, the Company is currently endeavoring to
establish new business operations in the medical/bio-tech sector. The
Company did not realize any revenue from its purchase of the royalty
interest. The Company's operations are conducted entirely in the United
States.
NOTE 9 - SUBSEQUENT EVENTS
The Company has entered into an agreement with an advisor in connection
with its amended private placement to provide assistance in finding
qualified investors. The agreement calls for the payment of 10% of the
funds raised by the Company as a direct result of introductions made by
the advisor. In addition, the Company is obligated to pay a 2%
non-accountable expense allowance on all funds raised that are subject
to the 10% payment.
The Company has sold 1,750,000 shares of its common stock through the
amended private placement since March 31, 2004 with net proceeds to the
Company of $175,000.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q and the documents incorporated herein contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. When used in this
Quarterly Report, statements that are not statements of current or historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "plan", "intend," "may," "will," "expect," "believe",
"could," "anticipate," "estimate," or "continue" or similar expressions or other
variations or comparable terminology are intended to identify such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. Except
as required by law, the Company undertakes no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
GENERAL
The Company provides capital and guidance to companies, within the medical
sector, in exchange for revenues, royalties and other contractual rights known
as "royalty interests" that entitle it to receive a portion of revenue from the
sale of pharmaceuticals, medical devices and biotechnology products. On December
12, 2003, the Company signed a royalty agreement with Parallel Solutions, Inc.
"(PSI") to develop a new bioshielding platform technology for the delivery of
therapeutic proteins and small molecule drugs in order to extend circulating
half-life to improve bioavailability and dosing regimen, while maintaining or
improving pharmacologic activity. The agreement provides for PSI to pay the
Company a percentage of the revenue received from the sale of certain specified
products or licensing activity. The Company is providing capital and guidance to
PSI to conduct a proof of concept study to improve an existing therapeutic
protein with the goal of validating the bioshielding technology for further
development and licensing the technology. During the three months ended March
31, 2004, the Company provided $240,000 to PSI pursuant to the royalty
agreement. The Company remains obligated under this agreement to pay an
additional $680,000. Subsequent to March 31, 2004, the Company paid an
additional $80,000 to PSI.
On January 19, 2004, the Company entered into a letter of intent with NeoStem,
Inc., a California company, whose primary business is to establish an autologous
adult stem cell bank. If a definitive agreement is reached, Phase III would
provide funding and guidance in connection with the adult stem cell banking
enterprise in exchange for a share of the revenues derived from such enterprise.
No assurances can be given that a definitive revenue sharing agreement will be
finalized, that the Company will raise the capital needed to fund its
obligations to NeoStem, that NeoStem's collection, processing and storage
technology will be successfully implemented, that NeoStem will be able to
commercialize its adult stem cell banking enterprise, or that there will be
market acceptance of any such enterprise sufficient to generate any material
revenues for NeoStem or any material royalty revenues for the Company, or that
any stem cell therapeutic strategies will be successfully developed or
commercialized. As of March 31, 2004 no payments have been made under this
letter of intent.
On March 31, 2004, the Company signed a Joint Venture Agreement with NeoStem to
provide NeoStem with potential clients for its services. In exchange for such
introductions, Phase III will receive 10% of any revenues or fees and 2% of any
research grants received from or as a result of the introduced client.
RESULTS OF OPERATIONS
The Company recognizes revenue from its warranty service contracts business over
the life of contracts executed. Additionally, the Company purchased insurance to
fully cover any losses under the service contracts from a domestic carrier. The
insurance premium expense and other costs related to the sale are amortized
ratably over the life of the contracts.
Three Months Ended March 31, 2004 Compared To Three Months Ended March 31, 2003.
The Company recognized revenues from the sale of extended warranties and service
contracts via the Internet of $27,342 for the three months ended March 31, 2004
as compared to $18,004 for the three months ended March 31, 2003. The revenues
generated in the quarter were derived entirely from revenues deferred over the
life of contracts sold in prior periods. Similarly, direct costs incurred were
$19,273 and $12,923 for the three months ended March 31, 2004 and 2003,
respectively. In addition, the Company paid $240,000 for the purchase of royalty
interests as per its agreement with PSI. Due to the uncertainty of the future
revenues, the amounts paid have been charged to current operations.
General and administration expenses increased 15.9% to $149,083 for the three
months ended March 31, 2004 as compared to $128,578 for the three months ended
March 31, 2003. The increase in general and administrative expenses of
approximately $21,000 is primarily due to an increase in payroll and related
10
costs of $35,000, D&O insurance of $15,000 and rent of $6,000, partially offset
by reductions in travel and subsistence costs of $13,000, consultants of
$13,000, directors fees of $6,000 and other small differences of $3,000.
Interest expense increased by approximately $44,000 for the three months ended
March 31, 2004 from the three months ended March 31, 2003 primarily as a result
of short-term loans obtained in the last nine months of fiscal year ended
December 31, 2003 and the three months ended March 31, 2004.
For the reasons cited above, net loss for the three months ended March 31, 2004
increased to $456,206 from $154,901 for the three months ended March 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
The following chart represents the net funds provided by or used in operating,
financing and investment activities for each period indicated:
Three Months Ended
-------------------
March 31, 2004 March 31, 2003
Cash used in
Operating Activities $(396,225) $ (59,075)
Cash used by
Investing Activities $ (1,113) $ (587)
Cash provided by
Financing Activities $ 210,036 55,284
The Company incurred a net loss of $456,206 for the three months ended March 31,
2004. Such loss adjusted for non-cash items such as deferred revenues (net of
deferred acquisition costs) ($8,069) and other non cash credits totaling $98,585
resulted in cash used in operations totaling $396,225 for the three months ended
March 31, 2004, including working capital movements of $913.
To meet its cash requirement for the three months ended March 31, 2004, the
Company relied on:
(i) the proceeds from the issuance of Promissory Notes in the amount of
$120,000; and (ii) the proceeds from the sale of the Company's common stock in
the amount of $96,000 (iii) proceeds from the settlement of the Strandtek
litigation
The Company has a contractual commitment to pay PSI an additional $680,000
through the end of its agreement. As of March 31, 2004, the Company had cash
balances totaling $23,645. The Company will rely on its current cash to fund its
new business operations until they become cash generative. The Company amended
its equity private placement to raise up to $4 million through the sale of up to
40 million shares of Common Stock in increments of $5,000 or 50,000 shares. Only
selected investors which qualify as "accredited investors" as defined in Rule
501(a) under the Securities Act of 1933, as amended, are eligible to purchase
these shares. The initial placement closed on December 31, 2003. As of March 31,
2004, the Company has sold 950,000 common shares resulting in net proceeds to
the Company of $95,000. Such shares have not been registered under the
Securities Act and may not be offered or sold in the United States absent
registration or an applicable exemption of registration requirements.
Additionally, the Company issued $125,000 of 20% 30 day promissory notes to fund
the PSI payments and current operating expenses. The Company repaid $5,000 of
these notes as of March 31, 2004. The Company plans to meet its current and
future obligations through the sales of common stock and loans from accredited
investors. There can be no assurance that sufficient proceeds will be raised to
meet current obligations when due.
The Company's financial statements have been prepared assuming the Company will
continue as a going concern. The Company currently has no operations and limited
financial resources to pay its current expenses and liabilities. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
INFLATION
The Company does not believe that its operations have been materially influenced
by inflation for the three months ended March 31, 2004, a situation which is
expected to continue for the foreseeable future.
11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
Item 4. CONTROLS AND PROCEDURES
(a) Our principal executive officer has concluded, based on his
evaluation of, the effectiveness of our "disclosure controls and
procedures" as of the end of the period covered by this quarterly
report on Form 10-Q (as defined under Rule 13a-15(e) and Rule 15d-15(e)
of the Securities Exchange Act of 1934) were effective as of such date
to ensure that information we are required to disclose in the reports
we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's
rules and forms, and include controls and procedures designed to ensure
that information we are required to disclose in such reports is
accumulated and communicated to management, including our principal
executive, as appropriate, to allow timely decisions regarding required
disclosure.
(b) During our last fiscal quarter and subsequent to our evaluation,
there were no significant changes in internal controls or other factors
that have materially affected, or reasonably likely to materially
affect our internal controls over financial reporting.
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PHASE III MEDICAL, INC.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings or claims
against the Company
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company is in default on the September 2002 60-day promissory notes sold to
accredited investors in the amount of $125,000. The notes include a default
penalty pursuant to which if the notes are not paid on the due date the holder
shall have the option to purchase twenty five thousand shares of the Company's
common stock for an aggregate purchase price of $125. If the nonpayment
continues for 30 days, then on the 30th day, and at the end of each successive
30-day period until the note is paid in full, the holder shall have the option
to purchase an additional twenty five thousand shares of the Company's common
stock for an aggregate purchase price of $125. During the three months ended
March 31, 2004, options for 200,000 shares were exercised by the note holders.
At March 31, 2004, the Company had reserved 875,000 shares of the Company's
common stock for issuance against exercise of the options granted pursuant to
the default penalty.
Notes issued from March through August 2003, for $250,000, are in default and
bear interest at 20% per annum. Notes issued in February 2004, for $125,000, are
in default. Two of these notes, for $75,000, require an additional interest
payment of $250 per $25,000 invested for each 30 day period they remain unpaid.
At March 31, 2004, $120,000 of these notes remains unpaid.
Cumulative dividends payable on Series A Convertible Redeemable Preferred Stock
totaled $445,117 at March 31, 2004, of which $11,921 represents dividends for
the three months then ended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
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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.
PHASE III MEDICAL, INC. (formerly known as
CORNICHE GROUP INCORPORATED)
(Registrant)
By: /s/ Mark Weinreb
-------------------
Mark Weinreb, President and Chief
Executive Officer
Date: May 11, 2004
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