10QSB 1 d10qsb.htm QUARTERLY REPORT Quarterly Report
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-QSB

 


 

(Mark One)

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2005

 

¨ Transition report under Section 13 or 15(d) of the Exchange Act

 

Commission file number: 33-55254-36

 


 

E Med Future, Inc.

(Exact name of small business issuer as specified in its charter)

 


 

Nevada   87-0485314
(State of incorporation)   (I.R.S. Employer Identification No.)

 

794 Morrison Road, Suite 911, Columbus, OH 43230

(Address of principal executive offices)

 

877-855-1319   www.NeedleZap.com
(Issuer’s telephone number)   (Issuer’s website)

 


 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 34,013,415 shares of common stock, $0.001 par value per share, as of November 1, 2005.

 

Transitional Small Business Disclosure Format (check one):    Yes  ¨    No  x

 



Table of Contents

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION    1
    Item 1. Financial Statements    1
    Item 2. Management’s Discussion and Analysis    1
         Our Products    1
         Recent Events    2
         Looking Ahead    2
         Our History    2
         Results of Operations    3
        

Third Quarter of 2005 Compared to 2004

   4
        

Net Sales

   4
        

Costs and Expenses

   4
        

Net Loss

   4
        

First Nine Months of 2005 Compared to 2004

   4
        

Net Sales

   4
        

Costs and Expenses

   4
        

Net Loss

   5
         Financial Condition and Liquidity    5
         Off-Balance Sheet Arrangements    5
         Forward Looking Statements    5
         How to Learn More About E Med    6
    Item 3. Controls and Procedures    7
PART II — OTHER INFORMATION    8
    Item 1. Legal Proceedings    8
    Item 2. Unregistered Sales of Equity Securities and Use of Proceeds    8
    Item 3. Defaults Upon Senior Securities    8
    Item 4. Submission of Matters to a Vote of Security Holders    8
    Item 5. Other Information    8
    Item 6. Exhibits    8
SIGNATURES    9
September 30, 2005 Financial Statements    F-1


Table of Contents

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our September 30, 2005 unaudited consolidated financial statements follow this quarterly report beginning on page F-1.

 

Item 2. Management’s Discussion and Analysis

 

Headquartered in Columbus, Ohio, E Med Future, Inc. manufactures and markets products designed to reduce accidental hypodermic needlestick injuries. Our primary product, NeedleZap®, completely disintegrates the sharp portion of the needle. According to the American Nursing Association, there are an estimated one million accidental needlesticks reported in the United States in the healthcare industry alone. We believe the applications for the product are far reaching, and include healthcare professionals, law enforcement and correctional personnel, veterinarians, military, clinical researchers, hospitality, and sanitation workers. NeedleZap® is designed to work within the parameters of recent OSHA needlestick mandates which require employers to take advantage of new technologies to prevent needlesticks in the workplace.

 

Our Products

 

Our primary product is NeedleZap®, a revolutionary safety device intended to help reduce accidental needlestick injuries by disintegrating the sharp portion of a hypodermic needle. When a hypodermic needle is inserted into the unit, the patented electrode system disintegrates the needle in approximately two seconds at 2200° F.

 

In July 2003, we announced the beginning of clinical testing and market evaluation of the first extensions to the NeedleZap® product line which include a dental parking station and butterfly needle burner. We are presently in the process of obtaining patent protection for these new products. Because we lack sufficient funds to expedite the development of these products, both products remain in the development phase. We anticipate that both products will involve supplements to our existing FDA pre-market approval; therefore, introduction and timing of these products into the marketplace will be contingent on FDA approval.

 

The dental parking station is intended to provide a safer, temporary resting place for a hypodermic syringe. During a procedure, dentists often reuse a hypodermic needle on the same patient when additional anesthesia is required. Since the needle is not destroyed immediately after the initial use, dentists generally recap the needle or leave the needle exposed, increasing the risk of an accidental needlestick injury. The NeedleZap® unit sits directly on the dental parking station enabling the dentist to recap, or disintegrate, the hypodermic needle easily with one hand at the end of the procedure, and significantly reducing the risk of a needlestick injury.

 

The butterfly needle burner is intended to accommodate needles not secured to a hypodermic syringe. Butterfly needles are used primarily for IV’s and kidney dialysis. Since the original NeedleZap® unit was intended to disintegrate hypodermic needles held by a syringe, the butterfly needle burner necessitated design modifications, including a change to the housing and repositioning of the electrode system.

 

1


Table of Contents

On December 30, 2003, we acquired Medical Safety Technologies, Inc. from UTEK Corporation. Medical Safety Technologies, or MSTI, holds the worldwide exclusive license to a patented invention, known as the “Safe Receptacle for Sharps,” that is designed to aid in the safe transport of sterile and used sharp medical instruments. This Emory University invention was developed to help reduce the possibility of needlestick injuries by maintaining medical instruments in an angled, accessible position while encasing their sharp edges. We are enthusiastic about adding the Safe Receptacle for Sharps device to our product line and believe that it is a complimentary technology to our NeedleZap® product. By expanding our future product line, we hope to bring added value to the sales and distribution channels we are building. However, we are not presently pursuing the sharps receptacle as management believes resources should be conserved for marketing the currently approved product.

 

Recent Events

 

On July 21, 2005, Robert J. Ochsendorf and John J. Perez stepped down from our board of directors to focus on other business interests. Ronald L. Alexander and Donald Sullivan were immediately appointed to fill the vacancies in the board resulting from the departure of Messrs. Ochsendorf and Perez. Mr. Alexander was an original investor in E Med when the company was founded in 2000. He currently owns and operates several businesses, including funeral homes and a hospital bed sale and rental company. At the request of the newly appointed members of the board, D. Dane Donohue resigned as president, CEO and a director on September 12, 2005. Mr. Donohue is a co-founder of E Med and remains a significant stockholder. Looking forward, Mr. Donohue plans to vigorously participate in the global distribution of our NeedleZap® product through one of the company’s current distributors, Safe Medical Solutions, LLC. Donald Sullivan, who has served as our CFO since November 2004, was immediately appointed interim CEO. The remaining board members are actively searching for candidates to fill the vacancy caused by Mr. Donohue’s resignation.

 

Looking Ahead

 

We incurred net losses the last four years while we obtained FDA approval for our NeedleZap® product, applied for patent protection, entered into distribution relationships and test marketed the product. We have not had significant sales volume to date. We made significant progress in expanding our distribution network in 2004, adding distribution partners in the United States and throughout the world. Although sales were disappointing for 2004 and the first six months of 2005, we believe that we have now obtained valuable experience in how to market our products effectively and we anticipate an increase in sales in 2005 compared to 2004. To date, sales for the fourth quarter have been positive and we expect to meet our sales goals for 2005. Of course, we cannot guarantee that sales will increase or that we will be able to attain profitability.

 

Our History

 

The company was formed under the laws of the State of Nevada on March 14, 1990, but until 2003 we were a shell company with no significant operations other than seeking to identify an existing business to acquire. Trading in our stock was dependant on our acquisition of an operating business. On April 4, 2003, we participated in a merger in which we acquired E Med Future, Inc., our operating subsidiary. In connection with the transaction, we issued 19,850,000 unregistered shares of our common stock (95% of our then outstanding shares) to the former stockholders of E Med Future.

 

2


Table of Contents

Pursuant to the terms of the merger agreement, we changed our corporate name from “Micro-Economics, Inc.” to “E Med Future, Inc.” In addition, our original directors and officers resigned and were replaced by a new board and management team. Our shares began trading on the Over-the-Counter Bulletin Board under the symbol “EMDF.OB” on April 17, 2003. For additional information about the merger, please see the Current Report on Form 8-K dated April 4, 2003 that we filed with the SEC on April 11, 2003.

 

In December 2001, we filed a pre-market approval application, or PMA, with The Center for Devices and Radiological Health (CDRH) of the Food and Drug Administration (FDA) for NeedleZap®. On the basis of counsel’s advice, we determined that NeedleZap® was not regulated by the CDRH as a medical device in veterinarian or law enforcement applications. Therefore, we opted to market NeedleZap® in the United States to veterinarians and law enforcement professionals. Revenues generated from these sales would offset the costly and lengthy FDA approval process and provide funding for promotion, tooling, parts and the overall operations.

 

In July 2002, we received an approvable letter from the FDA stating that NeedleZap® met all the requirements for the safety and effectiveness data testing for a Class III medical device. The approvable letter was subject to an FDA inspection that found the manufacturing facilities, methods and controls in compliance with the applicable requirements of FDA quality system regulation. During the manufacturing inspectional phase in August 2002, the FDA requested that we suspend all sales to veterinarian and law enforcement markets until the product was fully approved. We voluntarily complied with the FDA’s request and suspended all sales in U.S. markets and issued a recall for all units sold in the United States. In April 2004, we had recovered all devices that were sold prior to FDA approval and the FDA issued a letter terminating the recall in July 2004.

 

On March 14, 2003, the FDA issued a final approval order letter for NeedleZap®. Final labeling was submitted and approved on March 19, 2003, clearing the way to market NeedleZap® in the United States in healthcare facilities and treatment settings.

 

Results of Operations

 

We are a development stage company and did not have full approval to market and sell our products until March 2003. Initial sales in 2003 caused us to be optimistic that our revenues and profits would increase in subsequent years. However, our 2004 results did not meet expectations due to lower than anticipated sales by our distributors and sales by our distributors in the first six months of 2005 continued to be disappointing. Additionally, delivery of units to two international customers scheduled for the first six months of 2005 was delayed due to our requirement that payment be made prior to shipment. However, sales in the third quarter of 2005 exceeded the sales for the previous four quarters combined, with international customers accounted for more than half of our third quarter sales.

 

3


Table of Contents

Third Quarter of 2005 Compared to 2004

 

Net Sales

 

We had net sales of $52,442 in the quarter ended September 30, 2005, compared with $9,690 for the same period in 2004, an increase of $42,752 or 441.2%. This increase is primarily attributable to increased domestic and international sales due to our new marketing program for domestic sales being implemented in the third quarter and shipment of international orders that were delayed in the second quarter due to our requiring payment in advance of shipment.

 

Costs and Expenses

 

Operating costs and expenses decreased $27,807, or 17.1%, to $134,535 in the third quarter of 2005 from $162,342 in 2004. As a percentage of net sales, cost of goods sold decreased to 67.0% in 2005 from 694.0% in 2004 due to increased sales and decreased manufacturing and FDA compliance costs in 2005.

 

Other expenses increased $7,897, or 151.1%, to $13,123 in 2005 from $5,226 in 2004, due to an increase in interest expense resulting from higher balances outstanding on our interest bearing debt in 2005.

 

Net Loss

 

In the third quarter of 2005, our net loss decreased to $95,216 from a net loss of $157,878 in 2004 as a result of increased sales and reduced operating expenses.

 

First Nine Months of 2005 Compared to 2004

 

Net Sales

 

We had net sales of $71,972 in the nine months ended September 30, 2005, compared with $198,970 for the same period in 2004, a decrease of $126,998, or 63.8%. This decrease is attributable to our new marketing program not being fully implemented until September 2005 and anticipated sales to existing distributors not materializing. To date sales have been positive for the fourth quarter.

 

Costs and Expenses

 

Operating costs and expenses increased $550,351, or 88.1%, in the first nine months of 2005 to $1,175,352 from $625,001 in 2004. The first nine months of 2005 were impacted by $627,900 of stock based compensation that was not present in 2004. During January 2005, we issued 4,830,000 shares of common stock for consulting services. Stock based compensation was recorded in the amount of $0.39 per share, or $1,883,700 in total, for these services. In July 2005, we hired a qualified valuation consultant to perform a valuation of the Company stock. Pursuant to this valuation, the shares of stock were revalued at $0.13 per share and the stock based compensation charge was reduced to $627,900. As a percentage of net sales, cost of goods sold decreased to 72.4% in 2005 from 134.7% in 2004 due to decreased manufacturing and FDA compliance related costs in 2005.

 

Other expenses increased $11,535, or 43.2%, to $38,241 in 2005 from $26,706 in 2004 due to an increase in interest expense resulting from higher balances outstanding on our interest bearing debt in 2005.

 

4


Table of Contents

Net Loss

 

In the first nine months of 2005, our net loss increased to $1,141,621, or $0.03 a share, from a net loss of $452,837 in 2004 primarily as a result of an increase in stock based compensation expense in 2005 in addition to decreased sales without a corresponding decrease in operating costs.

 

Financial Condition and Liquidity

 

We had available cash on September 30, 2005 of $2,278 compared to $2,978 at the end of the third quarter of 2004. Cash used in operations decreased 94.2% to $17,540 in the first nine months of 2005 from $302,302 in 2004, primarily caused by an increase in accounts payable and accrued expenses and a reduction in inventory in 2005.

 

On November 12, 2002, we entered into a credit facility with KeyBank (NA). The facility provides us with a working capital line-of-credit of up to $150,000 and currently bears interest at 4.5%. The credit facility is secured by all of E Med’s assets and must be paid back in full on demand. We presently have drawn $149,098 on the facility.

 

On April 1, 2004, we entered into a loan agreement with a private investor in the amount of $750,000. The convertible promissory note bears interest at 7.5% payable quarterly with the principal due in five years and is secured by all of our assets. The note is convertible at the holder’s option into 1.5 million shares of our unregistered common stock, subject to adjustment for dilutive issuances. In connection with the loan, we also agreed to pay the lender a $3.00 royalty on each of the first 1.0 million and $2.00 on the second 1.0 million NeedleZap® units sold, with maximum total royalty payments of $5.0 million. The loan agreement was amended effective December 31, 2004 to reduce the loan amount to $548,000. Payment of interest and royalties was deferred until January 1, 2006, provided we provide monthly sales reports to the lender when due. In addition, if we arrange an increase in bank financing, the lender agreed to subordinate its security interests to the secured interests of the banking institution up to a maximum of $500,000.

 

Our primary need for capital is to fund operations and the development of new products. Historically, our capital requirements have been met by a combination of loans from stockholders and other investors, our line of credit with Key Bank, and funds from operations. Now that our distributors have had sufficient ramp-up time, we expect increased sales to meet our capital needs. In addition, we are developing new NeedleZap® products to help generate additional revenues in the long-term. However, sales may not be adequate to meet our cash needs, which would negatively impact our operations and development of new and ancillary products.

 

Off-Balance Sheet Arrangements

 

We do not have any material off-balance sheet arrangements.

 

Forward Looking Statements

 

Some of the statements that we make in this report, including statements about our confidence in E Med’s prospects and strategies and our expectations about E Med’s sales expansion, are

 

5


Table of Contents

forward-looking statements within the meaning of § 21E of the Securities Exchange Act. Some of these forward-looking statements can be identified by words like “believe,” “expect,” “will,” “should,” “intend,” “plan,” or similar terms; others can be determined by context. Statements contained in this report that are not historical facts are forward-looking statements. These statements are necessarily estimates reflecting our best judgment based upon current information, and involve a number of risks and uncertainties. Many factors could affect the accuracy of these forward-looking statements, causing our actual results to differ significantly from those anticipated in these statements. While it is impossible to identify all applicable risks and uncertainties, they include:

 

  our ability to execute our business plan;

 

  our ability to successfully market and sell our products;

 

  our financial resources are limited and we are dependant on increasing sales to generate cash for operations and pay our liabilities as they come due;

 

  our ability to gain and retain market share from our competitors, many of whom have greater financial and other resources than we do;

 

  the introduction of competing products by other companies;

 

  our ability to protect our patents, copyrights and other intellectual property rights;

 

  pressure on pricing from our competitors or customers;

 

  continued availability of components for our products and stability in the cost of these components;

 

  our reliance on subcontractors to manufacture our products;

 

  our reliance on independent distributors to market and sell our products;

 

  our ability to continue to comply with rules and regulations governing our products; and

 

  our ability to comply with SEC regulations and filing requirements applicable to us as a public company.

 

You should not place undue reliance on our forward-looking statements, which reflect our analysis only as of the date of this report. The risks and uncertainties listed above and elsewhere in this report and other documents that we file with the Securities and Exchange Commission, including our annual report on Form 10-KSB, quarterly reports on Form 10-QSB, and any current reports on Form 8-K, must be carefully considered by any investor or potential investor in E Med.

 

How to Learn More About E Med

 

We file annual, quarterly and special reports and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC’s web site at SEC.gov. You may also read and copy any document we file at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. To learn

 

6


Table of Contents

more about E Med you can also contact us directly at the address or phone number listed below or visit our website at NeedleZap.com.

 

E Med Future, Inc.

794 Morrison Road

Suite 911

Columbus, Ohio 43230

Phone: 877- 855-1319

Email: info@NeedleZap.com

 

Item 3. Controls and Procedures

 

Donald Sullivan, our chief financial officer and interim president and chief executive officer, has reviewed E Med’s disclosure controls and procedures as of September 30, 2005. Based upon his review, he believes that our disclosure controls and procedures are effective in ensuring that material information related to E Med is communicated to him by others within the company responsible for reporting this information. There were no changes in our internal controls over financial reporting during the fiscal quarter ended September 30, 2005 that have materially affected or are reasonably likely to affect, our internal controls over financial reporting.

 

7


Table of Contents

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are currently involved in a lawsuit with TransGlobal Medical Sales & Services, LLC relating to a distribution and marketing agreement we entered into with TransGlobal in April 2004. Discovery and depositions in the case have been completed and our request for summary judgment is currently pending. The trial is presently scheduled for December 8, 2005. For additional information about the suit, please reference Item 3 of our December 31, 2004 Form 10-KSB that we filed with the SEC on April 15, 2005.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Not applicable.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Submission of Matters to a Vote of Security Holders

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

Item 6. Exhibits

 

31    Chief Financial Officer and Interim President and Chief Executive Officer’s Rule 13a-14(a)/15d-14(a) Certification Pursuant to § 302 of the Sarbanes-Oxley Act of 2002
32    Rule 13a-14(b)/15d-14(b) Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002

 

8


Table of Contents

SIGNATURES

 

In accordance with the requirements of the Exchange Act, E Med Future, Inc. caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    E MED FUTURE, INC.
Date: November 21, 2005  

/s/ Donald Sullivan


    By  

Donald Sullivan, Chief Financial Officer

and interim Chief Executive Officer

 

9


Table of Contents

E MED FUTURE, INC. AND SUBSIDIARY

Formerly Micro-Economics, Inc.

(A Development Stage Company)

 

CONSOLIDATED BALANCE SHEETS

 

     September 30,
2005


    December 31,
2004


 
     (Unaudited)        
ASSETS                 

CURRENT ASSETS

                

Cash

   $ 2,278     $ 2,810  

Accounts receivable, net of allowance for doubtful account of $64,744 and $67,744, respectively

     6,910       2,511  

Inventory

     455,012       488,153  

Prepaid expenses

     8,400       17,713  

Current portion of prepaid compensation

             440,000  
    


 


Total Current Assets

     472,600       951,187  

PREPAID CONSULTING COMPENSATION

     495,000       311,667  

EQUIPMENT, net of depreciation of $78,078 and $60,932, respectively

     150,641       167,787  

PATENTS, net of amortization of $56,126 and $46,772, respectively

     130,962       140,316  
    


 


Total Assets

   $ 1,249,203     $ 1,570,957  
    


 


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                 

CURRENT LIABILITIES

                

Notes payable to bank

   $ 149,098     $ 141,098  

Current portion of long-term debt

     1,828       1,828  

Notes payable to related parties

     35,225       25,000  

Accounts payable

     278,380       206,611  

Accounts payable to related party

     39,216       25,376  

Accrued expenses

     144,873       55,523  

Customer deposits

     100,000       100,000  
    


 


Total Current Liabilities

     748,620       555,436  

LONG-TERM DEBT

                

Convertible promissory note payable

     548,000       548,000  

Note payable, less current portion

     1,483       2,700  
    


 


Total Long-Term Debt

     549,483       550,700  

STOCKHOLDERS’ EQUITY (DEFICIT)

                

Common stock $0.001, par value, 50,000,000 shares authorized, 34,013,415 and 29,183,415 issued and outstanding at September 30, 2005 and December 31, 2004, respectively

     34,013       29,183  

Paid-in-capital

     3,425,137       2,802,067  

Deficit accumulated during development stage

     (3,508,050 )     (2,366,429 )
    


 


Total Stockholders’ Equity (Deficit)

     (48,900 )     464,821  
    


 


Total Liabilities and Stockholders’ Equity

   $ 1,249,203     $ 1,570,957  
    


 


 

See accompanying notes to consolidated financial statements.

 

F-1


Table of Contents

E MED FUTURE, INC. AND SUBSIDIARY

Formerly Micro-Economics, Inc.

(A Development Stage Company)

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Three Months
Ended
September 30,
2005


    Three Months
Ended
September 30,
2004


    Nine Months
Ended
September 30
2005


    Nine Months
Ended
September 30,
2004


    Period
March 14, 1990
(Inception) to
September 30,
2005


 
     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  

NET SALES

   $ 52,442     $ 9,690     $ 71,972     $ 198,870     $ 871,964  

COSTS AND EXPENSES-

                                        

Cost of goods sold

     35,132       67,250       52,130       267,970       593,360  

Selling, general and administrative

     90,125       85,822       468,026       332,423       1,861,739  

Research and development

     445       550       796       550       10,228  

Stock based compensation

                     627,900               1,520,233  

Impairment of goodwill

                                     188,500  

Depreciation and amortization

     8,833       8,720       26,500       24,058       134,205  
    


 


 


 


 


Total Costs and Expenses

     134,535       162,342       1,175,352       625,001       4,308,265  
    


 


 


 


 


NET OPERATING (LOSS)

     (82,093 )     (152,652 )     (1,103,380 )     (426,131 )     (3,436,301 )

OTHER INCOME (EXPENSE)

                                        

Interest and other income

                                     23  

Interest expense

     (13,123 )     (5,226 )     (38,241 )     (26,706 )     (71,772 )
    


 


 


 


 


Total Other Expenses

     (13,123 )     (5,226 )     (38,241 )     (26,706 )     (71,749 )
    


 


 


 


 


NET (LOSS)

   $ (95,216 )   $ (157,878 )   $ (1,141,621 )   $ (452,837 )   $ (3,508,050 )
    


 


 


 


 


NET (LOSS) PER COMMON SHARE -

                                        

(Basic and diluted)

   $       $ (0.01 )   $ (0.03 )   $ (0.02 )   $ (0.67 )
    


 


 


 


 


WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

     34,013,415       27,209,502       33,765,723       26,389,295       5,697,854  
    


 


 


 


 


 

See accompanying notes to consolidated financial statements.

 

F-2


Table of Contents

E MED FUTURE, INC. AND SUBSIDIARY

Formerly Micro-Economics, Inc.

(A Development Stage Company)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Nine Months Ended
September 30,


    Period
March 14, 1990
(Inception) to
September 30, 2005


 
     2005

    2004

   
     (Unaudited)     (Unaudited)     (Unaudited)  

CASH FLOWS FROM OPERATING ACTIVITIES

                        

Net loss

   $ (1,141,621 )   $ (452,837 )   $ (3,508,050 )

Adjustments to reconcile net loss to net cash from operating activities:

                        

Depreciation and amortization

     26,500       24,058       134,205  

Stock based compensation

     627,900               1,520,233  

Research and development costs

                     8,808  

Start-up costs

                     19,177  

Amortization of prepaid expense

             32,358       30,600  

Amortization of prepaid compensation

     256,667               256,667  

Impairment of goodwill

                     188,500  

Changes in operating assets and liabilities:

                        

Accounts receivable

     (4,399 )     (50,090 )     (6,910 )

Inventory

     33,141       (121,902 )     (303,997 )

Prepaid expenses

     9,313       (8,474 )     (8,400 )

Accounts payable

     71,769       187,473       278,380  

Accounts payable to related party

     13,840       (47,099 )     39,216  

Accrued expenses

     89,350       134,211       144,873  

Customer deposits

                     100,000  
    


 


 


Net Cash Used in Operating Activities

     (17,540 )     (302,302 )     (1,106,698 )
    


 


 


CASH FLOWS FROM INVESTING ACTIVITIES

                        

Purchases of property and equipment

             (56,858 )     (94,806 )
            


 


Net Cash Used in Investing Activities

             (56,858 )     (94,806 )
            


 


CASH FLOWS FROM FINANCING ACTIVITIES

                        

Bank overdraft

                        

Initial capitalization

                     1,666  

Cash acquired in acquisition

                     200,000  

Notes payable to bank

     8,000               149,098  

Notes payable

     (1,217 )     4,696       3,311  

Convertible promissory note payable

             175,000       548,000  

Notes payable to related party

     10,225       (22,001 )     301,707  
    


 


 


Net Cash Provided by Financing Activities

     17,008       157,695       1,203,782  
    


 


 


NET INCREASE (DECREASE) IN CASH

     (532 )     (201,465 )     2,278  

CASH, BEGINNING OF YEAR

     2,810       204,443          
    


 


 


CASH, END OF PERIOD

   $ 2,278     $ 2,978     $ 2,278  
    


 


 


 

See accompanying notes to consolidated financial statements.

 

F-3


Table of Contents

E MED FUTURE, INC. AND SUBSIDIARY

Formerly Micro-Economics, Inc.

(A Development Stage Company)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 

    

Nine Months Ended
September 30,


  

Period
March 14, 1990
(Inception) to

September 30, 2005


     2005

   2004

  
     (Unaudited)    (Unaudited)    (Unaudited)

Supplemental Disclosure of Cash Flows Information:

                    

Interest paid

   $ 16,729    $ 8,433    $ 40,511

Supplemental Schedule of Non-Cash Operating and Financing Activities:

                    

NeedleZap Partnership Contribution of Assets to Company

                    

Inventory

                   151,015

Equipment

                   133,912

Patent

                   187,089

Issuance of common stock for consulting services

     627,900             1,520,233

Issuance of 1,250,000 shares valued at $0.3108 per share to acquire MSTI and allocation of purchase price to license

                   188,500

Issuance of common stock in payment of loan

            266,484      266,484

Issuance of 2,000,000 shares at $0.44 per share for consulting agreement

            880,000      880,000

 

See accompanying notes to consolidated financial statements.

 

F-4


Table of Contents

E MED FUTURE, INC. AND SUBSIDIARY

Formerly Micro-Economics, Inc.

(A Development Stage Company)

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

NOTE 1 - BASIS OF PRESENTATION

 

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. Results for the nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the financial statements and footnotes thereto included in the E Med Future, Inc. annual report on Form 10-KSB for the year ended December 31, 2004.

 

NOTE 2 - ISSUANCE OF COMMON STOCK

 

During January 2005, the Company issued 4,830,000 shares of common stock, pursuant to Form S-8 at a value of $0.39 per share for consulting services. Stock based compensation was recorded in the amount of $1,883,700 for these services. In July 2005, the Company hired a qualified valuation consultant to perform a valuation of the company stock. Pursuant to this valuation, the shares of stock were revalued at $0.13 per share and the stock based compensation has been adjusted to $627,900.

 

NOTE 3 - GOING CONCERN

 

As indicated in the accompanying financial statements, the Company had net operating losses of $3,508,050 since inception and is considered a company in the development stage. Management’s plans include raising capital through short term financing to fund future operations and generating revenue through its business. Failure to raise capital, keep its products and manufacturing facilities in FDA compliance, and generate sales revenues could result in the Company having to curtail or cease operations. Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate revenues, there can be no assurances that the revenue will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 4 -TERMINATION OF LICENSE AND DISTRIBUTION AGREEMENT

 

In July 2005, the Company terminated its license and distribution agreement, entered into September 2004, with ITD Development Solutions, Inc. (ITD), whereby the Company had granted ITD the exclusive right to manufacture, distribute and sell the NeedleZap unit in Pakistan and the United Arab Emirates. In connection with this agreement, the Company entered into a two year consulting agreement with ITD president Patrick Downs for 2,000,000 shares of the Company’s common stock valued at $880,000. At September 30, 2005, the unamortized balance is $495,000. The Company is trying to recover shares of its common stock representing the unamortized balance. In the opinion of management, it is likely that the shares will be recovered. Once recovered, the shares will be retired against the unamortized balance capitalized on the Balance Sheet. Therefore at September 30, 2005, the Company has not established a reserve against the unamortized balance because, in the opinion of management, a loss is not probable in accordance with Statement of Accounting Standards No. 5. If the Company is unable to recover the shares, the unamortized balance of $495,000 will be written off in the statement of operations.

 

F-5