WELLQUEST MEDICAL & WELLNESS CORPORATION
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
more
transparent information about an enterprises involvement with a variable
interest entity. The Company has determined that NWAPCP is a variable interest
entity as defined by the standard. We are currently evaluating the impact of
the guidance on our financial statements, however we do not expect there to be
a material impact to our financial statements.
In June 2009,
the FASB issued authoritative guidance which established the FASB Accounting
Standards Codification (ASC or Codification) as the source of authoritative
GAAP recognized by the FASB to be applied to nongovernmental entities, and
rules and interpretive releases of the SEC as authoritative GAAP for SEC
registrants. The Codification supersedes all the existing non-SEC accounting
and reporting standards upon its effective date and, subsequently, the FASB
will not issue new standards in the form of Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts. The guidance is not intended to change or
alter existing GAAP. The guidance became effective for us in the fourth quarter
of 2009. The guidance did not have an impact on the Companys financial
position, results of operations or cash flows. All references to previous
numbering of FASB Statements, FASB Staff Positions or Emerging Issues Task
Force Abstracts have been removed from the financial statements and
accompanying footnotes.
Reclassifications
Certain
reclassifications have been made to prior years financial statements to
conform to the current year presentation. These reclassifications had no effect
on the Companys net loss.
3.
Property
and Equipment
The following
is a summary of property and equipment as of December 31:
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
$
|
694,059
|
|
$
|
687,255
|
|
Leasehold improvements
|
|
|
24,279
|
|
|
22,616
|
|
|
|
|
|
|
|
|
|
|
|
|
718,338
|
|
|
709,871
|
|
Less accumulation depreciation
|
|
|
(438,371
|
)
|
|
(322,746
|
)
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
279,967
|
|
$
|
387,125
|
|
|
|
|
|
|
|
|
|
At December 31,
2009 and 2008, property and equipment includes equipment acquired under capital
lease with a total cost of $173,176. Amortization of the property and equipment
acquired under capital lease of $28,863 is included in depreciation expense for
each of the years ended December 31, 2009 and 2008.
4.
Line of
Credit and Note Payable to Related Party
The Company
has a revolving line of credit with a bank dated June 12, 2006 that allows for
a maximum borrowing of $200,000. The outstanding balance is due on demand or,
if not demanded, September 12, 2010. Interest accrues on this note at 6.25% and
is payable monthly. The note is collateralized by accounts receivable and
general intangibles, as well as personal guarantees from certain officers,
directors and stockholders. The amount of available credit on the line of
credit is calculated as 80% of collectible accounts receivable. As of December
31, 2009, the Company has fully borrowed the available amount from this line of
credit. This line of credit is subordinated to the note payable to a bank
discussed in Note 5. Subsequent to December 31, 2009, the bank reduced the
maximum borrowing amount to $175,000.
The Company
has a note payable due to a related party and stockholder in the amount of
$40,000 as of December 31, 2009. The proceeds from the note were primarily used
to pay for ongoing fees associated with the Companys public filing status. The
note is due on demand and carries an interest rate of 10%.
5.
Long-Term
Debt and Subordinated Debentures Payable to Stockholders
F-14
WELLQUEST MEDICAL & WELLNESS CORPORATION
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
Long-Term Debt
The Company
has a note payable to a bank dated August 3, 2005. The proceeds of this loan
have been used to fund business start-up costs, acquisitions of equipment and
general operations. The loan agreement bears interest at the Wall Street
Journal prime rate plus 2.5% adjusted quarterly (5.75% at December 31, 2009).
The Company was required to pay twelve payments of interest only beginning one
month from the date of the loan and each month thereafter. Beginning in the
thirteenth month of the loan, the Company began paying monthly principal and
interest payments through the date of maturity. The loan matures on August 3,
2013 and is secured by essentially all assets of the Company as well as a 75%
guaranty by the Small Business Administration, a personal guaranty from the
Companys CEO and majority stockholder and life insurance of $1,000,000 on the
CEO. $250,000 of the original loan proceeds were used to purchase a certificate
of deposit to serve as partial collateral for this note. In April 2008, the
bank released the certificate of deposit and used the proceeds to reduce the
principal balance of the note.
This note
payable contains certain restrictive covenants, both financial and
non-financial. The restrictive covenants include a debt service coverage ratio
of 1.5:1, maintaining $1,000,000 in life and disability insurance on the CEO,
and restrictions on the CEOs salary. As of December 31, 2009, the Company was
not in compliance with the debt service coverage ratio. The Company obtained a
written waiver of said covenant for the year ended December 31, 2009. Since the
Company was unable to obtain a written waiver of the covenant through January
1, 2011, the Company has classified the entire remaining debt as a current
liability
.
At December 31, 2009
and 2008, the balance on this note was $408,920 and $517,324, respectively.
Subordinated Debentures Payable to Stockholders
Subordinated
debentures payable to stockholders consisted of the following as of December
31:
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Subordinated debentures with detachable
warrants
|
|
$
|
50,000
|
|
$
|
100,005
|
|
Subordinated convertible debentures
|
|
|
446,123
|
|
|
|
|
Subordinated convertible debentures with
detachable warrants
|
|
|
440,497
|
|
|
440,497
|
|
|
|
|
|
|
|
|
|
Total subordinated debentures
|
|
|
936,620
|
|
|
540,502
|
|
Less amount of debt discount attributable
to warrants outstanding
|
|
|
|
|
|
17,093
|
|
|
|
|
|
|
|
|
|
|
|
|
936,620
|
|
|
523,409
|
|
Less current maturities of subordinated
debentures
|
|
|
493,497
|
|
|
523,409
|
|
|
|
|
|
|
|
|
|
Long-term subordinated debentures
|
|
$
|
443,123
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Subordinated Debentures with Detachable Warrants
In 2006, the
Company issued debentures with detachable warrants to certain stockholders.
These debentures bear interest at the fixed rate of 10% per annum, and shall be
paid in arrears on a quarterly basis, commencing December 31, 2006. These
debentures contained original maturity dates of March 31, 2008, at which time
the unpaid principal balance was due and payable. The rights of the holders
under these debentures to collect the amounts due are subordinated to the
rights of the banks owed as identified under Long-Term Debt and Note 4 above. As
additional consideration for these debentures, the Company issued warrants to
purchase 625,000 shares of the common stock of the Company at a price of $0.01
per share. All such warrants were exercised upon issuance of the related
debentures.
When the debentures
matured on March 31, 2008, one investor was paid the principal amount of the
debenture in full. The remaining three investors agreed to extend the maturity
dates of the debentures to various dates during 2008. At the time the
extensions were signed, the debenture agreements were amended to allow for
conversion of the debentures to the Companys common stock at anytime during
the term of the debenture. The conversion price of the debentures is $0.08888
per share, the same as the current fair value of the Companys common stock.
During 2009,
two investors converted $50,000 in debentures into 562,556 shares of the
Companys common stock. In December 2009, the remaining investor, representing
$50,000 in debentures, extended the maturity date to March 31, 2010.
F-15
WELLQUEST MEDICAL & WELLNESS CORPORATION
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
Subordinated Convertible Debentures with Detachable Warrants
In 2007 and
2006, the Company issued convertible debentures with detachable warrants to
certain stockholders as detailed below. These debentures bear interest at the
fixed rate of 10% per annum, and shall be paid in arrears on a quarterly basis.
These debentures carried original maturity dates at various times in 2008 and
2009, at which time the unpaid principal balance was due and payable. The
holders of these debentures have extended the maturity dates to June 30, 2010.
The rights of the holders under these debentures to collect the amounts due are
subordinated to the rights of the banks owed as identified under Long-Term Debt
and Note 4 above. These debentures are convertible in full into shares of the
Companys series A convertible preferred stock at the option of the holder at
any time after the date of issuance. No partial conversions of the debentures
are allowed. The conversion price is $22.22 per share, subject to adjustment
pursuant to the terms of the debenture agreement. As additional consideration
for these debentures, the Company issued warrants to purchase 2,202,750 shares
of the common stock of the Company at a price of $0.01 per share. The holder of
these debentures will have the option to
either
:
(i) exercise the warrant and acquire common stock, or (ii) exercise the
conversion feature of this debenture, and acquire preferred stock of the
Company. There were no conversions or exercise of warrants attributable to
these convertible debentures in 2009.
Issuance of Subordinated Convertible Debentures with Detachable
Warrants
During 2007
and 2006, the Company issued convertible debentures with detachable warrants in
the amount of $440,497 to six stockholders. As part of the transaction, the
Company issued warrants to purchase 2,202,750 shares of common stock. The
warrants were valued at $177,000. The debentures and the accompanying warrants
had original expiration dates throughout 2009. The maturity dates of these
debentures have been extended to June 30, 2010.
During the
years ended December 31, 2009 and 2008, the Company amortized debt discount of
approximately $17,000 and $95,000, respectively, related to the warrants issued
with the subordinated debentures discussed above. The discount was amortized to
interest expense over the life of the respective debenture. The warrant
valuation was determined at the respective grant dates using the Black-Scholes
option-pricing model, with the following details and assumptions. The
underlying stock price was $0.08888, and the exercise price of the warrants was
$0.01. The volatility of the stock underlying the warrants ranged from 50% to
200%, and the risk-free rates of return ranged from 4.18% to 5.05%.
Subordinated Convertible Debentures
During the
second quarter of 2009, the Company entered into an agreement with a
stockholder and related party whereby the related party agreed to exchange
$443,123 of outstanding debt owed by the Company to the related party for a
convertible debenture (the debenture) in the principal face amount of the
outstanding debt. The outstanding debt was bridge financing provided to the
Company from time to time that was payable on demand. In connection with the
agreement, the Company issued 1,250,000 shares of common stock to the related
party. The agreement was made effective as of April 1, 2009. The debenture will
be due and payable April 1, 2012, and accrues interest at the rate of 10% per
annum. The debenture will be convertible into shares of common stock of the
Company at a conversion price of $0.08888 per share. The shares have been
valued at $0.08888 per share and the cost has been recorded as deferred
financing costs and will be amortized over the life of the associated
debenture.
In December
2009, the Company issued convertible debentures to three related parties in
exchange for $3,000. These funds were used for corporate expenses. The debentures
bear interest at an annual rate of 10% and are convertible at a price equal to
the last sale price of the Companys common stock on the trading day preceding
the conversion date. Subsequent to December 31, 2009, the holders of two of the
debentures (representing $2,000 of the $3,000 in total debentures) elected to
convert the instruments into a total of 62,500 shares of common stock.
6.
Lease
Commitments
The Company
leases office space under operating leases expiring July 2011 and September
2015. Total expense related to these leases was $214,890 and $221,283 for the
years ended December 31, 2009 and 2008, respectively. The Company leases a
vehicle under an operating lease expiring July 2010. The vehicle is leased from
the Companys CEO, and primary stockholder. Total expense incurred in 2009
related to this lease was $6,348.
F-16
WELLQUEST MEDICAL & WELLNESS CORPORATION
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
The Company
leases certain equipment under a capital lease expiring May 2013. The equipment
is leased from an entity partially owned by a stockholder of the Company. The
aggregate monthly lease payments are approximately $3,800.
Future minimum
rental payments as of December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
Capital Lease
|
|
Operating Leases
|
|
|
|
|
|
|
|
2010
|
|
|
45,653
|
|
|
219,081
|
|
2011
|
|
|
45,653
|
|
|
204,682
|
|
2012
|
|
|
45,653
|
|
|
186,119
|
|
2013
|
|
|
19,020
|
|
|
186,119
|
|
2014
|
|
|
|
|
|
186,119
|
|
Thereafter
|
|
|
|
|
|
124,079
|
|
|
|
|
|
|
|
|
|
|
|
|
155,979
|
|
|
1,106,199
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
37,332
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of future minimum lease
payments
|
|
|
118,647
|
|
|
|
|
Less current obligations under capital
lease
|
|
|
28,155
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations under capital lease
|
|
$
|
90,492
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
Series
A Convertible Preferred Stock
A summary of
the preferred stock at December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Authorized
|
|
Shares
Issued
|
|
Shares
Outstanding
|
|
Par
Value
|
|
Liquidation
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
75,000
|
|
|
25,515
|
|
|
25,515
|
|
$
|
0.01
|
|
$
|
1,133,887
|
|
During 2005,
29,025 shares of the Companys Series A convertible preferred stock (preferred
stock) were issued at $22.22 a share. In 2006, 7,290 shares of preferred stock
were issued at $22.22 per share. In 2007, 1,125 shares of preferred stock were
issued at $22.22 per share.
Between April
2009 and June 2009, four holders of 11,925 shares of the Companys preferred
stock elected to convert the shares to 2,981,250 shares of the Companys common
stock.
A summary of the
rights, preferences, and privileges of the preferred stock is as follows:
Dividends
The holders of the preferred stock
shall have no dividend preference over the Companys common stock. In the event
the board of directors shall ever declare a dividend, the holders of the
preferred stock shall be entitled to participate in such dividend, pro rata, to
the same extent as any holder of the common stock on which such dividend may be
declared.
Liquidation
In the event of any liquidation,
dissolution, or winding-up of the Company (including a change of control), the
holders of the preferred stock shall be entitled to receive, out of the
remaining assets of the Company, the liquidation value in cash for each of the
shares of preferred stock they then hold. These distributions will be made
prior to any distributions to other stockholders. Any amounts remaining after
such distributions will be distributed to the holders of the common stock and
the preferred stock on parity with each other (on an as-converted basis). In
the event the Company at any time or from time to time after the original issue
date shall declare or pay any dividend on the preferred stock payable in
preferred stock, or effect a subdivision or combination of the outstanding
shares of preferred stock (by reclassification or otherwise than by payment of
a dividend in preferred stock), then and in any such event, the liquidation
value shall be proportionately decreased in the case of a stock dividend or
subdivision and proportionately increased in the case of a combination of
shares effective, in the case of such dividend, immediately after the close of
business on the record date for the determination of holders of preferred stock
entitled to receive such dividend or, in the case of a subdivision or
combination, at the close of business immediately prior to the date
F-17
WELLQUEST MEDICAL & WELLNESS CORPORATION
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
upon which
such corporate action becomes effective.
Conversion
Holders of shares of preferred
stock have the right to convert their shares, at any time, into shares of
common stock. The conversion rate is determined by multiplying the number of
preferred shares to be converted by $22.22 and dividing the result by the
conversion price then in effect (currently $0.08888). At the option of the
Company, all (but not less than all) of the shares of preferred stock may be
converted into shares of common stock at the then applicable conversion price
in any of the following events: (i) upon the Company having positive cumulative
earnings before interest, depreciation, taxes and amortization (EBITDA) of a
least $750,000 over four consecutive rolling calendar quarters; (ii) upon the
closing of a qualifying offering, I.E., receipt by the Company of proceeds from
a private placement of its securities of not less than $3,000,000 on terms
acceptable to the holders of a majority of the issued and outstanding common
stock at such time; or (iii) upon the closing of a public offering. Such
conversion will utilize the same conversion rate as described above.
Voting
The holders of the preferred stock
shall be entitled to one vote per share with respect to any matter brought
before the stockholders and enjoy the same voting rights as common
stockholders.
8.
Common
Stock
Common
stockholders are entitled to one vote per share and dividends when declared by
the Board of Directors, subject to the preferential rights of preferred
stockholders.
Shares Reserved for Future Issuance
As of December
31, 2009 and 2008, the Company has reserved shares of common stock for future
issuance for the following purposes:
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Conversion of outstanding preferred stock
to common stock
|
|
|
6,378,750
|
|
|
9,360,000
|
|
Conversion of subordinated convertible
debentures to preferred stock and then to common stock
|
|
|
4,956,085
|
|
|
4,956,085
|
|
Conversion of subordinated debentures to
common stock
|
|
|
5,548,188
|
|
|
1,125,169
|
|
Stock options
|
|
|
4,652,250
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21,535,273
|
|
|
16,241,254
|
|
|
|
|
|
|
|
|
|
Calculation of
Shares Reserved for Future Issuance
|
|
|
|
|
Conversion of outstanding
preferred stock to common stock:
|
|
|
|
|
Number of preferred shares outstanding
|
|
|
25,515
|
|
Multiplier (see Note 7)
|
|
$
|
22.22
|
|
|
|
|
|
|
|
|
$
|
566,943.30
|
|
Conversion price (see Note 7)
|
|
$
|
0.08888
|
|
|
|
|
|
|
Number of common shares
|
|
|
6,378,750
|
|
|
|
|
|
|
Conversion of subordinated convertible debentures to
preferred stock
and then to common stock:
|
|
|
|
|
Outstanding subordinated convertible
debentures
|
|
|
440,497
|
|
Conversion price (see Note 5)
|
|
$
|
22.22
|
|
|
|
|
|
|
Number of preferred shares
|
|
|
19,824
|
|
Multiplier (see Note 7)
|
|
$
|
22.22
|
|
|
|
|
|
|
|
|
|
440,497
|
|
Conversion price (see Note 7)
|
|
$
|
0.08888
|
|
|
|
|
|
|
Number of common shares
|
|
|
4,956,085
|
|
|
|
|
|
|
Conversion of subordinated convertible debentures to
common stock:
|
|
|
|
|
Outstanding subordinated convertible
debentures
|
|
|
443,123
|
|
Conversion price (see Note 7)
|
|
$
|
0.08888
|
|
|
|
|
|
|
Number of common shares
|
|
|
4,985,632
|
|
|
|
|
|
|
F-18
WELLQUEST MEDICAL & WELLNESS CORPORATION
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
|
|
|
|
|
Conversion of subordinated
debentures to common stock:
|
|
|
|
|
Outstanding subordinated convertible
debentures
|
|
|
50,000
|
|
Conversion price (see Note 5)
|
|
$
|
22.22
|
|
|
|
|
|
|
Number of preferred shares
|
|
|
2,250
|
|
Multiplier (see Note 7)
|
|
$
|
22.22
|
|
|
|
|
|
|
|
|
|
50,000
|
|
Conversion price (see Note 7)
|
|
$
|
0.08888
|
|
|
|
|
|
|
Number of common shares
|
|
|
562,556
|
|
|
|
|
|
|
On February
14, 2008, the Company effected a stock split of 249 shares of common stock for
every share of common stock held on that date. All information contained in the
Companys financial statements related to shares and per share data has been
adjusted to reflect the split.
During the
second quarter of 2009, the Company borrowed $50,000 from the Companys CEO and
Chairman. The Company issued a convertible debenture in the principal face
amount of $50,000. The debenture is convertible at a price equal to the last
sale price of the Companys common stock on the trading day preceding the
conversion date. The debenture carried a maturity day of April 15, 2010 and an
annual interest rate of 10%. The debenture was subsequently converted during
2009 into 500,000 shares of common stock per the terms of the debenture.
In December
2009, the Company issued convertible debentures to three related parties in
exchange for $3,000. These funds were used for corporate expenses. The
debentures bear interest at an annual rate of 10% and are convertible at a
price equal to the last sale price of the Companys common stock on the trading
day preceding the conversion date. Subsequent to December 31, 2009, the holders
of two of the debentures (representing $2,000 of the $3,000 in total
debentures) elected to convert the instruments into a total of 62,500 shares of
common stock.
9.
Income
Taxes
The Company
reports deferred income taxes as the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
The Company
generated net operating losses for income tax purposes in 2009 and 2008, so
there were no current tax provisions for those years. Additionally, the excess
of our deferred tax assets over our deferred tax liabilities was offset by a
valuation allowance, resulting in no deferred tax benefit for those years. The
valuation allowance decreased by $116,000 and increased by $249,000 for the
years ended December 31, 2009 and 2008, respectively.
The income tax
provision for 2009 and 2008 differs from the amount computed by applying the US
federal statutory rate of 34% to income before income taxes due primarily to
changes in the valuation allowance. As of December 31, 2009, the Company had
net operating loss carryforwards of approximately $3.0 million for federal
income tax purposes, which are available to reduce future taxable income and
will expire beginning in 2025, if not utilized.
The tax
effects of significant temporary differences representing deferred tax assets
and liabilities at December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
963,000
|
|
$
|
1,066,000
|
|
Other accruals
|
|
|
81,000
|
|
|
113,000
|
|
Valuation allowance
|
|
|
(1,028,000
|
)
|
|
(1,144,000
|
)
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
16,000
|
|
|
35,000
|
|
Deferred tax liability depreciation and
amortization
|
|
|
(16,000
|
)
|
|
(35,000
|
)
|
|
|
|
|
|
|
|
|
F-19
WELLQUEST MEDICAL & WELLNESS CORPORATION
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
Net deferred
income taxes
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
As the Company
has generated net operating losses from its inception and there is no assurance
that it will be able to utilize its net operating loss carryforwards prior to expiration,
management has established a valuation allowance of approximately $1,028,000
and $1,144,000 at December 31, 2009 and 2008, respectively, to recognize its
deferred tax assets only to the extent of its deferred tax liabilities. The
Company will continue to evaluate the need for such a valuation allowance in
the future.
Based upon a
review of its income tax filing positions, the Company believes that its
positions would be sustained upon an audit and does not anticipate any
adjustments that would result in a material change to its financial position.
Therefore, no reserves for uncertain income tax positions have been recorded.
The Company recognizes interest related to income taxes as interest expense and
penalties as operating expenses.
10.
Benefit
Plans
Employees of
the Company are eligible to participate in a 401(k) plan (the Plan) covering
all employees after a specified period of service. Employees may elect to make
deferral contributions of their salary. The Company will match 50% of the first
6% of employee contributions made to the Plan. In addition, the Company may
make discretionary contributions to the Plan to be allocated to participants
accounts pro rata based on compensation. Participants will vest in any Company
contributions over a five year period. Total Company contributions to the plan
for 2009 and 2008 approximated $8,000 and $6,800, respectively.
11.
Business
Segments
The Company
reports results for its identifiable business segments in annual financial
statements and reports selected information about operating segments in interim
financial reports. Reportable operating segments are defined as a component of
an enterprise:
|
|
|
That engages
in business activities from which it may earn revenues and expenses,
|
|
|
|
Whose
operating results are regularly reviewed by the enterprises chief operating
decision maker,
|
|
|
|
For which
discrete financial information is available.
|
Corporate
assets detailed below are primarily comprised of property and equipment,
corporate cash, accounts receivable and other corporate assets. Summarized
financial information concerning the Companys reportable operating segments is
shown in the following table as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
Medical
Clinic
|
|
Medical
Spa
|
|
Unallocated
Corporate
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
3,172,609
|
|
$
|
648,885
|
|
$
|
2,500
|
|
$
|
3,823,994
|
|
Operating expenses
|
|
|
2,503,837
|
|
|
763,345
|
|
|
595,473
|
|
|
3,862,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
668,772
|
|
|
(114,460
|
)
|
|
(592,973
|
)
|
|
(38,661
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
224,136
|
|
|
224,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
668,772
|
|
$
|
(114,460
|
)
|
$
|
(817,109
|
)
|
$
|
(262,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
440,918
|
|
$
|
147,064
|
|
$
|
190,033
|
|
$
|
778,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
Medical
Clinic
|
|
Medical
Spa
|
|
Unallocated
Corporate
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
2,644,822
|
|
$
|
687,561
|
|
$
|
50
|
|
$
|
3,332,433
|
|
F-20
WELLQUEST MEDICAL & WELLNESS CORPORATION
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
2,085,891
|
|
|
982,079
|
|
|
710,285
|
|
|
3,778,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
558,931
|
|
|
(294,518
|
)
|
|
(710,235
|
)
|
|
(445,822
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
3,232
|
|
|
3,232
|
|
Interest expense
|
|
|
|
|
|
|
|
|
289,508
|
|
|
289,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
558,931
|
|
$
|
(294,518
|
)
|
$
|
(996,511
|
)
|
$
|
(732,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
454,645
|
|
$
|
229,487
|
|
$
|
150,358
|
|
$
|
834,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The financial
information for the Medical Clinic presented above represents the revenue and
direct operating expenses of NWAPCP after elimination of intercompany expenses
charged to NWAPCP by WellQuest of Arkansas. Intercompany expenses that have
been eliminated include the following: a management fee paid by NWAPCP to
WellQuest of Arkansas ($243,000 and $198,000 for the years ended December 31,
2009 and 2008, respectively), lease expense paid by NWAPCP to WellQuest of
Arkansas ($41,000 and $52,000 for the years ended December 31, 2009 and 2008,
respectively), and interest expense paid by NWAPCP to WellQuest of Arkansas
($8,000 and $39,000 for the years ended December 31, 2009 and 2008,
respectively).
12.
Fair
Value of Financial Instruments
The Company
considers debt, including subordinated debentures to be financial instruments.
The estimated fair value of such instruments at December 31, 2009 approximates
their carrying value as reported on the Companys consolidated balance sheet.
In considering the fair value of subordinated debentures, the Company
calculated fair value using a maturity date of April 1, 2012 and a discount
rate of 12%.
13.
Commitment
On September
2, 2009, the Company signed an agreement with a placement agent in connection
with a proposed offering of equity and/or debt securities. The terms of the
agreement are for the placement agent to receive a non-refundable fee of
$30,000, plus an expense allowance of 3% of the gross proceeds, plus a fee of
7% of the gross proceeds. In addition, the placement agent will receive common
stock warrants equivalent to 10% of the total number of the Companys shares of
common stock issued in the offering. These warrants will exercise at a price
that is 110% of the purchase price paid by investors in the offering.
On December
10, 2009, the Company signed an addendum to this agreement whereby the
placement agent would assist the Company in obtaining bridge financing up to
$250,000 to pay for the legal, accounting, and consulting costs associated with
the proposed offering of equity and/or debt securities. The terms of the
addendum are for the placement agent to receive a fee of 10% of the gross
proceeds of the bridge financing, of which a $5,000 non-refundable deposit was
payable upon the signing of the addendum. In addition, the addendum calls for
the placement agent to receive a non-refundable expense allowance of $2,500. In
addition, the placement agent will receive common stock warrants equivalent to
7% of the total number of the Companys shares of common stock underlying the
securities issued in the bridge financing. These warrants will exercise at a
price that is 110% of the purchase price paid by investors in the offering.
14.
Related
Party Transactions
The following
is a summary of related party transactions.
At December
31, 2009 and 2008, the Company incurred expenses of approximately $6,100 and
$33,000, respectively, to the law firm of Newton, OConnor, Turner &
Ketchum, of which John OConnor, one of our directors, is a partner.
The Company
leases a vehicle under an operating lease that expires in July 2010. The
vehicle is leased from Steve Swift, our Chief Executive Officer. The monthly
lease payment is $529.
The Company
leases certain equipment under a capital lease expiring May 2013. The equipment
is leased from an entity partially owned by Curtis Rice, one of our
stockholders. The aggregate monthly lease payments are approximately $3,800.
F-21
WELLQUEST MEDICAL & WELLNESS CORPORATION
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
15.
Subsequent
Event
On March 24, 2010, our
common stock was removed from the quotation privileges on the OTC Bulletin
Board for failure to have an active market-maker as required under Section 13
of the Securities Exchange Act of 1934. A new market maker has filed an
application to have our stock reinstated with quotation privileges on the OTC
Bulletin Board, however, as of March 31, 2010, that has not occurred. Until
such time as the stock is re-listed, the Companys stock will be quoted on the
Pink Sheets.
F-22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A CONTROLS AND PROCEDURES
Evaluation of disclosure controls and
procedures
.
We
maintain disclosure controls and procedures, as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act), that are designed to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in Securities and Exchange Commission rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating our
disclosure controls and procedures, management recognized that disclosure
controls and procedures, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the disclosure
controls and procedures are met. Additionally, in designing disclosure controls
and procedures, our management necessarily was required to apply its judgment
in evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
As of December 31, 2009, we
carried out an evaluation, under the supervision and with the participation of
our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures. Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective in
ensuring that information required to be disclosed by us in our periodic
reports is recorded, processed, summarized and reported, within the time
periods specified for each report and that such information is accumulated and
communicated to our management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
Managements Annual Report on Internal
Control Over Financial Reporting
.
Management is responsible for establishing
and maintaining an adequate system of internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.
Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with GAAP.
Our internal control over
financial reporting includes those policies and procedures that:
pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect our transactions and dispositions of our assets;
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts
and expenditures are being made only in accordance with authorizations of our
management and directors; and
provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the financial statements.
Management has conducted,
with the participation of our Chief Executive Officer and our Chief Financial
Officer, an assessment, including testing of the effectiveness of our internal
control over financial reporting as of December 31, 2009. Managements
assessment of internal control over financial reporting was based on the
framework in
Internal
31
Control over Financial Reporting Guidance for Smaller
Public Companies
issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this evaluation, Management concluded that our system of internal control
over financial reporting was effective as of December 31, 2009.
The effectiveness of our
internal control over financial reporting as of December 31, 2009 has not been
audited by HoganTaylor LLP, our independent registered public accounting firm.
In addition, managements annual report on internal controls over financial
reporting was not subject to attestation by HoganTaylor LLP. Temporary rules of
the Securities and Exchange Commission permit the Company to provide only
managements report in this annual report.
Changes in Internal Control Over Financial
Reporting
.
There
were no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule
15d-15 that materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
ITEM 9B OTHER INFORMATION
None.
32
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
|
|
|
|
Names:
|
Ages
|
Titles:
|
Board of
Directors
|
|
|
|
|
Steve Swift
|
63
|
President
|
Director
|
Greg Primm
|
36
|
Chief Financial Officer
|
|
Curtis Rice
|
33
|
Vice President
|
Director
|
Lawrence D. Field
|
50
|
|
Director
|
John OConnor
|
55
|
Secretary
|
Director
|
Robert J. Zasa
|
59
|
|
Director
|
Directors
are elected to serve until the next annual meeting of stockholders and until
their successors are elected and qualified. Currently there are five seats on
our Board of Directors. Officers are elected by the Board of Directors and
serve until their successors are appointed by the Board of Directors. Biographical
resumes of each officer and director are set forth below.
Steve Swift
has been our
President and
Chairman of the Board of Directors since November 2004. Between July 2004 and
October 2004, Mr. Swift worked independently towards the development of the
Company. Between May 2000 and June 2004, Mr. Swift was the Chief Administrative
Officer and Executive Director of Springer Clinic, Inc., a Tulsa, Oklahoma
based medical treatment facility. Mr. Swift received his Bachelor of Arts
degree in Sociology from Texas Christian University in 1970, his Masters degree
in Healthcare Administration from Trinity University in 1974 and did his
residency at Baylor University Medical Center in 1973-1974.
Greg
Primm
has been our
Chief Financial Officer since April 2008. Between September 2006 and April
2008, Mr. Primm served as Chief Financial Officer and Operations Manager for
CrossWood Associates, Inc., a food distribution company in Fayetteville,
Arkansas. From February 2002 through September 2006, Mr. Primm was Controller
for Hannas Candle Company, a manufacturing company. He was the Accounting
Manager for Ozark Aircraft Systems of Bentonville, Arkansas from 1999 until
2002, and served as an auditor for Ernst & Young, LLP in Fort Smith, Arkansas
from 1996 through 1998, where he audited large public healthcare firms. Mr.
Primm is a Certified Public Accountant. He received his Bachelor of Science in
Business Administration from the Sam Walton College of Business at the
University of Arkansas in 1996, and his Master of Business Administration from
Terry College of Business at the University of Georgia in 1999.
Curtis
Rice
has been our
Vice President since helping found the Company in 2001. Since July 2006, Mr.
Rice has been the Natural Gas Energy Trading Manager for Conagra Foods, an
Omaha, Nebraska based food company. Since December 2006, Mr. Rice has been the
President of Patriot Energy, a Tulsa, Oklahoma based energy production
investment company. Since January 2006, Mr. Rice has been the Vice President
for BlastMyMusic.com, Inc., a Tulsa, Oklahoma based online music distribution
company. Between June 1999 and July 2006, Mr. Rice worked for Williams Power
Company, a Tulsa, Oklahoma based energy production company in various
positions, including Natural Gas Manager (December 2003 to July 2006), Power
Transmission Manager (December 2002 to July 2006), Global Energy Manager (May
2002 to December 2002), NGL/Olefin Trader Manager, Structured Analyst Manager,
Weather Derivative Trader, Risk Analyst and Value at Risk. Mr. Rice received
his Masters in Business Administration from Tulsa University in 2001 and his
Bachelor of Science degree in Business Administration from Oklahoma State
University in 1999.
Lawrence
D. Field
has been a
member of the Board of Directors since November 2004. Since January 1989, Mr.
Field has worked for Regent Private Capital, a Tulsa, Oklahoma based private
investment company, as a Partner between January 1989 and June 2004 and as
Managing Director since June 2004. Mr. Field received his Bachelor of Science
degree from the University of Texas at Austin in 1982.
John OConnor
has been our
Secretary and a
member of the Board of Directors since November 2004. Since
33
2001, Mr. OConnor has been
the Chairman of the law firm Newton, OConnor, Turner & Ketchum, based in
Tulsa, Oklahoma. Mr. OConnor has been a director of 3DIcon Corporation, a
Tulsa, Oklahoma based public company. Mr. OConnor received his Bachelor of
Arts degree in Political Science from Oklahoma State University in 1977 and his
Juris Doctorate degree from University of Tulsa College of Law in 1980.
Robert J. Zasa
has been a member
of the
Board of Directors since April 2005. Since June 1996, Mr. Zasa has been the
founder and Partner of Woodrum/Ambulatory Systems, a Los Angeles, California
based ambulatory and outpatient care company. Mr. Zasa was the founder,
President and CEO of Premier Ambulatory Systems, Inc., an owner and operator of
ambulatory surgery centers, Vice President of American Medical International
and Chief Operating Officer of AMI Ambulatory Surgery Centres, Inc. Mr. Zasa is
an Adjunct Faculty Member of the Graduate Program in Health Services
Administration at the University of Alabama in Birmingham, and serves as a
guest lecturer on ambulatory healthcare topics at the UCLA School of Public
Health. Mr. Zasa earned a Masters of Science degree in hospital and health
administration from the University of Alabama Birmingham.
Audit Committee and Audit Committee Financial Expert
Our
Board of Directors does not currently have any committees. All functions
ordinarily performed by committees are performed by the Board of Directors as a
whole.
Board of Directors Independence
We
are not required to have any independent members of the Board of Directors. The
Board of Directors has determined that (i) Messrs. Swift, Rice, Field and
OConnor have relationships which, in the opinion of the Board of Directors,
would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director and each is not an independent director as
defined in the Marketplace Rules of The NASDAQ Stock Market and (ii) Messr.
Zasa is an independent director as defined in the Marketplace Rules of The NASDAQ
Stock Market. As we do not have any board committees, the board as a whole
carries out the functions of audit, nominating and compensation committees, and
such independent director determination has been made pursuant to the
committee independence standards.
Code of Ethics
We
have adopted a Code of Ethics that are designed to deter wrongdoing and to
promote honest and ethical conduct, full, fair, accurate, timely and
understandable disclosure in our SEC reports and other public communications.
The Code of Ethics promotes compliance with applicable governmental laws, rules
and regulations.
Section 16(a) Compliance
Since
we are governed under Section 15(d) of the Exchange Act, we are not required to
file reports of executive officers and directors and persons who own more than
10% of a registered class of our equity securities pursuant to Section 16(a) of
the Exchange Act.
34
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation
Table
The
following tables set forth compensation information for our Chief Executive
Officer and Chief Financial Officer for the fiscal years ended December 31,
2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name & Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings ($)
|
|
All Other
Compensation
($)
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Swift, President
|
|
|
2009
|
|
$
|
120,000
|
|
$
|
|
|
$
|
|
|
$
|
995
|
|
$
|
|
|
$
|
|
|
$
|
15,164
|
(1)
|
$
|
136,159
|
|
|
|
|
2008
|
|
|
160,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,222
|
(2)
|
|
179,657
|
|
Greg Primm, CFO
|
|
|
2009
|
|
|
106,040
|
|
|
|
|
|
|
|
|
6,153
|
|
|
|
|
|
|
|
|
9,376
|
(3)
|
|
121,569
|
|
|
|
(1)
|
Includes $8,816 for
health, dental, life and key-man life insurance and $6,348 for a vehicle
lease.
|
(2)
|
Includes $9,042 for
health, dental, life and key-man life insurance, $2,492 in 401(k)
contributions, and $7,688 for a vehicle lease.
|
(3)
|
Includes $7,680 for health,
dental, and life insurance and $1,696 in 401(k) contributions.
|
Employment Agreements
On
January 1, 2005, we entered into an employment agreement with Steve Swift, our
chief executive officer. Pursuant to the terms of the agreement, Mr. Swift will
be employed by us for an initial term of five years from the effective date of
the agreement. The agreement automatically renews for successive two year
terms. The current term expires January 1, 2012. Mr. Swift is to receive an
annual base salary of $180,000 a year. Upon the opening of the first clinic,
Mr. Swift was to receive an annual base salary of $250,000 a year. Mr. Swift is
entitled to receive an increase to his base salary and receive certain bonuses
to be determined by the Board of Directors based upon the performance of the
Company during each calendar year. Mr. Swifts salary and bonus schedule will
be reviewed by the Board of Directors on an annual basis. Mr. Swift shall be
entitled to four weeks paid vacation during each year during the initial term.
The Company may terminate his employment (i) with cause, upon a determination
by a majority of the Board of Directors or (ii) without cause, at any time, for
any reason whatsoever and without prior notice. Mr. Swift may voluntarily
terminate his employment at any time for cause or without cause upon not less
than 30 days written notice. During the term of his employment and for a period
thereafter, Mr. Swift will be subject to non-competition and non-solicitation
provisions, subject to standard exceptions. This agreement was amended on June
30, 2007 pursuant to which Mr. Swifts annual base salary was to remain at
$180,000 until the Board determines otherwise. The agreement was amended again
on October 29, 2008, pursuant to which Mr. Swifts annual base salary was
reduced to $120,000 per year until the Board determines otherwise.
Option Grants in Last Fiscal Year
The
following table sets forth information regarding the number of stock options
granted to named executive officers during 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant
Date
|
|
All Other Option Awards:
Number of Securities
Underlying Options (#)
|
|
Exercise or Base
Price of Option
Awards ($/Sh)
|
|
Grant Date Fair
Value of Stock and
Option Awards ($)
|
|
|
|
|
|
|
|
|
|
|
|
Steve Swift
|
|
|
December 14, 2009
|
|
|
1,250,450
|
|
$
|
0.20
|
|
$
|
35,823
|
|
Greg Primm
|
|
|
December 14, 2009
|
|
|
600,000
|
|
|
0.20
|
|
|
17,189
|
|
35
Outstanding Equity Awards at Fiscal Year-End
Table.
The
following table sets forth information for the named executive officers regarding
the number of shares subject to both exercisable and unexercisable stock
options, as well as the exercise prices and expiration dates thereof, as of
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
|
|
|
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number
of Shares
or Units
of Stock
That Have
Not
Vested
(#)
|
|
Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested
($)
|
|
Equity
Incentive
Plan Awards:
Number
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
|
|
Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Swift
|
|
|
|
|
|
1,250,450
|
|
|
|
|
$
|
0.20
|
|
|
12/14/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg Primm
|
|
|
|
|
|
300,000
|
|
|
|
|
$
|
0.08888
|
|
|
04/14/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg Primm
|
|
|
|
|
|
600,000
|
|
|
|
|
$
|
0.20
|
|
|
12/14/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director Compensation
Our
directors are elected by the vote of a majority in interest of the holders of
our voting stock and hold office until the expiration of the term for which he
or she was elected and until a successor has been elected and qualified.
A
majority of the authorized number of directors constitutes a quorum of the
Board of Directors for the transaction of business. The directors must be
present at the meeting to constitute a quorum. However, any action required or
permitted to be taken by the Board of Directors may be taken without a meeting
if all members of the Board of Directors individually or collectively consent
in writing to the action.
The
following table sets forth summary information concerning the total
compensation paid to our non-employee directors in 2009 for services to our
company.
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees
Earned or
Paid in
Cash
|
|
Option
Awards
($)
(1)
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
Steve Swift (2)
|
|
|
$
|
|
$
|
995
|
|
$
|
995
|
|
Curtis Rice (3)
|
|
|
|
|
|
358
|
|
|
358
|
|
Lawrence D. Field (4)
|
|
|
|
|
|
358
|
|
|
358
|
|
John OConnor (5)
|
|
|
|
|
|
358
|
|
|
358
|
|
Robert Zasa (6)
|
|
|
|
|
|
358
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
$
|
2,427
|
|
$
|
2,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Amounts represent the
amount of compensation expense recognized in fiscal 2009 for awards granted
in fiscal 2009 under SFAS 123R, as discussed in Note 2, Summary of
Significant Accounting Policies of the Notes to Consolidated Financial
Statements included elsewhere in this Annual Report on Form 10-K.
|
36
|
|
(1)
|
The options are subject to
a vesting schedule as follows: one-third (1/3) of the options vest on
December 14, 2011; December 14, 2012 and December 14, 2013. The options have a
termination date of December 14, 2015.
|
|
|
(2)
|
1,250,450 options were
outstanding as of December 31, 2009, of which none were then currently
exercisable.
|
|
|
(3)
|
450,450 options were
outstanding as of December 31, 2009, of which none were then currently
exercisable.
|
|
|
(4)
|
450,450 options were
outstanding as of December 31, 2009, of which none were then currently
exercisable.
|
|
|
(5)
|
450,450 options were
outstanding as of December 31, 2009, of which none were then currently
exercisable.
|
|
|
(6)
|
450,450 options were
outstanding as of December 31, 2009, of which none were then currently
exercisable.
|
37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The
following table sets forth certain information regarding beneficial ownership
of our common and preferred stock as of March 25, 2010.
|
|
|
|
|
|
|
|
By each
person who is known by us to beneficially own more than 5% of our common or
preferred stock;
|
|
|
|
|
|
By each of
our officers and directors; and
|
|
|
|
|
|
By all of
our officers and directors as a group.
|
|
|
|
|
|
|
|
NAME
AND ADDRESS
OF OWNER (1)
|
|
TITLE
OF
CLASS
|
|
NUMBER
OF
SHARES OWNED (2)
|
|
PERCENTAGE
OF CLASS
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen H.M Swift
|
|
Common
Stock
|
|
12,180,000
|
|
41.52%
|
|
|
|
|
|
|
|
Greg Primm
|
|
Common
Stock
|
|
0
|
|
0%
|
|
|
|
|
|
|
|
Curtis L. Rice
|
|
Common
Stock
|
|
2,902,500
(4)
|
|
9.65%
|
|
|
|
|
|
|
|
Lawrence D. Field
|
|
Common
Stock
|
|
2,892,500
(5)
|
|
9.86%
|
|
|
|
|
|
|
|
John OConnor
|
|
Common
Stock
|
|
1,642,500
|
|
5.60%
|
|
|
|
|
|
|
|
Robert Zasa (9)
|
|
Common
Stock
|
|
2,486,250
(6)
|
|
8.32%
|
|
|
|
|
|
|
|
All Officers and Directors
|
|
Common
Stock
|
|
22,103,750
(7)
|
|
72.11%
|
As a Group (6 persons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtis L. Rice
|
|
Series
A Preferred Stock
|
|
3,015
(8)
|
|
11.82%
|
|
|
|
|
|
|
|
Ambulatory Systems
Development (9)
|
|
Series
A Preferred Stock
|
|
2,250
|
|
8.81%
|
|
|
|
|
|
|
|
TerraNova Partners, L.P.
(10)
|
|
Series
A Preferred Stock
|
|
4,500
|
|
17.64%
|
|
|
|
|
|
|
|
Charles C. Stephenson, Jr.
|
|
Series
A Preferred Stock
|
|
4,500
|
|
17.64%
|
|
|
|
|
|
|
|
Lewis Yarborough
|
|
Series
A Preferred Stock
|
|
2,250
|
|
8.81%
|
|
|
|
|
|
|
|
Industrial and Commercial
Developments Pty, Ltd. (11)
|
|
Series
A Preferred Stock
|
|
3,375
|
|
13.23%
|
(1) Unless
otherwise noted, the mailing address of each beneficial owner is 3400 SE Macy
Rd., #18, Bentonville, Arkansas 72712.
(2) Beneficial
Ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of common stock subject to preferred stock,
options or warrants currently exercisable or convertible, or exercisable or
convertible within 60 days of March 25, 2010 are deemed outstanding for
computing the percentage of the person holding such option or warrant but are
not deemed outstanding for computing the percentage of any other person.
38
(3) Based upon
29,335,167 shares of common stock and 25,515 shares of Series A Convertible
Preferred Stock issued and outstanding on March 25, 2010.
(4) Includes
2,340 shares of Series A Convertible Preferred Stock owned and 675 shares of
Series A Convertible Preferred Stock owned by Rice Investments, LLC, of which
Mr. Rice has voting and dispositive power of the shares held by such entity.
The 3,015 shares of Series A Convertible Preferred Stock are convertible into
753,750 shares of common stock.
(5) Represents
shares owned by Regent Private Capital, LLC, of which Mr. Field has voting and
dispositive power of the shares held by such entity.
(6) Includes
1,923,750 shares of common stock and 2,250 shares of Series A Convertible
Preferred Stock owned by Ambulatory Systems Development, of which Mr. Zasa has
voting and dispositive power of the shares held by such entity. The 2,250
shares of Series A Convertible Preferred Stock are convertible into 562,500
shares of common stock.
(7) Includes
5,265 shares of Series A Convertible Preferred Stock that are convertible into
1,316,250 shares of common stock.
(8) Includes
675 shares of Series A Convertible Preferred Stock owned by Rice Investments,
LLC, of which Mr. Rice has voting and dispositive power of the shares held by
such entity.
(9) Robert
Zasa, one of our directors, has sole voting and dispositive power of the shares
held by Ambulatory Systems Development.
(10) Vahan
Kololian has sole voting and dispositive power of the shares held by TerraNova
Partners, L.P.
(11) Stefan J.
Ahrens has sole voting and dispositive power of the shares held by Industrial
and Commercial Developments Pty, Ltd.
Equity Compensation Plan Information
The
following table sets forth information about the shares of our common stock
that may be issued upon the exercise of options granted under the 2008 Stock
Incentive Plan, which was approved by the Board of Directors and shareholders.
|
|
|
|
|
|
|
|
|
|
|
Plan
category
|
|
Number of
securities
to be issued upon
exercise of
outstanding
options,
warrants and
rights
|
|
Weighted average
exercise price of
outstanding
options,
warrants and
rights
|
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a)
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved by security holders (1)
|
|
|
4,652,250
|
|
$
|
0.1809
|
|
|
347,750
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,652,250
|
|
$
|
0.1809
|
|
|
347,750
|
|
39
|
|
(1)
|
We established the 2008 Incentive
Stock Plan, under which 5,000,000 shares of common stock were reserved for issuance
upon the exercise of stock options, stock awards or restricted stock. As of
December 31, 2009, 800,000 shares were issuable upon exercise of options
granted to employees and directors.
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, DIRECTOR INDEPENDENCE.
Other
than as disclosed below, during the last two fiscal years, there have been no
transactions, or proposed transactions, which have materially affected or will
materially affect us in which any director, executive officer or beneficial
holder of more than 5% of the outstanding common or preferred stock, or any of
their respective relatives, spouses, associates or affiliates, has had or will
have any direct or material indirect interest. We have no policy regarding
entering into transactions with affiliated parties.
At
December 31, 2009 and 2008, we incurred expenses of approximately $6,100 and
$33,000, respectively, to the law firm of Newton, OConnor, Turner &
Ketchum, of which John OConnor, one of our directors, is a partner.
We
lease a vehicle under an operating lease that expires in July 2010. The vehicle
is leased from Steve Swift, our Chief Executive Officer. The monthly lease
payment is $529.
We
lease certain equipment under a capital lease expiring May 2013. The equipment
is leased from an entity partially owned by Curtis Rice, one of our
stockholders and directors. The aggregate monthly lease payments are
approximately $3,800.
40
ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES.
Audit Fees
The
aggregate fees incurred with our public accountants for professional services
rendered during the years ended December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
Description
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Audit Fees
1
|
|
$
|
55,000
|
|
$
|
56,450
|
|
|
|
|
|
|
|
|
|
Audit-Related
Fees
2
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Tax Fees
3
|
|
$
|
5,500
|
|
$
|
5,500
|
|
|
|
|
|
|
|
|
|
All Other
Fees
4
|
|
$
|
|
|
$
|
|
|
1
Audit fees relate to professional services
rendered for the annual audit of our financial statements, the quarterly
reviews relating to SEC filings of our financial statements and our S-1 filing
with the SEC. For 2009, the audit fee amount includes estimated billings for
the completion of the 2009 audit, which was completed after year-end.
2
There were no
audit-related fees during 2009 or 2008.
3
Tax fees include fees billed for tax
planning, consultations and preparation of the tax returns. For 2009, the tax
fee amount includes estimated billings of $5,500 for the completion of the 2009
tax returns, which are completed after year-end.
4
There were no other fees during 2009 or
2008.
The
Board of Directors has considered whether the provision of non-audit services
is compatible with maintaining the principal accountants independence.
41
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES.
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
3.01
|
|
Certificate
of Incorporation, filed as an exhibit to the Registration Statement on Form
S-1, filed with the Securities and Exchange Commission (the Commission) on
February 14, 2008 and incorporated herein by reference.
|
|
|
|
3.02
|
|
Bylaws,
filed as an exhibit to the Registration Statement on Form S-1, filed with the
Commission on February 14, 2008 and incorporated herein by reference.
|
|
|
|
3.03
|
|
Certificate
of Designation for the Series A Preferred Stock, filed as an exhibit to the
Registration Statement on Form S-1, filed with the Commission on February 14,
2008 and incorporated herein by reference.
|
|
|
|
3.04
|
|
Certificate
of Amendment to the Certificate of Incorporation, filed as an exhibit to the
amended Registration Statement on Form S-1/A, filed with the Commission on
October 14, 2008 and incorporated herein by reference.
|
|
|
|
3.05
|
|
Certificate
of Amendment to the Certificate of Designation for the Series A Preferred
Stock, filed as an exhibit to the amended Registration Statement on Form
S-1/A, filed with the Commission on October 14, 2008 and incorporated herein
by reference.
|
|
|
|
4.01
|
|
Form of
Subordinated Debenture, filed as an exhibit to the Registration Statement on
Form S-1, filed with the Commission on February 14, 2008 and incorporated
herein by reference.
|
|
|
|
10.01
|
|
Management
Medical Services Agreement, dated as of September 1, 2005, by and between
WellQuest Medical & Wellness Centers of Northwest Arkansas, Inc. d/b/a
WellQuest and Northwest Arkansas Primary Care Physicians, P.A., filed as an
exhibit to the amended Registration Statement on Form S-1/A, filed with the
Commission on July 8, 2008 and incorporated herein by reference.
|
|
|
|
10.02
|
|
Medical
Doctor Agreement, dated as of September 1, 2005, by and between WellQuest
Medical & Wellness Centers of Northwest Arkansas, Inc. d/b/a WellQuest
and C. Wade Fox, M.D., filed as an exhibit to the Registration Statement on
Form S-1, filed with the Commission on February 14, 2008 and incorporated
herein by reference.
|
|
|
|
10.03
|
|
Employment
Agreement, dated as of January 1, 2005, by and between HQHealthQuest Medical
& Wellness Centers, Ltd. and Stephen H. M. Swift, filed as an exhibit to
the Registration Statement on Form S-1, filed with the Commission on February
14, 2008 and incorporated herein by reference.
|
|
|
|
10.04
|
|
Amendment to
Employment Agreement, dated as of June 30, 2007, by and between HQHealthQuest
Medical & Wellness Centers, Ltd. and Stephen H. M. Swift, filed as an
exhibit to the Registration Statement on Form S-1, filed with the Commission
on February 14, 2008 and incorporated herein by reference.
|
|
|
|
10.05
|
|
Form of
Subscription Agreement, filed as an exhibit to the Registration Statement on
Form S-1, filed with the Commission on February 14, 2008 and incorporated
herein by reference.
|
42
|
|
|
10.06
|
|
Lease
Agreement, dated as of October 6, 2004, by and between HQHealthQuest Medical
& Wellness Centers, Ltd. and 48
th
Street, LLC, filed as an
exhibit to the amended Registration Statement on Form S-1/A, filed with the
Commission on July 8, 2008 and incorporated herein by reference.
|
|
|
|
10.07
|
|
Amendment to
Lease Agreement, dated as of December 2, 2005, by and between HQHealthQuest
Medical & Wellness Centers, Ltd. and 48
th
Street, LLC, filed
as an exhibit to the amended Registration Statement on Form S-1/A, filed with
the Commission on July 8, 2008 and incorporated herein by reference.
|
|
|
|
10.08
|
|
Lease Rider,
dated as of December 7, 2007, by and between WellQuest of Arkansas, Inc. and
Next Chapter Resources, LLC, filed as an exhibit to the amended Registration
Statement on Form S-1/A, filed with the Commission on July 8, 2008 and
incorporated herein by reference.
|
|
|
|
10.09
|
|
Business
Loan Agreement, dated August 3, 2005, between ONB Bank and Trust Company and
HQHealthQuest Medical & Wellness Centers, Ltd., filed as an exhibit to
the amended Registration Statement on Form S-1/A, filed with the Commission
on July 8, 2008 and incorporated herein by reference.
|
|
|
|
10.10
|
|
Waiver,
dated January 25, 2008, from ONB Bank and Trust Company, in favor of
WellQuest Medical & Wellness Centers, filed as an exhibit to the amended
Registration Statement on Form S-1/A, filed with the Commission on July 8,
2008 and incorporated herein by reference.
|
|
|
|
10.11
|
|
Form of
Subordinated Convertible Debenture with Warrants, filed as an exhibit to the
amended Registration Statement on Form S-1/A, filed with the Commission on
July 8, 2008 and incorporated herein by reference.
|
|
|
|
10.12
|
|
Waiver,
dated September 2, 2008, from ONB Bank and Trust Company, in favor of
WellQuest Medical & Wellness Centers, filed as an exhibit to the amended
Registration Statement on Form S-1/A, filed with the Commission on September
9, 2008 and incorporated herein by reference.
|
|
|
|
10.13
|
|
Form of
Convertible Debenture, filed as an exhibit to the Current Report on Form 8-K,
filed with the Commission on April 20, 2009 and incorporated herein by
reference.
|
|
|
|
10.14
|
|
Letter
Agreement, dated as of May 11, 2009 and effective as of April 1, 2009, by and
between WellQuest Medical & Wellness Corporation and Regent Private
Capital, LLC, filed as an exhibit to the Current Report on Form 8-K, filed
with the Commission on May 14, 2009 and incorporated herein by reference.
|
|
|
|
10.15
|
|
Convertible
Debenture issued to Regent Private Capital, LLC, filed as an exhibit to the
Current Report on Form 8-K, filed with the Commission on May 14, 2009 and
incorporated herein by reference.
|
|
|
|
10.16
|
|
Waiver,
dated March 3, 2010, from ONB Bank and Trust Company, in favor of WellQuest
Medical & Wellness Centers
|
|
|
|
31.01
|
|
Certification
of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
31.02
|
|
Certification
of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.01
|
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
43
44
SIGNATURES
In accordance with the
requirements of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
WELLQUEST
MEDICAL & WELLNESS CORPORATION
|
|
|
|
|
Date:
March __, 2010
|
|
By:
|
/s/ STEVE SWIFT
|
|
|
|
|
|
|
Steve Swift
|
|
|
President (Principal
Executive Officer)
|
|
|
|
|
Date:
March __, 2010
|
|
By:
|
/s/ GREG PRIMM
|
|
|
|
|
|
|
Greg Primm
|
|
|
Chief Financial Officer
(Principal Financial Officer and
|
|
|
Principal Accounting
Officer)
|
|
|
|
|
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
Name
|
|
Position
|
|
Date
|
|
|
|
|
|
/s/ STEVE SWIFT
|
|
President (Principal
Executive Officer), Chairman and
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March __, 2010
|
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Steve Swift
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Director
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/s/ GREG PRIMM
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Chief Financial Officer
(Principal Financial Officer and
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|
March __, 2010
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Greg Primm
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|
Principal Accounting
Officer)
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/s/ LAWRENCE D. FIELD
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Director
|
|
March __, 2010
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Lawrence D. Field
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/s/ JOHN OCONNOR
|
|
Director
|
|
March __, 2010
|
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|
John OConnor
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/s/ Robert J. Zasa
|
|
Director
|
|
March __, 2010
|
|
|
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|
|
Robert J. Zasa
|
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|
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|
/s/ Curtis L. Rice
|
|
Vice President and
Director
|
|
March __, 2010
|
|
|
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|
|
Curtis L. Rice
|
|
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|
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45
WellQuest Medical and We... (CE) (USOTC:WEQL)
Graphique Historique de l'Action
De Déc 2024 à Jan 2025
WellQuest Medical and We... (CE) (USOTC:WEQL)
Graphique Historique de l'Action
De Jan 2024 à Jan 2025