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[December 18, 2012]
HEALTH ADVANCE, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge) The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
Overview The Company has incurred losses since inception and the ability of the Company to continue as a going-concern depends upon its ability to raise adequate financing and develop profitable operations. Management is actively targeting sources of additional financing to provide continuation of the Company's operations. In order for the Company to meet its liabilities as they come due and to continue its operations, the Company is solely dependent upon its ability to generate such financing.
The Company is actively seeking financing for its current business operation. The Company is optimistic that the financing will be secured and the going concern risk will be removed. We are in discussions with various parties and believe a successful financing is likely. We will likely to raise funds through either debt or issuing shares of our common stock in order to achieve our business goals. The issuance of additional shares or securities convertible into any such shares by us, any shares issued would dilute the percentage ownership of our current stockholders. There are no agreements with any parties at this point in time for additional funding.
Plan of Operation We were incorporated on April 14, 2010 in Wyoming. Our business office is located at 3651 Lindell Road, Suite D#155, Las Vegas, NV, 89103. Our telephone number is 702-943-0309. We were founded by Jordan Starkman, who serves as President and Director. In addition, Domenico Pascazi was appointed as a director in March 2011.
We are an on-line retailer of home medical products with operations in Canada and the US, and with administration and infrastructure supported globally. Our strategy is to attract opportunities in the health care industry through the development and growth of our existing web site www.healthadvancemd.com. We believe we can operate more cost efficiently and compete as a discounter that delivers value and low cost branded lines of home medical care products together with valuable customer care that is currently missing in the marketplace. Our goal is to become our customers' single source for low cost health care supplies, by meeting all of our customer's needs.
We strive to offer health care professionals, medical distributors and consumers the highest quality brands and products at the most affordable prices. We expect to achieve this by forming relationships with suppliers that will be able to provide us with preferred prices once we are able to make bulk purchases.
In the fiscal year of 2013, we plan to build our business across four key product categories including: (1) respiratory, (2) diabetes, (3) ostomy, and (4) mastectomy supplies. Our growth plan is to achieve $250,000 in net revenues within the first 12 months following our July 31, 2012 year-end, with $120,000 derived from these four growth product lines at an average of $30,000 from each new growth category business unit.
We plan to complete a financing through a private offering for a minimum of $200,000 in the fiscal year of 2013. We have not yet entered into any agreements with any parties with respect to obtaining financing for the Company.
If we are unable to obtain financing on reasonable terms, we could be forced to delay or scale back our plans for expansion. In addition, such inability to obtain financing on reasonable terms could have a material adverse effect on our business, operating results, or financial condition.
If we are able to obtain financing, we plan to implement both online and offline marketing and customer engagement campaigns for both our traditional durable medical products and our four key product areas mentioned above. We intend to target consumers with on-line marketing, and businesses, including various senior care facilities, with direct mail, telemarketing and flyer campaigns.
Initially, we will target small to medium size facilities. We also intend to launch our direct mail onsite flyer campaigns and outbound calling campaigns in unison to increase the frequency and awareness of HealthAdvanceMD. We expect to replace and expand any existing major wholesaler relationships we currently work with by the beginning of year two following our July 31, 2012 year-end. Further, during this expected time frame, we plan to establish direct-from-manufacturer programs for our four key growth markets in order to achieve improved margin of between 25-35%. We intend to continue to run our durable medical products business through the existing wholesaler relationships given the large range of product SKUs in the durable medical product category where we carry no less than a selection of nearly 2,000 products. No steps have been taken thus far to secure customers for our products.
The Company has recently started the process of preparing for an online marketing campaign. The Company has a relationship with AGS Cybertech located in India who will manage and coordinate all of our online marketing efforts. The campaign will include internet banner ads, search engine optimization, and social media optimization. All banner advertising will be strategically placed with various click per view programs as part of our overall sales and marketing plan.
In the fiscal year of 2013 and 2014, we intend to achieve total sales of $500,000. We expect to achieve this by generating revenue of $300,000 from our core four growth markets at a sales growth rate of approximately 50% per year; along with an additional $200,000 from our durable medical products business and over $50,000 derived from margin improvements on existing product lines within our four core growth categories.
1 --------------------------------------------------------------------------------In our key growth areas we plan to focus on reducing and concentrating the number of product SKUs in each growth category in order to create leverage with our supply chain across selected relationships with respiratory, diabetes, ostomy and mastectomy suppliers. These new direct-from-manufacturer programs will primarily be drop ship programs and will essentially result in no new product inventory risks. They will be predominantly product substitution strategies where direct manufacturers carry the inventory risk in order to get shelf space within our business to consumer ecommerce property www.healthadvancemd.com and other sales channels. These programs will be based on committed but non-binding contracted volume from us with each manufacturer, but where the manufacturer still carries the inventory, marketing investment, and the majority of the time continues to handle drop shipments direct to our customers and sales channels.
The first tranche of these direct from manufacturer programs is expected to be with North America based manufacturers given a tendency for higher quality product, margins and their ability to handle inventory and direct shipments to our customers. We also plan to evaluate a select number of overseas supplier relationships if we identify that a select overseas direct supplier can and will meet our delivery, financing and quality and return warranty terms. As a result of these supply chain improvements we expect to increase our net revenues by over an additional $50,000 based on margin improvements of an average of 20-25% and this does not include factoring in even higher margins if we choose to source from overseas markets.
These new product launches will be outlined and planned within the 2013 fiscal year, once our financing is completed. During the next 24 months following our 2012 year-end, we plan to work with our manufacturing partners to develop and finalize no less than 2 new product lines within each core product group for respiratory, diabetes, ostomy and mastectomy supplies and launch them by the second half of year 2 based on an estimate of an average of $50,000 net revenue per new product line per year. Together with our manufacturer partners we intend to develop and test market and then finalize our packaging and product features and licensing requirements by the end of July 2014.
In addition to supply chain optimization coming into full effect by the beginning of January 2014 which should result in reduced overall cost of goods, we also plan to drive top line growth with a major marketing initiative for new products. No formal products have been discussed as of yet. As a result by the end of July 2014, based on achieving the 3 key milestones outlines above including: (1) entering into new growth markets, (2) optimizing our supply chain and (3) launching new product lines in our new growth markets - we intend as part of a 36 month plan from July 31, 2012, to achieve a top line net revenue from our operations of $2,000,000.
This $2,000,000 will be comprised of $1,200,000 from existing product line sales in growth markets for respiratory, diabetes, ostomy and mastectomy supplies through a margin optimized supply chain; a contribution of over $400,000 from our traditional durable medical products businesses through existing wholesaler channels and $400,000 in net revenue from new products launched.
We have estimated that we will incur minimum expenses equal to $15,000 in the year following our July 31, 2012 year-end in order to maintain our business operations. However, if we conduct a financing, we will devote the capital raised to operational expenses as indicated below. The Company will attempt to complete a financing for a minimum of $200,000 within the 12-month period following the Company's 2012 year-end. Any capital raised will be through either a private placement or a convertible debenture and will result in the issuance of common shares from the Company's authorized capital.
Web Development and Maintenance $ 5,000.00 Legal/Accounting $ 15,000.00 Computer hardware and software systems $ 10,000.00 Advertising and Marketing $ 130,000.00 General and administrative $ 10,000.00 Salaries and Customer Service $ 25,000.00 Telephone $ 1,000.00 Travel $ 4,000.00 Total Expenses $ 200,000.00 2--------------------------------------------------------------------------------The above represents our Managements best estimate of our cash requirements based on our business plans and current market conditions. The above is based on our ability to raise sufficient financing and generate adequate revenues to meet our cash flow requirements. The actual allocation between expenses may vary depending on the actual funds raised and the industry and market conditions over the next 12 months following our July 31, 2012 year-end.
The Company is currently negotiating financing in the amount of $200,000 to further the Company's business operations. Any capital raised will be through either a private placement or a convertible debenture and will result in the issuance of common shares from the Company's authorized capital.
Results of Operations for the three months ended October 31, 2012 For the three months ended October 31, 2012 and October 31, 2011, we had no sales. Cost of goods sold for the three-month period ended October 31, 2012 and October 31, 2011 were $0 and $0, respectively. Operating expenses for the three months ended October 31, 2012 and October 31, 2011 were $10,606 and $26,473 respectively.
Net loss for the three months ended October 31, 2012 and October 31, 2011 were $11,103 and $26,302 respectively. The operating expenses were primarily attributed to professional fees, consulting fees, web design fees, rent and other general overhead. The decreased loss from October 31, 2012 compared to October 31, 2011 is attributed to the decrease in professional fees and management fees. Professional fees for the three months ended October 31, 2012 was $362 compared to $8,000 for the three months ended October 31, 2011.
During the period from inception (April 14, 2010) to October 31, 2012 the total operating expenses were $188,251 and the net loss was $188,436.
During the three months ended October 31, 2012 the director's contributed services totaled $6,000. These services were included in the calculation of additional paid in capital.
During the three months ended October 31, 2012 we operated from a premises leased by a director. The costs of this premises and other general and administrative expenses paid on our behalf during the three months ended October 31, 2012 totaled $4,200. These expenses are payable to the shareholder and included in current liabilities.
During the period from inception (April 14, 2010) to October 31, 2012, we had no provision for income taxes due to the net operating losses incurred.
Any sales generated consist of the sale of medical supplies from our wholesalers and any profit generated is derived from the margins on the products sold. We expect to generate increased sales once our advertising campaign begins.
Liquidity and Capital Resources As of October 31, 2012 we had a cash balance of $159, prepaid expenses of $665, and a working capital deficit of $37,836.
The initial use of the consideration received from the Company's unregistered common share sales that occurred in the amount of $89,200 was allocated to offering expenses, professional fees, advertising/marketing, website and ecommerce platform development and working capital. The breakdown of the $89,200 received by the Company consists of $9,200 in cash received from sales of unregistered common stock and $80,000 of unregistered common stock issued in exchange for services. In July 2012, the Company raised an additional $16,000 for professional and consulting fees.
3 --------------------------------------------------------------------------------The Company is currently seeking funding for our continued operations. The Company intends to raise a minimum of $200,000 and a maximum of $500,000 in order to continue the introduction of the www.healthadvancemd.com e-commerce site to the retail community and health care community. To achieve our goals the Company expects to commit the majority of its funding to the advertising of the Company's web site. There is no assurance that the company will be able to raise the capital required to complete its goal and objectives and the Company is currently seeking capital to further its business plan. We will likely to raise funds through either debt or issuing shares of our common stock in order to achieve our business goals. The issuance of additional shares or securities convertible into any such shares by us, any shares issued would dilute the percentage ownership of our current stockholders. There are no agreements with any parties at this point in time for additional funding; however, we are in discussions with various funders in the US.
We believe we can satisfy our cash requirements for the next twelve months with our expected revenues and if needed an additional loan from our director, Jordan Starkman. We cannot assure investors that adequate revenues will be generated and there is no current loan commitment in place between the Company and Jordan Starkman. However, the success of our operations is dependent on attaining adequate revenue. In the absence of our projected revenues, we may be unable to proceed with our plan of operations or we may require financing to achieve our profit, revenue, and growth goals.
We anticipate that our fixed costs made up of legal & accounting and general & administrative expenses for the next 12 months will total approximately $25,000. Legal and accounting expenses of $15,000 represents the minimum funds needed to sustain operations. The $25,000 will be financed through the Company's cash on hand, additional financing, net sales and if needed, an advance from our officer and director, Jordan Starkman. We do not anticipate the purchase or sale of any significant equipment. We also do not expect any significant additions to the number of employees, until financing is raised. The foregoing represents our best estimate of our cash needs based on our current business condition. The exact allocation, purposes and timing of any monies raised in subsequent private financings may vary significantly depending upon the exact amount of funds raised and our progress with the execution of our business plan. It is currently expected that the Company will spend an additional $175,000 in variable costs relating to marketing and business development that will be funded from future financings.
In the event we are not successful in reaching our initial revenue targets, we need additional funds to proceed with our business plan for the development and marketing of our core services. Should this occur, we would likely seek additional financing to support the continued operation of our business. We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.
Recent Accounting Pronouncements The management did not believe that recent accounting pronouncements issued by the FASB have a material impact on the Company's present or future consolidated financial statements.
Off-Balance Sheet Arrangements We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts.
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