Notes to the Financial Statements
Basis of Reporting
The interim accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal, recurring accruals) considered necessary for
a fair presentation have been included. For further information, management
suggests that the reader refer to the audited financial statements for the year
ended December 31, 2006 included in its Annual Report on Form 10-KSB. Operating
results for the nine-month period ended September 30, 2007 are not necessarily
indicative of the results of operations that may be expected for the year ending
December 31, 2006.
The interim financial statements of InterCare DX, Inc., for the nine months
end September 30, 2007 and 2006 are unaudited. The financial statements are
prepared in accordance with the requirements for unaudited interim financial
statements.
In the opinion of management the accompanying financial statements contain all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the Company's financial position as of September 30, 2007 and
December 31, 2006 and the results of operations and cash flows for the nine
Months ended September 30, 2007and 2006 respectfully.
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
InterCare DX, Inc., is an innovative software products development and services
company, specializing in developing healthcare management and information
systems solutions. The company markets and resells the InterCare Clinical
Explorer (ICE(tm), which is designed to integrate every aspect of the healthcare
enterprise as well as the Vasocor Vascular Diagnostic Centers device, which is
a non-invasive cardiovascular diagnostic center.
1. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
2. Account Receivable
The Company recognizes account receivable to the extent that revenues have been
earned, and collections are reasonably assured.
3. Inventory
Inventories consists of purchased computer and software products, stated at the
lower of cost or market. Cost is determined by the first-in, first-out (FIFO)
method of valuation. The company had entered into commercialization agreement of
the Vasocor Device with Meridian Health Systems, P.C. There are about 150 of
these device already manufactured and in controlled Storage at Jupiter Florida.
Since some of these devices have to be tested before being sold, and since we
have just only recently established a sales price for these items, we will be
re-evaluating how many of these devices are in good shape, having been in
storage since 2003. Upon completion of this assessment, then we can determine
the cost of the device to the company based on the commercialization
agreement with Meridian Health Systems, Inc. Preliminary estimate of the
inventory cost is about $5,000,000.
6
4. Property and Equipment
Property and equipment is recorded at cost. Maintenance and repairs are charged
to expense as incurred. Major renewals and betterments are capitalized. When
items of property are sold or retired, the related cost and accumulated
depreciation is removed from the accounts and any resultant gain or loss
is included in the results of operation.
Capital assets are depreciated by the straight-line method over estimated useful
lives of the related assets, normally five (5) to seven (7) years.
Property and equipment consists of the following as of Sept 30, 2007 and 2006:
2007 2006
===== =====
Computer Hardware &Software $68,770 $68,770
Equipment 592 592
Less: Accumulated Depreciation 69,020 68,829
------- -------
$ 342 $ 533
======== =======
|
5. Advertising
The company has the policy of expensing advertising costs as incurred. There
were no advertising costs charged to expense for the quarter ended September
30, 2007 and 2006.
6. Stock-based Compensation
Non Employee Stock-based compensation plans are recorded at fair value
measurement criteria as described in SFAS 123, "Accounting for Stock-Based
Compensation", and EITF 96-18, "Accounting for Equity Instruments That are
issued to other than employees for acquiring, or in conjunction with selling
of Goods or Services"
Employee Stock-based compensation plans are accounted for, using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock issued to Employees". Under this method, compensation
cost is recognized based on the excess of the fair value at the grant dates
for awards under those plans, as determined by the Company's officers and
directors.
7. Recognition of Revenues.
Revenues from sale of software and/or VVDC device are recorded upon delivery
and installation of our products at customer sites. The company provides a
limited amount of post-contract customer support (PCS) at no additional charge
pursuant to SOP 97-2, the value of the PCS component of any sale is estimated
based on vendor specific evidence of fair value (i.e. catalogue price).
Revenues in respect of the value of the PCS, are recognized as earned ratably
over the PCS period (generally 90 days).
The company provides software implementation and professional services for all
its enterprise software sold to its clients on a contractual basis.
Professional services are billed on either an hourly rate or flat rate basis,
and revenues recognized ratably over the service period, or upon completion
of related services.
Reimbursable expenses incurred on behalf of the customer are billed to the
customer, and credited against the applicable expense.
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The customer has the option to purchase an implementation services from the
Company. Revenues from implementation services contracts are deferred and
recognized as earned as services are performed in contracts with hourly billing
terms; and as related services are performed or expiration of the terms of the
contract in flat rate contracts.
The customer has the option to purchase a maintenance contract from the
Company. Revenues from maintenance component are deferred and brought
recognized income ratably over the maintenance service period. Currently, there
are no such contracts in existence. The Company's proposed maintenance charges
as based on vendor specific evidence of fair value.
8. Software Development Cost
Software development costs are charged to current operations
9. Fair Value of Financial Instruments and Concentration of Credit Risk.
The carrying amounts of cash, receivables, and accrued liabilities approximates
fair value because of the immediate or short-term maturity of these financial
instruments.
10. Income Taxes
Income taxes are provided in accordance with Statement of Financial accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes". A deferred tax
asset or liability is recorded for all temporary differences between financial
and tax reporting and net operating loss carry forwards. Deferred tax expense
(benefit) results from the net change during the year of deferred tax assets and
liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion of all of the
deferred tax assets will be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment
11. Basic and Diluted Net Loss Per Common Share.
In accordance with SFAS No. 128, "Computation of Earnings Per Share," basic
Earnings/(loss) per share is computed by dividing the net earnings available to
Common stockholders for the period by the weighted average number of common
shares outstanding during the period.
12. Stockholders' Equity
For purposes of computing the weighted average number of shares, all stock
issued with regards to the founding of the Company is considered to be "cheap
stock" as defined in SEC Staff Accounting Bulletin 4D and is therefore
counted as outstanding for the entire period.
Common equivalent shares, consisting of incremental common shares issuable upon
the exercise of stock options and warrants are excluded from diluted earnings
per share calculation if their effect is anti-dilutive.
13. Recent Accounting Pronouncements
The Company has received current accounting pronouncements and has determined
that the adoption of current accounting pronouncements would not have a material
impact on the Company's financials.
14. Related Party Transactions
Expenses related to the Company are routinely paid by Meridian Holdings, Inc.,
(an affiliated Company) under a management services agreement between Meridian
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and the Company. As such amounts are recorded as payable to Meridian, as
incurred.
On February 22, 2006, the Company entered into an Exclusive Master Value
Added Reseller agreement with Meridian Health Systems, P.C. ( a private
Company, under common control) to commercialize the Vasocor Vascular
Diagnostic Center equipment. Revenue from this agreement has been reflected
in the income statement.
15. Joint Venture
On June 14, 2005, the Company executed a Memorandum of understanding (MOU) with
the Saudi German Hospital Group, whereby both parties desire to form a joint
venture limited liability company in the middle east region for the purposes of
selling InterCare's ICE(tm) software licenses to physicians and other healthcare
providers. As of September 30, 2007, an implementation of the ICE(tm) in
one of the University Teaching Hospital Facilities in Jeddah, Saudi Arabia
has started.
16. Going Concern
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern.
The Company has incurred losses since its inception and has not yet been
successful in establishing a profitable operations. These factors raise
substantial doubt about the ability of the Company to continue as a going
concern. Continuance of the Company as a going concern is dependent upon
obtaining additional working capital through loans and/or additional sales
of the Company's common stock. There is no assurance that the Company will
be successful in raising this additional capital or achieving profitable
operations. The accompanying financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
9
InterCare DX, Inc.
Business Overview
InterCare DX, Inc. formerly known as InterCare.com dx,, is organized in the
State of California. We are an innovative software products and services company
specializing in providing healthcare management and information systems
solutions, with our main office located at 6201 Bristol Parkway, Culver City
USA, and international partners located worldwide. In business since 1991,
we have created, published, and marketed software products embedded with sound,
text and video for the purpose of relaxation training and stress management. We
have also developed Internet-ready applications for healthcare transactions
management as well as medical and health-related content and information
targeted toward the education, consumer, and healthcare industry markets.
Our Products and Services
InteCare Vascular Diagnostic Centers (IVDC)
IVDC is a freestanding diagnostic device, that employs a revolutionary
non-invasive inexpensive, easy to use procedure that has been clinically
proven to detect coronary artery disease (CAD) earlier and more accurately
than existing Techniques. The IVDC Device has FDA pre-market approval,
validated clinical trial data, Medicare/Medicaid and Indemnity insurance
re-imbursement eligibility. In addition to coronary arterial disease, the
device can also be used in the non-invasive diagnosis of peripheral vascular
disease and estimating endothelial function
The IVDC technology will be most helpful in identifying subjects at risk. With
this identification treatment will start early and outcomes will improve.
Finally, this testing will target subjects who will benefit from more expensive
and perhaps invasive testing.
Regulatory Approvals
The IVDC device has received 510(k) pre-marketing approval by USFDA, in
addition to a UL approval.
Competition
The existing CAD diagnostics available to primary care physicians have several
important limitations that create significant opportunities for a new,
low-cost, office-based, procedure such as VVDC technology. First, as CAD
diagnostics, both the ECG and the ECG Stress Test produce a relatively high
number of false negatives and false positives. More importantly these tests are
limited to the diagnosis of advanced atherosclerotic disease. An estimated 50%
of patients given an ECG receive borderline test results and 25% of patients
tested on an ECG Stress Test also fall into the borderline category.
Although the Stress Thallium and Echocardiogram are more accurate than the ECG
and the ECG Stress Test, these procedures are also more expensive and more
difficult to perform and interpret. Coronary angiography is widely considered
to be the "gold standard" for diagnosing CAD; however, this procedure is both
costly and highly invasive, and is a late stage disease diagnostic tool.
Physicians have estimated, between 10-20% of coronary angiograms performed find
little or no disease in the patient. Further, intravascular ultrasound has
shown coronary angiograms often miss significant atherosclerotic disease,
when coronary lumen is not compromised. With the exception of ECGs, which are
often conducted in a physician's office, the majority of the existing CAD
diagnostics take place in hospitals or cardiac clinics.
The high cost of the equipment, skill needed to perform the tests and space
requirements prohibit primary care physicians from using most CAD diagnostics
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in their office. Currently, primary care physicians do not have a low-cost
assessment alternative that they can use in their own office to assist them in
determining whether a patient should be referred for further testing or whether
life style modifications and lipid-lowering drugs and other pharmacological
therapies are the appropriate next step.
For peripheral vascular disease (PAD) the existing commonly used assessment
tool is Ankle/Brachial Index (ABI). This noninvasive procedure can accurately
identify patients with PAD. To conduct an ABI procedure with current
technology, the examiner needs to be skilled in using Doppler ultrasound. This
is a technique-sensitive procedure whose results may vary depending on the
skill of the examiner. Thus, this method is not widely used in primary care
offices. The VVDC device includes the ABIgram(tm) module, which is a
Doppler-free method of performing Ankle/Brachial Index with this module
virtually any health care provider can obtain this important measurement. If
PAD is found, the device offers another PAD tool called the PADogram(tm). This
module measures thigh and calf segmental limb systolic pressure, which is
helpful in identifying location of arterial obstruction.
New Competitors / Complementers
Due to the attractiveness of this market, there are several new technologies at
Various stages of development aspiring to meet the need for new CAD
diagnostics. The strongest likely emerging competitors to arterial
compliance are the C-reactive protein assay, IL-1 genetic test, and
EBCT/Ultra Fast CT. Each of these technologies detects coronary artery disease
at different stages in the progression of the disease. Arterial compliance
measurement is the only early assessment procedure that is noninvasive, cost
effective and easy to perform in primary care physician's office.
C-reactive Protein Assay
The C-reactive protein assay is a blood test that may be able to add
information about a patient's risk for a coronary event beyond traditional risk
factors. In clinical trials conducted on 1,000 frozen blood samples from the
Physician's Health Study, subjects with high protein levels were three times as
likely to have a stroke or heart attack as those with lower levels. In another
trial conducted on 3,000 frozen blood samples, C-reactive protein levels
declined 38% in subjects given Pravachol (statin lipid-lower drug) and
the effect was independent of changes in cholesterol. A new test for C-reactive
protein, developed at Brigham and Women's Hospital in Boston and launched in
November 1999, is gaining momentum in the marketplace. This test is thought to
be much more accurate than a previous test for C-reactive protein that met with
limited success in the marketplace. At this point, however, there are no
studies published that show C-reactive protein to have predictive power
above Framingham Risk Profiles. Further, in clinical trials, Vasogram(tm)
endpoints correlated more closely with aortic atherosclerosis than C-reactive
protein measurements.
Interleukin-1 (IL-1) Genetic Test
The IL-1 genetic test is a finger-stick blood test that detects genetic
Predisposition for CAD by examining factors that regulate the inflammatory
process. Clinical trials conducted at the Mayo Clinic revealed a strong
association between IL-1 and CAD in patients 60 years old or younger. The test
was developed by Interleukin Genetics, Inc. and is expected to be launched in
the next few years at a cost of approximately $200 per test.
EBCT / Ultra Fast CT
The EBCT/Ultra Fast CT uses imaging to detect coronary arterial calcification,
which has been shown to be correlated with the severity of atherosclerosis. In
clinical trials, a calcium score of over 400 indicated a 15 fold greater risk
of a major coronary obstruction. An eighteen-month study of 1200 asymptomatic
patients showed that those who experienced coronary events had calcium scores
6.5 times higher than those who had no such events. In addition, a 150 patient
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Clinical trial of EBCT's efficacy as a treatment monitor revealed a strong
correlation between reductions in cholesterol and calcium deposits. EBCT is
manufactured by San Francisco based Imatron which has since been acquired by
General Electric Corporation.
InterCare Clinical Explorer (ICE(tm))
InterCare Clinical Explorer (ICE ), is a developed by InterCare DX, Inc., an
innovative enterprise level clinical documentation application designed to
integrate virtually all aspects of the health care enterprise, both
inpatient and outpatient. ICE(tm)'s extensive, scalable system flexibility
allows its adaptation to clinical workflow, operating independently in
centralized and decentralized facilities. The program features intuitive order
entry, "tapering" orders, a clinical knowledge base, digital video enhanced
patient education, real-time electro-physiological data capture and display,
voice command and recognition, a digital dictation module, and numerous other
capabilities to complement and document the diagnostic and treatment processes,
including unlimited free-text notes.
The strength of ICE application is derived from differentiated core technologies
consisting of: Mainstream SQL Database with full open architecture; human
anatomy and graphical user interfaces that simplify documentation and
information access; data mining and data query tools; end-user tool sets; and
interface capabilities to facilitate peaceful coexistence with other systems.
OUR COMPETITION
InterCare DX, Inc., participates in a large and growing marketplace
domestically and internationally. The US healthcare information systems and
services market currently represents a $20 billion annual market. Electronic
Medical Record (EMR), CDR and clinical systems, being a part of an emerging
arena, are accountable for $2 US Billion of this sum Clinical systems' market
volume is expected to accelerate its growth because of the recent HIPAA
regulations requirements.
The most pro-active e-health players are Eclypsis, Cerner, GE Medical, IDX
and McKesson-HBOC, however each of these players has thousands of existing
customers operationally using its legacy systems. Thus, their e-health
transition strategy is slow both technically and business wise.
Mergers or consolidations among our competitors, or acquisitions of small
competitors by larger companies, would make such combined entities more
formidable competitors to us. Large companies may have advantages over us
because of their longer operating histories, greater name recognition, or
greater financial, technical and marketing resources. As a result, they may be
able to adapt more quickly to new or emerging technologies and changes in
customer requirements. They can also devote greater resources to the promotion
and sale of their products or services than we can.
For the above reasons, we may not be able to compete successfully against our
current and future competitors. Increased competition may result in reduced
gross margins and loss of market share.
OUR COMPETITIVE ADVANTAGE
- OUR KNOWLEDGEABLE AND GROWING SALES FORCE AND TECHNICAL STAFF.
We will be making sure that the sales force is trained on the
"high-end" networking elements in which we deal so they will be able to
service the needs of their customers.
- OUR BUSINESS MODEL COST, EFFICIENCY AND FLEXIBILITY.
We have addressed the largest cost factor in the methodology for deploying
our services through an outsourcing strategy rather than a building the
human resources from the scratch strategy. This keeps start-up costs as
12
low as possible.
- OUR STRATEGIC PARTNER STRENGTH.
Partnerships with CGI Communications Services, Inc., our parent company
Meridian Holdings, Inc., Meganet Corporation, Sager Midern Computers.,
Acer America Corporation, ViewSonic Corporation, Microsoft Corporation,
Tech Data Corporation, QRS Diagnostics, Inc., and Novantus Corporation
And Microsoft Corporation,will give us the ability to deliver our software
products faster and at a lower cost than the competition
- INTEGRATION.
We can seamlessly integrate all of the different technological solutions
and custom applications development. We use different strategic partners
to tailor the optimum solution for our customer.
- AUTOMATION AND ADVANCED TELECOMMUNICATIONS TECHNOLOGY.
Our Network Management tools are automated which leads to less downtime,
and lower labor costs. We use the latest equipment, work closely with
strategic partners that are forerunners in their fields, and are not
hampered by existing legacy infrastructures.
- OUR CUSTOMIZED CUSTOMER APPROACH.
We emphasize direct relationships with our customers. These relationships
enable us to learn information from our customers about their needs
and preferences and help us expand our service offerings to include
additional value-added services based on customer demand. We believe that
these customer relationships increase customer loyalty and reduce
turnover.
In addition, our existing customers have provided customer referrals
and we believe strong relationships will result in customer referrals in
the future.
Our success depends upon careful planning and the selection of partners. We can
meet the customer's needs more efficiently with entrenched procedures. This
enables us to excel at customer service.
OUR BUSINES STRATEGY
Our current efforts are targeted on taking advantage of our strengths
in the application of high technology in the healthcare arena.
InterCare most apparent weaknesses when operating in the US market are:
- Very small customer base.
- Perception of a small ("thin") company in comparison with well
established (and public) US healthcare IT companies
- Limited number of strategic partners in complementary expertise areas
Strengths
InterCare strengths when operating in the US market are:
- Point-Of-Care EHR management, care standards, workflow management,
personal productivity management, common enterprise knowledge base,
enterprise data warehouse, legacy integration middleware and data
mining, which are generally available (ICE(tm))
- ICE(tm) architecture initially designed to support Internet (n-tier)
implementations
- ICE(tm) architecture supportive of concurrent multi-lingual users
- ICE(tm) architecture supportive of remote administration and
maintenance
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- InterCare control over competitive product packaging and pricing
strategies
- InterCare competitive lower cost of enterprise product development
- Extensive, multi-level customization of ICE(tm) software programs'
components, requiring no source code intervention
- Compliance with HIPAA through customer controlled security business
rules.
- InterCare expects its transition to the e-Health market space, coupled
with its revised service-based sales model, to make these strengths
a significant competitive advantage over its competition.
Risk Factors
CHANGES IN THE HEALTH CARE INDUSTRY COULD ADVERSELY AFFECT OUR BUSINESS.
The $1 trillion health care industry is currently going through a period of
tremendous change. Nowhere is this more evident than the patient care delivery
network where the three main components--physician groups, insurers and
hospitals - are scrambling for market share, volume and control.
The health care industry is also subject to changing political, economic, and
regulatory influences. These factors affect the purchasing practices and
operations of health care organizations. Changes in current health care
financing and reimbursement systems could cause us to make unplanned
enhancements of applications or services, or result in delays or cancellations
of orders, or in the revocation of endorsement of our applications and services
by health care participants. Federal and state legislatures have periodically
considered programs to reform or amend the U.S. health care system at both the
federal and state level. Such programs may increase governmental involvement in
health care, lower reimbursement rates, or otherwise change the environment in
which health care industry participants operate. Health care industry
participants may respond by reducing their investments or postponing investment
decisions, including investments in our applications and services.
Many health care industry participants are consolidating to create integrated
health care delivery systems with greater market power. As the health care
industry consolidates, competition to provide products and services to
industry participants will become even more intense, as will the importance of
establishing a relationship with each industry participant These industry
participants may try to use their market power to negotiate price reductions for
our products and services. If we were forced to reduce our prices, our operating
results could suffer as a result if we cannot achieve corresponding reductions
in our expenses.
For the above reasons, we may not be able to compete successfully against our
current and future competitors. Increased competition may result in reduced
gross margins and loss of market share.
GOVERNMENT REGULATION OF THE HEALTH CARE INDUSTRY COULD ADVERSELY AFFECT OUR
BUSINESS.
We are subject to extensive regulation relating to the confidentiality and
release of patient records. Additional legislation governing the distribution of
medical records has been proposed at both the state and federal level. It may be
expensive to implement security or other measures designed to comply with new
legislation. Moreover, we may be restricted or prevented from delivering patient
records electronically. For example, until recently, the Health Care Financing
Administration guidelines prohibited transmission of Medicare eligibility
information over the Internet.
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Legislation currently being considered at the federal level could affect
our business. For example, the Health Insurance Portability and Accountability
Act of 1996 mandates the use of standard transactions, standard identifiers,
security, and other provisions as amended. We are designing our platform and
applications to comply with these proposed regulations; however, until these
regulations become final, they could change, which could cause us to use
additional resources and lead to delays as we revise our platform and
applications. In addition, our success depends on other health care participants
complying with these regulations.
Furthermore, our recent involvement with the VVDC technology makes us an FDA
regulated entity. The release of future IVDC products will require FDA
approval. We will be seeking for European Union approval or the CE mark, in
order to market our product in European Countries.
There is no guarantee that such approval will be obtained in a timely manner
or at all. Any delay in obtaining such approval will impact our revenue.
EMPLOYEES
We presently have five full time employees and seven independent contractors.
DESCRIPTION OF PROPERTY
We are presently occupying 1/3 of an office space leased by Meridian, an
Affiliated company at 6080 Center Drive #640, Los Angeles, California.
The agreed cost attributable to us for the use of the facility is based on
1/3 of the total amount of cost to Meridian for operating the suites.
LEGAL PROCEEDINGS
From time to time, we may be engaged in litigation in the ordinary course of
our business or in respect of which we are insured or the cumulative effect of
which litigation our management does not believe may reasonably be expected to
be materially adverse. With respect to existing claims or litigation, our
management does not believe that they will have a material adverse effect on
our consolidated financial condition, results of operations, or future
cash flows.
RISKS ASSOCIATED WITH MANAGING GROWTH
The Company's anticipated level of growth, should it occur, will challenge the
Company's management and its sales and marketing, customer support, research and
development and finance and administrative operations. The Company's future
performance will depend in part on its ability to manage any such growth, should
it occur, and to adapt its operational and financial control systems, if
necessary, to respond to changes resulting from any such growth. There can be no
assurance that the Company will be able to successfully manage any future growth
or to adapt its systems to manage such growth, if any, and its failure to do so
would have a material adverse effect on the Company's business, financial
condition and results of operations.
MARKET FOR COMMON STOCK
The Company's Common Stock is traded on the Bulletin Board maintained by the
National Association of Securities Dealers, Inc. under the symbol "ICCO." The
price range of the Company's Common Stock has varied significantly in the past
months ranging from a high bid of $.024 and a low bid of $0.022 per share. The
above prices represent inter-dealer quotations without retail mark-up, mark-down
or commission, and may not necessarily represent actual transactions.
SELECTED FINANCIAL DATA
The Company had net working capital of $ 246,174 as at September 30, 2007
compared to networking capital of $ (1,599,742) as at September 30, 2006.
15
The increase in working capital is due to income from operations during the
periods then ended.
The selected financial data set forth above should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements notes thereto.