10QSB 1 form10q2.txt TRUE HEALTH, INC. FORM 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10QSB -------- --------------------------------------------------------------------- [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2004 -------- --------------------------------------------------------------------- OR -------- --------------------------------------------------------------------- [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 -------- --------------------------------------------------------------------- For the transition period from to -------- --------------------------------------------------------------------- COMMISSION FILE NUMBER: 0-30351 True Health, Inc. (Exact name of registrant as specified in its charter) -------------------------------------------------- --------------------------- Utah 75-2263732 -------------------------------------------------- --------------------------- (State of other jurisdiction (IRS Employer Identification of incorporation or organization) Number) ------------------------------------------------- ---------------------------- Kelsey House, 77 High Street Beckenham, Kent UK BR3 1AN (Address of principal executive offices) +(44) (0) 208 658 9575 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 30, 2004: 50,416,875 TRUE HEALTH INC CONSOLIDATED BALANCE SHEET April 30, 2004 (unaudited) ASSETS Current Assets Cash $ 340,386 Accounts receivable, net 775,516 Inventory 242,720 Income tax refund receivable 0 Other 19,601 ----------- Total Current Assets 1,378,223 Equipment, net of accumulated depreciation 250,680 ----------- $1,628,903 =========== LIABILITIES AND STOCKHOLDERS' SURPLUS Current Liabilities Note payable to factor $ 451,339 Current portion of notes payable 231,833 Accounts payable 60,911 Accrued expenses 303,832 Amounts payable to stockholder 218,762 ----------- Total Current Liabilities 1,266,667 Long-term portion of notes payable 111,543 ----------- Total Liabilities 1,378,220 ----------- Commitments Stockholders' Equity Common stock, $.01 par value; 100,000,000 shares authorized; 50,416,875 shares issued and outstanding 504,169 Additional paid in capital 1,002,088 Accumulated deficit (1,227,546) Accumulated other comprehensive loss (28,028) ----------- Total Stockholders' Equity 250,683 ----------- $1,628,903 ===========
TRUE HEALTH INC CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended April 30, 2004 and 2003 (unaudited) Three Months Ended 2004 2003 ---------- --------- Revenue - Equipment rentals and sales $ 496,375 $ 316,299 - Radiographer services and placement fees 1,151,075 244,068 - Other 10,139 7,876 ---------- --------- 1,657,589 568,243 ---------- --------- Cost of sales 1,061,799 282,665 General and administrative 656,018 357,582 Depreciation 25,773 27,911 ---------- --------- Total operating expenses 1,743,590 668,158 ---------- --------- Net Operating Loss (86,002) (99,915) Interest income 2,868 19 Interest expense (5,885) ( 17,461) ---------- --------- Net loss before taxes (89,019) (117,357) Income tax recovery 897 0 ---------- --------- Net Loss $ (88,122) $( 117,357) ========== ========= Basic and diluted loss per share $(.00) $(.00) Weighted average shares outstanding 50,224,839 37,500,000
TRUE HEALTH INC STATEMENTS OF CONSOLIDATED CASH FLOW Three Months Ended April 30, 2004 and 2003 (unaudited) 2004 2003 --------- --------- Cash Flows From Operating Activities Net loss $( 88,122) ( 117,357) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 25,773 27,911 Imputed interest on shareholder notes payable (1,822) 7,687 Changes in: Accounts receivable (78,699) ( 84,786 Inventory (137,810) 19,510 Other current assets 52,898 (16,145) Accounts payable (58,116) 20,589 Accrued expenses 46,703 20,220 --------- --------- Net Cash Used In Operating Activities (239,193) (122,371) --------- --------- Cash Flows Used in Investing Activities Purchase of equipment (30,997) (36,330) --------- --------- Cash Flows From Financing Activities Proceeds from exercise of warrants for stock 475,000 115,224 Net change in stockholder advances (60,573) Net change in note payable to factor 55,600 2,537 Proceeds on notes payable 0 56,148 Payments on notes payable (125,685) (14,417) --------- --------- Net Cash Provided By Financing Activities 344,342 159,492 --------- --------- Currency translation adjustment 9,588 302 --------- --------- Net change in cash 83,739 489 Cash at beginning of period 256,647 255 --------- --------- Cash at end of period $ 340,386 $ 734 ========= =========
TRUE HEALTH INC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim financial statements of True Health Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in True Health, Inc.'s Annual Financial Statements filed with the SEC on Form 10-K and in respect of the comparative period, the significant acquisition statement filed with the SEC on Form 8-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year end to January,31 2004, as reported in the Form 10-K, have been omitted. NOTE 2 - STOCK WARRANTS True Health accounts for non-cash stock-based compensation issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF No. 96-18, Accounting for Equity Investments That Are Issued to Non-Employees for Acquiring, or in Conjunction with Selling Goods or Services. Common stock issued to non-employees and consultants is based upon the value of the services received or the quoted market price, whichever value is more readily determinable. During the three months ended April 30, 2004 and 2003, there were no warrants issued for services. ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Important Information Regarding Forward-Looking Statements This Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements include indications regarding our intent, belief or current expectations, including our plans with respect to the sourcing, manufacturing, marketing and distribution of our products and services, the belief that current levels of cash and cash equivalents together with cash from operations and existing credit facilities will be sufficient to meet its working capital requirements for the next twelve months, our expectations with respect to the performance of the counterparties to its letter of credit agreements, our plans to invest in derivative instruments and the collection of accounts receivable, our beliefs and intent with respect to and the effect of changes in financial accounting rules on its financial statements. Such statements are subject to a variety of risks and uncertainties, many of which are beyond the our control, which could cause actual results to differ materially from those contemplated in such forward-looking statements, which include, among other things, (i) changes in the marketplace for our products and services, (ii) the introduction of new products or pricing changes by our competitors, (iii) changes in exchange rates, and (iv) changes in the economy. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update or revise the information contained in this Quarterly Report on Form 10-QSB, whether as a result of new information, future events or circumstances or otherwise. Critical accounting policies We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. The preparation of this Quarterly Report on Form 10-QSB requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. 1) Allowance for doubtful accounts We evaluate the adequacy of the allowance for doubtful accounts at the end of each quarter. In performing this evaluation, we analyze the payment history of significant past due accounts, subsequent cash collections on these accounts and comparative accounts receivable aging statistics. Based on this information, along with consideration of the general strength of the economy, we develop what we consider to be a reasonable estimate of the uncollectible amounts included in accounts receivable. This estimate involves our significant judgment. Actual uncollectible amounts may differ from our estimate. 2) Provision for obsolete inventory We estimate our provision for obsolete inventory based on customer orders sold below cost, to be shipped in the following period and on the amount of similar unsold inventory at period end. We analyze recent sales and gross margins on unsold inventory in further estimating the inventory provision. The impact of the inventory provision is reflected in cost of sales and the related gross margins in the period that management deems that inventory has become obsolete. This estimate involves our significant judgment. Actual gross margins on sales of excess inventory may differ from our estimate. Three Months Ended April 30, 2004 Compared to Three Months Ended April 30, 2003 Revenue Total revenue for the three months ended April 30, 2004 grew to $1,657,589. This represents an increase of $1,089,346, or 192%, when compared to revenue of $568,243 for the three months ended April 30, 2003. The equipment rentals and sales segment's revenue increased by $180,076, or 57%, in the three months ended April 30, 2004, compared to the three months ended April 30, 2003. This increase reflects the growth in the business over the past year which mainly arose from an increase in the customer base and through our geographic expansion via our Distributor Network. Revenue from the radiographer services and placement segment increased by $907,007 to $1,151,075 for the 3 months ended April 30, 2004. This represents a 372% increase on the three months to April 30, 2003. Cost of sales Cost of sales for the three months ended April 30, 2004, compared to the three months ended April 30, 2003 are as follows: Three months ended Three months ended April 30, 2004 April 30, 2003 Equipment rentals and sales $114,487 23.1% $103,471 32.7% Radiographer services and 947,312 82.3% $179,193 73.4% - placement fees Total $1,061,799 64.1% $282,664 49.7% The revenue for the three months to April 30, 2004 was comprised of 70% Radiographer services and placement fees and 30% equipment, compared with 43% and 56% respectively for this time last year. The total Gross Profit increased by 109% in the first quarter to (pound)595,790 compared with the three months ended April 30, 2003 of (pound)285,578. General and administrative overheads General and administrative overheads have increased by $298,436 to $656,018 for the three months to April 30, 2004, compared to overheads of $357,582 for the three months to April 30, 2003. The main reasons for this increase are as follows: o An increase in sales staff, as an investment to continuing the growth in revenues; o An increase in experienced employees and Directors in order to support the expansion of business in a controlled way; o An increase in other office related costs reflecting the increase in staff and revenues; o Set-up and ongoing costs for a decontamination plant to support the growth in the equipment rental business; and o Increase in costs associated with additional warehousing and inventory storage facilities. The increase in general and administrative overheads for the three months ended April 30, 2004 is more than compensated for by the increase in revenues less cost of sales in the same period last year. Interest expense Net Interest expense of $3,017 for the three months to April 30, 2004, has reduced by $14,425, or 83%, compared with $17,442 for the three months to April 30, 2003. This improvement has been mainly due to the investment from shareholder over the last year. Liquidity and Capital Resources We have relied primarily on asset-based borrowings, internally generated funds, stockholder loans and trade credit to finance our operations. Our capital requirements primarily result from working capital needed to support increases in inventory and accounts receivable. Our working capital position has improved significantly from a deficit of $255,335 as of January 31, 2004 to a surplus of $111,556 as of April 30, 2004. This improvement of $366,891 has been due to the contribution of proceeds from shareholders. As of April 30, 2004, we had cash and cash equivalents of $340,386 compared to $734 as of April 30, 2003. Operating Cash Flow Net cash used in operating activities for the three months ended April 30, 2004 was $239,193 compared with net cash used of $122,371 for the three months ended April 30, 2003. The increase is primarily due to the rise in inventories in order to meet future orders, accounts receivable and the loss for the period. Credit Facilities We have a loan agreement with bankers, HSBC, for a term loan that advanced (pound)130,000 in January 2003 and is due for repayment by November 2007. The loan attracts variable rate interest of 2% over UK base rate and there is a floating charge over the assets of the Company (6.25% at April 30, 2004). We also have an accounts receivable factoring arrangement with Venture Finance which is secured by a floating charge over our assets. This facility has attracts variable rate interest of 1.75% over UK base rate (6.00% at April 30, 2004). We believe that current levels of cash and cash equivalents ($340,386 at April 30, 2004) together with cash from operations and funds available under our credit facilities, will be sufficient to meet our capital requirements for the next 12 months. ITEM 3. CONTROLS AND PROCEDURES At April 30, 2004, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us required to be included in our periodic SEC filings. There have been no significant changes in our internal controls or in other factors that could significantly affect our controls subsequent to the date of that evaluation, and no corrective actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Item Description 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Report on Form 10-KSB On May 17, 2004, we filed a report on Form 10-KSB relating to our results for the year ended January 31, 2004. SIGNATURES Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: June 14, 2004. TRUE HEALTH, INC. BY: David Francis ------------------- David Francis, CEO BY: Ian Wylie ------------------ Ian Wylie, CFO Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, David Francis, certify that: 1. I have reviewed the quarterly report on Form 10-QSB of True Health, Inc. for the period ended April 30, 2004 (this "Report"); 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Report (the "Evaluation Date"); and (c) presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: June 14, 2004 David Francis -------------------------------------- David Francis, CEO Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Ian Wylie, certify that: 7. I have reviewed the quarterly report on Form 10-QSB of True Health, Inc. for the period ended April 30, 2004 (this "Report"); 8. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; 9. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; 10. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (d) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; (e) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Report (the "Evaluation Date"); and (f) presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 11. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: (c) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 12. The registrant's other certifying officers and I have indicated in this Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: June 14, 2004 Ian Wylie -------------------------------------- Ian Wylie, CFO Exhibit 32 Certification Pursuant to 18U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned hereby certifies, for the purposes of section 1350 of chapter 63 of title 18 of the United States Code, in his capacity as an officer of True Health, Inc. ("True Health"), that, to his knowledge, the quarterly report on Form 10-QSB of True Health, Inc. for the period ended April 30, 2004, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such amendment to said report fairly presents, in all material respects, the financial condition and results of operation of True Health. Dated: June 14, 2004 David Francis -------------------------------------- David Francis, CEO Ian Wylie -------------------------------------- Ian Wylie, CFO