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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10QSB/A
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 2005
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OR
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[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the transition period from to
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COMMISSION FILE NUMBER: 0-30351
True Health, Inc.
(Exact name of registrant as specified in its charter)
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Utah 75-2263732
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(State of other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
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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 July 31, 2005: 310,698
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TRUE HEALTH, INC.
CONSOLIDATED BALANCE SHEET
July 31, 2005
(unaudited)
ASSETS
Current Assets
Cash $ 17,625
Accounts receivable, net of the allowance
for doubtful accounts of $33,253 635,521
Inventory 73,704
Other 51,559
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Total Current Assets 778,409
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Fixed Assets, net of accumulated depreciation of $335,431 192,580
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TOTAL ASSETS $ 970,989
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Note payable to factor $ 454,275
Current portion of notes payable 53,737
Accounts payable 64,581
Accrued expenses 266,799
Accounts payable to stockholder 263,454
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Total Current Liabilities 1,102,846
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Long-term portion of notes payable 70,416
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Total Liabilities 1,173,262
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Stockholders' Deficit
Convertible preferred stock, $0.001 par value;
5,000,000 shares authorized; 4,325,789 shares issued
and outstanding 4,326
Common stock, $0.01 par value; 100,000,000 shares
authorized; 310,698 shares issued and outstanding 3,107
Additional paid in capital 2,208,322
Accumulated deficit (2,465,414)
Accumulated other comprehensive loss 47,386
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Total Stockholders' Deficit (202,273)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 970,989
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TRUE HEALTH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended July 31, 2005 and 2004
(unaudited)
Three Months Ended Six Months Ended
2005 2004 2005 2004
---------- ---------- ---------- ----------
Revenue
- Equipment rentals and sales $ 617,333 $ 510,403 $1,053,021 $1,006,777
- Recruitment services
and placement fees 529,638 1,095,665 1,065,191 2,246,740
- Other 10,507 10,624 19,003 20,763
---------- ---------- ---------- ----------
Total Revenues 1,157,478 1,616,692 2,137,215 3,274,281
Cost of sales 642,268 1,032,943 1,182,651 2,094,743
---------- ---------- ---------- ----------
Gross margin 515,210 583,749 954,564 1,179,538
---------- ---------- ---------- ----------
General and administrative
- Non-cash professional fees - 600,000 - 600,000
- Other 492,940 749,322 964,406 1,405,340
Depreciation 42,467 35,465 59,870 61,238
---------- ---------- ---------- ----------
Total operating expenses 535,407 1,384,787 1,024,276 2,066,578
---------- ---------- ---------- ----------
Net Operating Profit/(Loss) (20,197) (801,038) (69,712) (887,040)
Interest income 372 - 372 -
Interest expense (14,129) (21,147) (25,967) (24,164)
---------- ---------- ---------- ----------
Net income/(loss) before taxes (33,954) (822,185) (95,307) (911,204)
Income tax expense - (897) - -
---------- ---------- ---------- ----------
Net Income/(Loss) $ (33,954) (823,082) $ (95,307) $ (911,204)
========== ========== ========== ==========
Basic and diluted loss
per share $ (0.11) $ (0.02) $ (0.17) $ (0.02)
Weighted average shares
outstanding 310,698 51,123,397 547,535 50,679,055
TRUE HEALTH, INC.
STATEMENTS OF CONSOLIDATED CASH FLOW
Six Months Ended July 31, 2005 and 2004
(unaudited)
2005 2004
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Cash Flows From Operating Activities
Net loss $(95,307) $(911,204)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 59,870 61,232
Stock issued for services - 600,000
Imputed interest on shareholder notes payable 14,273 6,421
Changes in:
Accounts receivable (170,260) (283,380)
Inventory 61,930 (136,425)
Other current assets (13,538) (25,610)
Accounts payable (45,442) 76,020
Accrued expenses (68,304) 57,242
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Net Cash Used in Operating Activities (256,778) (555,704)
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Cash Flows Used in Investing Activities
Purchase of equipment (51,274) (69,312)
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Cash Flows From Financing Activities
Proceeds from exercise of warrants for stock - 475,000
Net change in note payable to factor 154,127 275,845
Net change in note payable to bank loan (29,274) (197,332)
Net change in note payable to related party - (160,405)
Repayments of capital lease obligation (7,714) -
Proceeds from sale of preferred stock 45,000 -
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Net Cash Provided By Financing Activities 162,139 393,108
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Currency translation adjustment 96,436 23,443
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Net change in cash (49,477) (208,465)
Cash at beginning of period 67,102 256,646
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Cash at end of period $ 17,625 $ 48,181
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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.
(True Health) 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-KSB 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 ended to January,31 2005, as reported in the Form 10-KSB, have been
omitted.
Note 2 - PREFERRED STOCK
On April 22, 2005, True Health entered into a securities purchase agreement with
four investors to sell preferred shares in four tranches. True Health is to file
a registration statement to register the underlying securities of the agreement.
The preferred stock is convertible into common stock at $0.0625 per share. In
connection with each tranche, True Health will issue 150,000 Series A warrants
to purchase one share of common stock at $0.125 per share and 1,562,5000 Series
B warrants to purchase one share of common stock at $0.04 per share. The Series
A warrants will be exercisable for a period commencing on the date of the
effectiveness of the registration statement and ending four years from the
closing of the respective tranche. The Series B warrants will be exercisable for
a period commencing 90 days after the fourth closing and ending two years after
the effectiveness of the registration statement. The preferred shares receive
cumulative dividends at 2.50% above the prime rate payable quarterly. A summary
of the four tranches is as follows:
Preferred Stock
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Traunch Shares Amount Closing Date
------- ------ ------ ------------
1 3,600 $ 45,000 May 2, 2005
2 4,000 50,000 Five business days after filing registration statement
3 4,800 60,000 Five business days after effectiveness of registration
statement
4 9,600 120,000 30 business days after effectiveness of registration
statement
--------------- ------------------
Total 22,000 $ 275,000
=============== ==================
Management expects the registration statement to be filed in October 2005.
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 July 31, 2005 Compared to Three Months Ended July 31, 2004
Revenue
Total revenue for the three months ended July 31, 2005 was $1,157,478. This
represents a decrease of $459,214 or 28.4%, when compared to revenue of
$1,616,692 for the three months ended July 31, 2004.
Revenue from the equipment rentals and sales segment increased by $106,930, or
20.9%, to $617,333 in the three months ended July 31, 2005 compared to $510,403
in the three months ended July 31, 2004. This increase reflects the continued
growth in the equipment division over the past year arising from an increase in
the customer base, specifically through our geographic expansion via our
Distributor Network.
Revenue from recruitment services and placement of radiographers, social workers
and nurses was $529,638 for the three months ended July 31, 2005. This
represents a 51.7% reduction on the three months to July 31, 2004 of $1,095,665.
Cost of sales
Cost of sales and related percentage of respective revenue for the three months
ended July 31, 2005, compared to the three months ended July 31, 2004 are shown
below:
Three months ended Three months ended
July 31, 2005 July 31, 2004
Equipment rentals and sales $159,486 25.8% $137,180 26.9%
Recruitment services and 482,782 91.2% 895,763 81.8%
placement fees ----------- ----------
Total $ 642,268 55.5% $1,032,943 63.9%
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The total Gross Profit of $515,210 in the second quarter was $68,539 (11.7%)
lower than compared with the three months ended July 31, 2004 of $583,749.
General and administrative overheads
General and administrative overhead expenditure for the three months ended July
31, 2005 of $492,940 was $856,392 lower than the amount of $1,349,332 incurred
in the three months ended July 31, 2004. Of this reduction, $600,000 was due to
the consideration having been incurred in 2004 for professional fees, which were
paid for by way of shares for the three months to July 31, 2004. The Company's
general and administrative expenses were $492,940. This represents an achieved
saving of $256,382, or 34.2% compared to the general administrative expenses of
$749,322 incurred in the three months ended July 31, 2004. The main reasons for
these savings are as follows:
o An improvement in operating efficiency arising from the investment in
information technology systems and infrastructure in the last quarter
of the previous financial year. This has enabled a reduction in
non-sales staff to support the organisation,
o A reduction in the fixed costs of employing a large sales staff, having
increased the variable nature of staff compensation. Higher paid sales
managers who had been with the Company for a number of years have
gradually been replaced with more experienced individuals at more
competitive remuneration packages. As a result the reduction in staff
pay more than outweighs the reduction in gross profits,
o A reduction in external consultancy fees.
Interest expense
Net Interest expense of $14,129 for the three months ended July 31, 2005, is
compared with $21,147 for the three months ended July 31, 2004. This represents
a saving of $7,018 and arises out of the Company's improved cash flow management
over the last year.
Six Months Ended July 31, 2005 Compared to Six Months Ended July 31, 2004
Revenue
Total revenue for the six months ended July 31, 2005 was $2,137,215 representing
a decrease of $1,137,066 or 34.7%, when compared to revenue of $3,274,281 for
the six months ended July 31, 2004. The reduction in revenues came entirely from
a fall in activity in the recruitment division, while the Company's equipment
division generated a modest increase in revenues, as discussed below.
Revenue from the equipment rentals and sales segment of $1,053,021 increased by
$46,244, or 4.6%, in the six months ended July 31, 2005, compared to $1,006,777
for the six months ended July 31, 2004. This reflects the stable income stream
and growth in the division over the past year, which mainly arose from an
increase in the customer base and through our ongoing geographic expansion via
our Distributor Network.
Revenue from the recruitment services and placement segment decreased by
$1,181,549 to $1,065,191 for the six months ended July 31, 2005. This represents
a 52.6% decrease on the six months to July 31, 2004. The main reason in the fall
in recruitment revenues stemmed from a shift in clients' purchasing strategies
by relying on a fewer number of core first and second tier suppliers of medical
personnel, specifically with respect to radiography. As a result the Company has
actively marketed its services to obtain preferred supplier status with clients
in this and other fields, including social care. It is anticipated that future
growth in recruitment will arise from this strategy.
Cost of sales
Cost of sales and related percentage of respective revenue for the six months
ended July 31, 2005, compared to the six months ended July 31, 2004 are as
follows:
Six months ended Six months ended
July 31, 2005 July 31, 2004
Equipment rentals and sales $ 344,331 32.7% $ 251,668 25.0%
Recruitment services and
placement fees 838,320 78.7% 1,843,075 82.0%
---------- ----------
Total $ 1,182,651 55.3% $ 2,094,743 64.0%
=========== ==========
The total Gross Profit for the first half of the year to July 31, 2005 was
$954,564 and represents a reduction of $224,974 (19.1%) compared with the six
months ended July 31, 2004 of $1,179,538. This decrease in gross margins,
compared with a reduction in total revenues for the same period by 34.7%,
reflects the Company's focus on attaining higher quality business and contracts
over the last year.
General and administrative overheads
General and administrative overhead expenses decreased by $1,040,934, or 51.9%
to $964,406 for the six months to July 31, 2005, compared to overheads of
$2,005,340 for the six months to July 31, 2004. The main reasons for the
increase in expenditure are as for the items outlined in the discussion and
analysis for the three months results, earlier in this Report.
Interest expense
Net Interest expense of $25,967 for the six months to July 31, 2005, increased
by $1,803, or 7.5%, compared with $24,164 for the six months to July 31, 2004.
Liquidity and Capital Resources
We have relied primarily on asset-based borrowings, internally generated funds,
stockholder investment and loans, together with trade credit to finance our
operations. Our capital requirements primarily result from working capital
needed to support operations, including increases in inventory and accounts
receivable. Our working capital position has deteriorated from a deficit of
$76,857 as of July 31, 2004 to a deficit of $324,436 as of July 31, 2005. As of
July 31, 2005, we had cash and cash equivalents of $17,625 compared to $48,181
as of July 31, 2004.
Operating Cash Flow
Net cash used in operating activities for the six months ended July 31, 2005 was
$256,778 compared with net cash used of $555,704 for the six months ended July
31, 2004.
Credit Facilities
We have a loan agreement with bankers, HSBC, for a term loan that advanced
$237,000 in January 2004 and is due for repayment by November 2007. The loan
attracts a variable rate interest of 2% over UK base rate and there is a
floating charge over the assets of the Company (6.75% at July 31, 2005).
We also have an accounts receivable factoring arrangement with Venture Finance
which is secured by a floating charge over our assets. This facility has
variable rate interest of 1.75% over UK base rate (6.5% at July 31, 2005).
We believe that current levels of cash and cash equivalents ($17,625 at July 31,
2005) together with cash from operations and funds available under our credit
facilities and additional funding exercises, will be sufficient to meet our
capital requirements for the next twelve months.
ITEM 3. CONTROLS AND PROCEDURES
At July 31, 2005, 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, 2005, we filed a report on Form 10-KSB relating to our results for
the year ended January 31, 2005.
(c) Report on Form 10-QSB
On June 14, 2005, we filed a report on Form 10-QSB relating to our results for
the quarter ended April 30, 2005.
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: October 18, 2005.
TRUE HEALTH, INC.
BY: David Francis
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David Francis, CEO
BY: Ian Wylie
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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 July 31, 2005 (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: October 18, 2005
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 July 31, 2005 (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: October 18, 2005
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
July 31, 2005, 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: October 18, 2005
David Francis
--------------------------------------
David Francis, CEO
Ian Wylie
--------------------------------------
Ian Wylie, CFO