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Item 2.
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Management’s Discussion and Analysis
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Headquartered in Columbus, Ohio, E Med Future, Inc. manufactures and markets products designed to reduce accidental hypodermic needlestick injuries. Our primary product, NeedleZap
®
, completely disintegrates the sharp portion of the needle. According to the American Nursing Association, there are an estimated one million accidental needlesticks reported in the United States in the healthcare
industry alone. We believe the applications for the product are far reaching, and include healthcare professionals, law enforcement and correctional personnel, veterinarians, military, clinical researchers, hospitality, and sanitation workers.
NeedleZap
®
is designed to work within the parameters of OSHA needlestick mandates that require employers to take advantage of new technologies to prevent needlesticks in the workplace.
Our Products
Our primary product is the NeedleZap
®
, a revolutionary safety device intended to help reduce accidental needlestick injuries by disintegrating the sharp portion of a hypodermic needle. When a hypodermic needle is inserted into the
unit, the patented electrode system disintegrates the needle in approximately two seconds at 2200° F.
In July 2003, we announced the beginning of clinical testing and market evaluation of the first extensions to the NeedleZap
®
product line which include a dental parking station and
butterfly needle burner. We are presently in the process of obtaining patent protection for these new products. Because we lack sufficient funds to expedite the development of these products, both products remain in the development phase. We
anticipate that both products will involve supplements to our existing FDA pre-market approval; therefore, introduction and timing of these products into the marketplace will be contingent on obtaining this approval.
The dental parking station is intended to provide a safer, temporary resting place for a hypodermic syringe.
During a procedure, dentists often reuse a hypodermic needle on the same patient when additional anesthesia is required. Since the needle is not destroyed immediately after the initial use, dentists generally recap the needle or leave the needle
exposed, increasing the risk of an accidental needlestick injury. The NeedleZap
®
unit sets directly on the dental parking station enabling the dentist to recap, or disintegrate, the
hypodermic needle easily with one hand at the end of the procedure, and significantly reducing the risk of a needlestick injury.
The butterfly needle burner is intended to accommodate needles not secured to a hypodermic syringe. Butterfly needles are used primarily for IV’s and kidney dialysis. Since the original NeedleZap
®
unit was intended to disintegrate hypodermic needles held by a syringe, the
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butterfly needle burner necessitated design modifications, including a change to the housing and repositioning of the electrode system.
On December 30, 2003, we acquired Medical Safety Technologies, Inc. from UTEK Corporation (AMEX:UTK), an
innovative technology transfer company dedicated to building bridges between university developed technologies and commercial organizations. Medical Safety Technologies, or MSTI, holds the worldwide exclusive license to a patented invention, known
as the “Safe Receptacle for Sharps,” that is designed to aid in the safe transport of sterile and used sharp medical instruments. This Emory University invention was developed to help reduce the possibility of needlestick injuries by
maintaining medical instruments in an angled, accessible position while encasing their sharp edges. We believe the Safe Receptacle for Sharps device is complimentary to our NeedleZap
®
product. By expanding our future product line, we hope to bring added value to the sales and distribution channel we are building. However, we are not presently pursuing the sharps receptacle as management believes resources should be conserved for
marketing the currently approved product.
Recent Events
From July 9 through July 25, 2007, a Food and Drug Administration investigator conducted an inspection
of our operations. At the conclusion of the inspection an FDA Form 483 was issued to the company listing observations of the inspector, which we responded to on August 7, 2007. The observations included deficiencies in our operating procedures,
which will require correction. We voluntarily suspended shipment of our products to assure we are in compliance. We have completed the corrections and requested a re-inspection by the FDA. We believe we are now in compliance and expect shipments to
resume before the end of the year.
Looking Ahead
We have incurred net losses while we obtained FDA
approval and patent protection for our NeedleZap
®
product and entered into distribution relationships. We have not had significant sales volume in prior years and sales in 2006 were less
than projected. Sales have improved in 2007 but continue to be disappointing. We cannot guarantee that sales will increase or that we will be able to attain profitability. We are currently in receivership and our future is uncertain.
Our History
The Company was formed under the laws of the State of Nevada on March 14, 1990, but until 2003 we were a
shell company with no significant operations other than seeking to identify an existing business to acquire. Trading in our stock was dependant on our acquisition of an operating business. On April 4, 2003, we participated in a merger in which
we acquired E Med Future, Inc., our operating subsidiary. In connection with the transaction, we issued 19,850,000 unregistered shares of our common stock (95% of our then outstanding shares) to the former stockholders of E Med Future.
Pursuant to the terms of the merger agreement, we changed our corporate name from “Micro-Economics, Inc.” to “E Med Future, Inc.” In addition, our
original directors resigned and were replaced by Robert J. Ochsendorf, D. Dane Donohue and Juan J. Perez. Our shares began trading on the OTC Bulletin Board under the symbol “EMDF.OB” on April 17, 2003. For additional information
about the merger, please see the Report on Form 8-K dated April 4, 2003 that we filed with the SEC on April 11, 2003.
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Results of Operations
We are a development stage company and did not have full approval to market and sell our products until
March 2003. Initial sales in 2003 caused us to be optimistic that our revenues and profits would increase in subsequent years. We were disappointed when our results did not meet expectations due to lower than anticipated sales. Sales have improved
in 2007 and customer interest has been positive. However, we have voluntarily suspended shipment of our products to assure we are in compliance with FDA requirements. We believe we are now in compliance and expect shipments to resume before the end
of the year.
Third Quarter of 2007 Compared to 2006
Net Sales
We had net sales of $120 in the quarter ended September 30, 2007, compared with $16,014 for the same period in
2006, a decrease of $15,894, or 99.3%. This decrease is directly attributable to our voluntary suspension of shipments of our products until deficiencies cited in the FDA inspection in July 2007 have been corrected and the company has been
re-inspected. We believe we are now in compliance and have requested a re-inspection by the FDA. We anticipate resumption of shipments before the end of the year.
Costs and Expenses
Operating costs and expenses decreased $64,934 or 51.6%, in the third quarter of 2007 to $61,028 from
$125,962 in 2006. Operating costs and expenses for the third quarter of 2007 were lower despite increased legal and accounting fees in connection with the receivership in 2007 compared to 2006. As a percentage of net sales, cost of goods sold
increased to 319.2% in 2007 from 58.7% in 2006 due to a minor write-off of unusable inventory and lower sales volume.
Other expenses increased $8,699 or
128.8%, to $15,455 in 2007 compared to $6,756 in 2006 due to a higher interest rate on our line of credit and $7,419 of other income in 2006 which offset interest expense.
Net Loss
In the third quarter of 2007, our net loss decreased to $76,363 from a net loss of $116,704 in 2006 as a result of
continuing cost cutting measures by management and a reduction of legal expenses which were incurred in 2006 in connection with the termination of our distribution arrangement with Safe Medical Solutions.
First Nine Months of 2007 Compared to 2006
Net Sales
We had net sales of $123,268 for the nine months ended September 30, 2007, compared with $51,318 for the same
period in 2006, an increase of $71,950 or 140.2%. This increase is primarily attributable to sales and shipments to international customers.
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Costs and Expenses
Operating costs and expenses decreased $12,705 or 4.8%, in the first nine months of 2007 to $249,567 from
$262,272 in 2006. Operating costs and expenses for 2007 decreased due to lower cost of goods sold partly offset by increased legal and accounting fees in 2007 compared to 2006. As a percentage of net sales, cost of goods sold decreased to 34.3% in
2007 from 61.0% in 2006 due to a reduction in warranty costs and a reduced cost basis versus historical cost of inventory sold attributable to a reduction in valuation required by ARB No. 43, Chapter 4, for the year ended December 31,
2005.
Other expenses increased $9,832 or 28.4%, to $44,447 in 2007 compared to $34,615 in 2006 due to an increase in interest expense resulting from
higher interest rates on our interest bearing debt.
Net Loss
In the first nine months of 2007, our net loss decreased to $170,746 from a net loss of $245,569 in 2006 as a result
of higher profit margins and sales.
Financial Condition and Liquidity
We had cash available of $12,967 on September 30, 2007, compared to $8,947 in cash
available at the end of 2006. The increase is primarily the result of inventory reduction from increased sales. Cash provided by operations increased 208.4% to $28,521 in the first nine months of 2007 from $26,309 used in 2006, primarily due to
decreased inventory and increases in accounts payable and accrued liabilities.
On November 12, 2002, we entered into a credit facility with Key Bank
(NA). The facility provides us with a working capital line-of-credit of up to $150,000 and currently bears interest at 11.75%. The credit facility is secured by all of E Med’s assets and must be paid back in full on demand. We presently have
drawn $121,396 on the facility.
On April 1, 2004, we entered into a loan agreement with a
private investor in the amount of $750,000. The convertible promissory note bears interest at 7.5% payable quarterly with the principal due in five years and is secured by all of our assets. The note is convertible at the holder’s option into
1.5 million shares of our unregistered common stock, subject to adjustment for dilutive issuances. In connection with the loan, we also agreed to pay the lender a $3.00 royalty on each of the first 1.0 million and $2.00 on the second
1.0 million NeedleZap
®
units sold, with maximum total royalty payments of $5.0 million. The loan agreement was amended effective December 31, 2004 to reduce the loan amount to
$548,000. Payment of interest and royalties was deferred until January 1, 2006, provided we provide monthly sales reports to the lender when due. In addition, if we arrange an increase in bank financing, the lender agreed to subordinate its
security interests to the secured interests of the banking institution up to a maximum of $500,000. We have not paid royalties to the lender and are currently in default under the loan. The lender has instituted suit in connection with this loan and
Martin Management Services, Inc. was appointed as receiver for the Company on November 22, 2006. Martin Management is currently operating E Med for the benefit of its creditors.
From September 2004 to June 2006, Ronald L. Alexander, one of our directors, loaned E Med a total of $136,120. On June 15, 2006, we issued Mr. Alexander 3.5 million unregistered shares in partial
satisfaction of this loan. On June 28, 2006, a private investor purchased 1.5 million
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shares of our unregistered shares for $45,000, or $0.03 a share. On June 15, 2006, we issued 3.5 million unregistered shares to Donald Sullivan,
our CFO, interim CEO and a director, for payment of accrued wages from January 1, 2005 through May 31, 2006.
Our primary need for capital is to
fund operations and the development of new products. More recently we have been forced to expend significant funds to defend the company from various legal actions. Historically, our capital requirements have been met by a combination of loans from
stockholders and other investors, our line of credit with Key Bank, and funds from operations. Although sales continue to be disappointing, we believe increased sales may eventually meet our capital needs in the long-term. However, current sales are
not adequate to meet our cash needs, and without additional loans or equity infusions we will not be able to continue our operations.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
Forward Looking Statements
Some of the statements that we make in this report, including statements about our confidence in E
Med’s prospects and strategies and our expectations about E Med’s sales expansion, are forward-looking statements within the meaning of § 21E of the Securities Exchange Act. Some of these forward-looking statements can be identified
by words like “believe,” “expect,” “will,” “should,” “intend,” “plan,” or similar terms; others can be determined by context. Statements contained in this report that are not historical
facts are forward-looking statements. These statements are necessarily estimates reflecting our best judgment based upon current information, and involve a number of risks and uncertainties. Many factors could affect the accuracy of these
forward-looking statements, causing our actual results to differ significantly from those anticipated in these statements. While it is impossible to identify all applicable risks and uncertainties, they include:
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our ability to continue operating as a going concern and emerge from receivership;
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our ability to execute our business plan;
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our ability to successfully market and sell our products;
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our ability to continue to comply with rules and regulations governing our products;
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our ability to gain and retain market share from our competitors, many of whom have greater financial and other resources than we do;
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the introduction of competing products by other companies;
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our ability to protect our patents, copyrights and other intellectual property rights;
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pressure on pricing from our competitors or customers;
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continued availability of components for our products and stability in the cost of these components;
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our reliance on subcontractors to manufacture our products;
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our reliance on independent distributors to market and sell our products;
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our financial resources are limited and we are dependant on increasing sales to generate cash for operations; and
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our ability to comply with SEC regulations and filing requirements applicable to us as a public company.
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You should not place undue reliance on our forward-looking statements, which reflect our analysis only as of the date of this report. The risks and uncertainties listed
above and elsewhere in this report and other documents that we file with the Securities and Exchange Commission, including our annual report on Form 10-KSB, quarterly reports on Form 10-QSB, and any current reports on Form 8-K, must be carefully
considered by any investor or potential investor in E Med.
How to Learn More About E Med
We file annual, quarterly and special reports and other information with the SEC. Our SEC
filings are available to the public over the internet at the SEC’s web site at SEC.gov. You may also read and copy any document we file at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the SEC’s public reference room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. To learn more about E Med you can also contact us directly at the address or phone number listed below or visit our
website at NeedleZap.com.
E Med Future, Inc.
794 Morrison
Road, Suite 911
Columbus, Ohio 43230
Phone: 330-674-1363
Email: info@NeedleZap.com