The Company is in the process of seeking funding in addition to the amounts discussed above and executing further cost reductions that will enable it to meet its funding and related commitments. There can be no assurances that such efforts will be successful or will be sufficient to meet the Company's working capital requirements through December 31, 2002.
Our future capital requirements will depend on numerous factors, including growth and strategies for the services businesses, the rate of acceptance of our EHC(TM) Units in the market, our ability to deliver increasing quantities of products and achieve commercially acceptable gross profits, our ability to achieve services top and bottom line growth and our
ability to control expenses. The timing and amount of working capital requirements cannot be accurately predicted. The Company expects losses to continue through 2002, although at a substantially reduced rate.
In January 2002, the Company issued an 8% debenture in the amount of $172,200, which was satisfied on April 23, 2002. The debenture was collateralized by a pledge of 400,000 shares of the Company's common stock owned by a former officer and director.
In March 2002, the Company entered into a term sheet with an investor (the "Lender") whereby the Company may borrow up to $5,000,000 in exchange for senior convertible promissory note(s) (the "Convertible Notes"). The Convertible Notes have a 12-month term and requires interest at 10% per annum, increasing to 15% retroactively upon default. At the election of the Lender, both principal and interest are convertible into the Company's common stock at 85% of the closing bid price on the day prior to conversion, but in no event less than $0.30 per share or more than $1.25 per share. The Company issued warrants to purchase 250,000 shares of common stock at $0.75 per share, exercisable within 24 months for each $2,500,000 funded by the Lender. The Company is also liable for a commission (payable in cash and warrants) and the Lender's legal fees in connection with review of the transactional documents and closing of the transaction. All of the underlying shares, whether through conversion of the Convertible Notes or exercise of the warrants, have registration rights. As of May 8, 2002, the Company has issued the Convertible Notes for the entire $5,000,000 under this commitment as described in the following three paragraphs.
The Company received $900,000 (less fees of $100,000) for working capital purposes and issued a $1,000,000 60-day promissory note dated January 22, 2002 to Dynamic Holdings Corporation and its principal (the "Note"). The note was due on March 22, 2002 and interest was due on the unpaid principal balance at the rate of 8% per annum. The Company refinanced the Note without penalty by issuing a $1,250,000 convertible promissory note dated April 5, 2002 ("Dynamic Note") which is part of the $5,000,000 commitment discussed above. The Dynamic Note is secured by the outstanding balance of that certain $3,225,000 promissory note dated October 31, 2000, given by Outreach Programs, Inc. to the Company in exchange for the sale of 100% of the stock in Carolina Rehab, Inc.
The Company received $228,000 (less fees of $2,000) for working capital purposes and issued a $230,000 10-day promissory note dated February 25, 2002 to Dynamic Holdings Corporation. Interest on the unpaid principal balance accrues at the rate of 8% per annum. This note was satisfied through an offset against amounts borrowed under a $1,250,000 convertible promissory note issued to Manford Investments, LLC (an affiliate of Dynamic Holdings and C.C. Fortune Ventures, LLC) dated April 4, 2002 (the "Manford Note"). The Manford Note is part of the $5,000,000 commitment discussed above.
The Company received $2,500,000 (less fees of $150,000) for working capital purposes and signed a $2,500,000 senior convertible promissory note dated as of March 7, 2002 with C.C. Fortune Venture, LLC which is part of the $5,000,000 commitment discussed above.
The cash flow of the services subsidiaries are subject to the reimbursement for services rendered from the government, private insurance companies, and directly from patients. If the government or private insurance carriers reduce or delay the payments, this may have a negative effect on our liquidity.
The Nasdaq Stock Market, Inc. ("Nasdaq") has notified the Company that on February 20, 2002, the price of the Company's common stock had closed for the previous 30 consecutive trading days below the minimum $1.00 per share requirement under its Marketplace Rules. Consequently, the Company has at least until May 21, 2002 to regain compliance or appeal any delisting determination made by Nasdaq's listing qualifications panel. The Company may also apply for a transfer of its common stock listing to the Nasdaq SmallCap Market, which has an extended grace period in which to satisfy the listing requirements for the Company's securities. If the Company submits a transfer application and pays the applicable SmallCap Market listing fees by May 21, 2002, initiation of the delisting proceedings will be stayed pending Nasdaq's review of the application. If the application is approved, the Company will have until August 19, 2002 to regain compliance under the Nasdaq Marketplace Rules. An additional 180-day grace period may be applicable; provided that the Company meets the initial listing criteria for the SmallCap Market under the Marketplace Rules. The Company may be eligible to transfer back to the Nasdaq National Market if by February 17, 2003 it regains compliance in accordance with the Nasdaq Marketplace Rules. At this time, the Company believes that it qualifies for initial listing for the SmallCap Market.
Pursuant to the terms of a private equity line agreement, we may issue up to $30,000,000 of shares of our Common Stock to Strategic Investment Management, SA at a price equal to approximately 85% of the market price of the Common Stock based upon a particular formula for "putting" the stock to SIM. By raising additional funds and issuing additional common shares under the private equity line, our stockholders may experience dilution.
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