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[QUOTE]Originally posted by KingSu: [QB] 10Q Form 10QSB for MEDICAL STAFFING SOLUTIONS INC -------------------------------------------------------------------------------- 16-May-2005 Quarterly Report ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction - Forward Looking Statements This Form 10-QSB contains "forward-looking statements" relating to Medical Staffing Solutions, Inc. ("Medical Staffing" or the "Company") which represent Medical Staffing's current expectations or beliefs including, but not limited to, statements concerning Medical Staffing's operations, performance, financial condition and growth. For this purpose, any statements contained in this Form 10-QSB that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as "may", "anticipation", "intend", "could", "estimate", or "continue" or the negative or other comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, such as credit losses, dependence on management and key personnel, variability of quarterly results, and the ability of Medical Staffing to continue its growth strategy and competition, certain of which are beyond Medical Staffing's control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and Medical Staffing undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, cause actual results to differ materially from those contained in any forward-looking statements. General The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements, and the Notes thereto included herein. The information contained below includes statements of Medical Staffing's or management's beliefs, expectations, hopes, goals and plans that, if not historical, are forward-looking statements subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. For a discussion on forward-looking statements, see the information set forth in the Introductory Note to this Annual Report under the caption "Forward Looking Statements", which information is incorporated herein by reference. Going Concern As reflected in the Company's financial statements as of March 31, 2005 the Company had an accumulated deficit of $5,775,193 and its working capital deficiency of $240,183 raises doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional debt or capital, including the ability to raise capital under the Standby Equity Distribution Agreement. The financial statements for March 31, 2005, do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Critical Accounting Policies And Estimates Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonably based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. To the extent there are material differences between these estimates, judgments and assumptions and actual results, our financial statements will be affected. The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following: o Revenue recognition; o Allowance for doubtful accounts; and o Accounting for income taxes. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. There are also areas in which management's judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical accounting policies and related disclosures. See Notes to Condensed Consolidated Financial Statements, which contain additional information regarding our accounting policies and other disclosures required by GAAP. Revenue Recognition Revenue on time-and-materials contracts is recognized based upon hours incurred at contract rates plus direct costs. Revenue on fixed-price contracts is recognized on the percentage-of-completion method based on costs incurred in relation to total estimated costs. Anticipated losses are recognized as soon as they become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Allowance For Doubtful Accounts We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customer's current ability to pay its obligation to us, and the condition of the general economy and the industry as a whole. We make judgments as to our ability to collect outstanding receivables based on these factors and provide allowances for these receivables when collections become doubtful. Provisions are made based on specific review of all significant outstanding balances. Accounting For Income Taxes We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under the asset and liability method of SFAS No. 109, deferred income taxes are recognized for the expected future tax consequences of temporary differences between financial statement carrying amounts, and the tax bases of existing assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any deferred tax asset has been reserved by the Company with an offsetting valuation allowance adjustment. Results Of Operations For The Quarter Ended March 31, 2005, Compared To Quarter Ended March 31, 2004 Revenues Revenues for the quarter ended March 31, 2005, were $1,646,090, a decrease of $38,926 as compared to revenues of $1,685,016 for the quarter ended March 31, 2004. The decrease in revenues for the quarter ended March 31, 2005 was primarily attributable to the completion of a significant government contracts for the providing of services in the nursing industry to government facilities. Cost Of Sales Cost of sales for the quarter ended March 31, 2005 was approximately $1.13 million, or approximately 68% of revenues, as compared to approximately $1.32 million, or approximate 78% of revenues, for the quarter ended March 31, 2004. The percentage decrease in cost of sales for the quarter ended March 31, 2005, was primarily attributable to the fact that some labor cost was incurred and recognized in prior periods (vacation and sick leave), but billed (and respectively revenue recognized) in the first quarter of 2005. Gross Profit Gross profit for the quarter ended March 31, 2005, was $520,529, or 32% of revenues, as compared to gross profit of $369,388, or 22% of revenues, for the quarter ended March 31, 2004. Operating Expenses Operating expenses for the quarter ended March 31, 2005, were $804,926, or 49% of revenues, as compared to $802,223, or 48% of revenues, for the quarter ended March 31, 2004. The increase in operating expenses for the quarter ended March 31, 2005 was primarily attributable to increased cost of general and administrative expenses and depreciation and amortization. Other Expense Other expense for the quarter ended March 31, 2005, was $62,267, as compared to $34,278 for the quarter ended March 31, 2004. The increase in other expense was due to an increase in interest expense. Net Loss The Company had a net loss of $346,664 for the three months ended March 31, 2005, as compared to a net loss of $467,113 for the three months ended March 31, 2004. The decrease of $120,449 was mainly attributable to the reduced cost of sales. Liquidity and Capital Resources The Company's financial statements have been prepared on a going concern basis that contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred a net loss of $346,664 and $467,113 for the three months ended March 31, 2005 and 2004, respectively, and had an accumulated deficit of $5,775,193 at March 31, 2005. Management recognizes that the Company must generate additional resources to enable it to continue operations. Management is planning to obtain additional capital principally through the sale of equity securities. The realization of assets and satisfaction of liabilities in the normal course of business is dependent upon Medical Staffing obtaining additional equity capital and ultimately obtaining profitable operations. However, the Company may not be successful in these activities. Should any of these events not occur, the accompanying consolidated financial statements will be materially affected. The Company is at present meeting its current obligations from its monthly cash flows and cash proceeds from sale of equity securities and debt, which during 2003, 2004 and to date in 2005 has included cash from operations, investor capital, loans from related parties and from other lenders. However, due to insufficient cash generated from operations, the Company currently does not internally generate cash sufficient to pay all of its incurred expenses and other liabilities. As a result, the Company is dependent on investor capital and loans to meet its expenses and obligations. Although investor funds and related party loans have allowed the Company to meet its obligations in the recent past, there can be no assurances that the Company's present methods of generating cash flow will be sufficient to meet future obligations. Historically, the Company has, from time to time, been able to raise additional capital from sales of its capital stock, but there can be no assurances that the Company will be able to raise additional capital in this manner. Cash provided by operating activities was $24,661 for the three months ended March 31, 2005, as compared to cash used in operating activities of $353,847 for the same period in 2004. The decrease in cash used was due primarily to the decreased loss from operations and the decrease in accounts receivable. Cash used in investing activities was $11,659 for the three months ended March 31, 2005, as compared to cash provided by investing activities of $26,585 for the same period in 2004. The decrease in cash used for investing activities was principally due to a decrease in amounts funded to related parties in the first quarter of 2005. Cash provided by financing activities was $1,525,845 for the quarter ended March 31, 2005, as compared to $253,703 during the same period in 2004. This increase in cash provided by financing activities was mainly due to the increase in common stock issuances and proceeds from convertible debentures. In May 2002, the Company entered into a line of credit agreement with a factor. The loan, which is due on demand, bears interest at prime plus 1.00%. The factor lends up to 90% of the receivable balance to the Company, and receives payment directly on the outstanding receivables and the remaining balance is remitted to the Company. The outstanding balance at March 31, 2005 was approximately $764,763. The balance is reflected net of a 10% reserve that the factor has established which is adjusted on each funding. Additionally, the Company maintains a small credit line with a bank. There was no balance outstanding as of March 31, 2005. In May 2002, the Company borrowed $220,000 from an individual to be used in developing the Company's business plan, including the Homeland Security operations. The note payable was non-interest bearing until May 2003 and bore interest at 7% going forward. The note was fully paid in May 2004. On March 11, 2004, the Company entered into a Securities Purchase Agreement with Cornell Capital Partners. Under the Securities Purchase Agreement, Cornell Capital Partners was obligated to purchase $600,000 of secured convertible debentures from the Company. On March 11, 2004, Cornell Capital Partners purchased $250,000 of convertible debentures. In April 2004, Cornell Capital Partners purchased $350,000 of additional debentures. These debentures accrued interest at a rate of 5% per year and were to mature two years from the issuance date. The debentures were convertible into the Company's common stock at the holders' option any time up to maturity at a conversion price equal to the lower of (i) 115% of the closing bid price of the common stock as of the closing date or (ii) 85% of the lowest closing bid price of the common stock the five trading days immediately preceding the conversion date. The debentures were secured by the assets of the Company. At maturity, the Company had the option to either pay the holder the outstanding principal balance and accrued interest or to convert the debentures into shares of common stock at a conversion price similar to the terms described above. During the year ended December 31, 2004, Cornell Capital Partners converted the entire $600,000 in convertible debentures into 19,489,204 shares of common stock, which included conversions of $16,678 in accured interest and the Company recognized $108,760 of amortization of discount on the debenture conversions. On March 11, 2004, the Company entered into a Standby Equity Distribution Agreement with Cornell Capital Partners. Under the Standby Equity Distribution Agreement, the Company may issue and sell to Cornell Capital Partners common stock for a total purchase price of up to $15.0 million. The purchase price for the shares is equal to 100% of the market price, which is defined as the lowest volume weighted average price of the common stock during the five trading days following the notice date. The amount of each advance is subject to an aggregate maximum advance amount of $250,000, with no advance occurring within seven trading days of a prior advance. Cornell Capital Partners received a one-time commitment fee of 750,000 shares of the Company's common stock. Cornell Capital Partners is entitled to retain a fee of 5% of each advance. In addition, the Company entered into a placement agent agreement with Newbridge Securities Corporation, a registered broker-dealer. Pursuant to the placement agent agreement, the Company paid a one-time placement agent fee of 10,000 restricted shares of common stock equal to approximately $1,400 based on the Company's stock price on March 11, 2004. On June 11, 2004, the Company received $1,000,000 in return for a promissory note issued to Cornell Capital Partners. As of March 31, 2005 the note has been fully paid. On October 18, 2004, the Company received $315,000 in return for a promissory note issued to Cornell Capital Partners. As of March 31, 2005 the note has been fully paid. On January 5, 2005, the Company received $2,000,000 in return for a promissory note issued to Cornell Capital Partners and placed 40,000,000 shares of its common stock into escrow under this promissory note. As of March 31, 2005, $1,300,000 remained outstanding. As of May 11, 2005, $1,500,000 remained outstanding. On April 26, 2005, the Company received $500,000 in return for a promissory note issued to Cornell Capital Partners. As of May 11, 2005, $500,000 remained outstanding. Through March 31, 2005, the Company has drawn $1,300,000 under the Standby Equity Distribution Agreement issuing 55,336,744 shares of common stock. The proceeds have been utilized to repay principal of the $1,000,000 promissory note issued to Cornell Capital Partners on June 11, 2004 and the $315,000 promissory note issued to Cornell Capital Partners on October 18, 2004, and the $2,000,000 promissory note issued to Cornell Capital Partners on January 5, 2005. Through May 11, 2005, the Company has drawn down $2,315,000 under the Standby Equity Distribution Agreement and the Company has issued 70,148,706 shares of common stock to Cornell Capital Partners. As set forth above, these proceeds were used to repay a portion of the promissory notes held by Cornell Capital Partners. From time to time, the Company may evaluate potential acquisitions involving complementary businesses, content, products or technologies. Currently, the Company has entered into non-binding letters of intent to acquire certain assets of A&T Systems, Inc., Staff Relief, Inc. and Nurses PRN, LLC ("Nurses PRN"). Of these, the Company has focused its attention on concluding the Nurses PRN transaction which has proven to be far more difficult than originally anticipated. While no time can be specified, the Company remains confident of the near term successful conclusion of this asset acquisition. The Company's future capital requirements will depend on many factors, such as the success of our operations, economic conditions and other factors including the results of future operations. If the Company is unable to raise sufficient funds to meet its long-term capital needs, there is a risk that the Company will be required to cease operations. Plan Of Operations The Company, through its TeleScience subsidiary, will continue to provide: o medical staffing services, o information technology and telecommunications services, and o Homeland Security products and services. TeleScience provides two categories of services: o Medical Systems o Technology The Medical Systems operations specialize in the long-term staffing of medical personnel, including physicians, nurses, technicians, and dental assistants, for various federal and state government medical facilities throughout the country. In 2005, the Company intends to expand to provide long-term staffing of nurses (RNs and LPNs) to private hospitals in the tri-state area (Virginia, Maryland, D.C.), as well as sections of Pennsylvania. The Technology operations specialize in long-term professional consulting and staffing of experienced and qualified IT personnel in the government and private sectors. We provide systems integration and information technology (IT) services. We also serve homeland security efforts with emergency equipment, decontamination products, vehicles, and supplies within the federal government, particularly the Department of Defense and the Veteran's Administration. The Company is planning to do this through acquisitions in the private healthcare field. In May 2002, the Company was awarded a three-year $2.6 million dollar contract with the Department of Health and Human Services to provide nursing staff to the U.S. Public Health Service in support of the National Hansen's Disease Programs based in Louisiana. This is the second such contract won by the Company. This contract expires in May 2005 and the Company intends to participate in the re-competition of the contract. In October 2003, the Company extended their agreement with the California State Department of Corrections for Contract Nursing Staff. This agreement has an annual estimated value of $2.5 million dollars. In September 2004, the Company signed new master contracts with the California State Department of Corrections for Contract Nursing Staff. These contracts, each a multiple award vendor award have estimated ceiling values of $50 million and $4.11 million respectively and are effective for three years starting October 1, 2004. These contracts allow the Company to compete for this amount of business. The Company has not yet made any sales pursuant to these contracts. During 2004 the Company was awarded an extension of contracts for medical services that the Company holds on a number of Air Force Bases and on which it has performed during the period ending March 31, 2005. Management Strategy The Company's management has taken several initiatives to grow and expand its current businesses of medical and technology services and to develop and market its homeland security business. Management Strategic Plan For Future Growth And Expansion The Management's strategic plan for future growth and expansion is fourfold: (1) expand its medical services into the private sector; (2) enhance recruitment; (3) develop a homeland security marketing plan; and (4) acquire suitable companies. Expansion of Medical Services into the Private Sector The Company has hired a seasoned executive to direct the Company's expansion of its medical services into the private health care sector. This expansion will provide long-term part-time staffing of registered nurses (RNs) and licensed professional nurses (LPNs) to private health care facilities in the tri-state area (Virginia, Maryland, DC), as well as parts of Pennsylvania. Examples of such facilities are hospitals, nursing homes, private clinics, and assisted living centers. Enhancing Recruitment. The Company is embarking on a long-range plan for recruiting ancillary and professional level staff for medical contracts. This plan is geared toward expanding the business of the Company's most active services, the Medical Systems Operations. The Medical Systems operations presently provide long-term medical staffing services for a wide array of military, federal, and state government health care facilities, such as hospitals and clinics. Medical Staffing is also moving into similar staffing arrangements with its private sector. The Company believes that our long-range recruiting plans will support both of these initiatives. These initiatives arise from the recognition of the opportunities provided by the well known and chronic shortage of health care professionals -especially nurses (RNs) in the United States. Overseas Recruiting of Registered Nurses. The largest shortage in terms of vacancies and intractability of recruiting domestic personnel exists in the nursing profession. This profession, historically dominated by women, is experiencing nurse shortages that are closely related to the opening of many alternative career fields to a younger generation of women. This situation is unlikely to change, leading to the intractability of attracting a large number of American women into nursing. The Company perceives an opportunity in this situation, which can provide business expansion for many years. It is the Company's plan to aggressively recruit nurses from suitable countries overseas over the next few years. Domestic Recruiting of Health Care Professionals. The Company has a constant need for recruiting medical and non-medical professionals for filling positions created by newly won contracts or for filling vacancies caused by turnover, terminations, or relocations. Medical Staffing is in the process of establishing a national recruiting center in Vienna, Virginia, upon completion of its pending acquisition of Nurses PRN, for the recruitment of health care professionals to meet such needs on a regular basis, as well as its future contract requirements on a proactive basis. However, the pending acquisition of Nurse PRN may not close. Currently the Company uses newspaper and internet media extensively for this purpose. The Company's website was updated in 2004 to attract these professionals to apply for jobs directly for open or future upcoming positions. Acquisition of Suitable Companies. On December 1, 2004, Medical Staffing entered into a non-binding letter of intent with Nurses PRN and the shareholders of Nurses PRN. Pursuant to the letter of intent and upon the consummation of a definitive agreement, Nurses PRN was to become a 100% wholly-owned subsidiary of the Company. However, this transaction has now been restructured as an asset purchase transaction. On December 30, 2004, Medical Staffing entered into a non-binding letter of intent with A&T Systems, Inc. ("A&T"). Pursuant to the letter of intent and upon the consummation of a definitive agreement, the Company will acquire certain assets of A&T. The A&T letter of intent expired on April 15, 2005. There can be no assurance that a definitive agreement will be entered into with A&T or Nurses PRN. The Company has devoted considerable effort to the negotiation and actions which must be accomplished in conjunction with the Nurses PRN transaction and anticipates a successful conclusion to these efforts. Develop A Homeland Security Marketing Plan The Company views this market sector as an opportunity for growth. The Company has invested significant resources to build an infrastructure and to generate an initial presence in this sector. During the first quarter of 2004, the Company formed a strategic alliance with Mobile Healthcare Solutions (MHS), a provider of deployable, mobile medical treatment facilities. The two companies intend to partner for joint bidding on select projects in homeland security arenas that fit their combined expertise. The Company's initial marketing plan in the homeland security arena is to utilize the power and expertise of its alliances to market its decontamination products. This marketing plan further extends marketing of emergency equipment, decontamination products, vehicles, and personal protective equipment to federal, state, and local governments. The Company was named as one of the participants in a $1,000,000,000 IDIQ (indefinite delivery indefinite quantity) contract in the homeland security area with the state of Pennsylvania, and this contract has recently been renewed for another year through June 30, 2006. The Company has not yet made any sales pursuant to these contracts. Recent Accounting Pronouncements In September 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, the pooling of interests method of accounting for business combinations are no longer allowed and goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company adopted these new standards effective January 1, 2002. On October 3, 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144") that is applicable to financial statements issued for fiscal years beginning after December 15, 2001. The FASB's new rules on asset impairment supersede SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and portions of Accounting Principles Board Opinion 30, "Reporting the Results of Operations." This Standard provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. This Standard also requires expected future operating losses from discontinued operations to be displayed in the period (s) in which the losses are incurred, rather than as of the measurement date as presently required. [/QB][/QUOTE]
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