UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

Form 10-Q

 

(Mark one)

x	Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2015

 

¨	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _________ to __________

 

Commission file number 0-53803

 

Titanium Healthcare, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada		27-0984261
(State of incorporation)		(IRS Employer ID Number)

 

2100 McKinney Ave., Suite 1780, Dallas, Texas 75201

(Address of principal executive offices)

 

(469) 606-4521

(Issuer's telephone number)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, 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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x

 

State the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: May 12, 2015: 166,395,655 shares of common stock, par value $0.001.

 

 

 

Titanium Healthcare, Inc.

 

Form 10-Q for the Three Months Ended March 31, 2015

 

Table of Contents

 

			Page
Part I - Financial Information
Item 1 -	Financial Statements			3
Item 2 -	Management's Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3 -	Quantitative and Qualitative Disclosures About Market Risk			19
Item 4 -	Controls and Procedures			19
Part II - Other Information
Item 1 -	Legal Proceedings			22
Item 1A -	Risk Factors			22
Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds			22
Item 6 -	Exhibits			23
SIGNATURES				24

 

2

 

Part I - Financial Information

 

Item 1 - Financial Statements

 

Titanium Healthcare, Inc.

Condensed Consolidated Balance Sheets

 

		Successor Company
		March 31,				December 31,
		2015				2014
		(Unaudited)
ASSETS
Current Assets:
Cash		$	18,605			$	199,861
Accounts receivable			192,246				169,102
Inventories			30,388				28,621
Prepaid expenses and other current assets			85,887				40,414
Total current assets			327,126				437,998
Property and equipment, net			323,514				323,645
Intangible assets, net			95,577				111,506
Other assets			5,380				60,380
Total other assets			100,957				171,886
Total Assets		$	751,597			$	933,529
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable		$	846,592			$	997,476
Accrued expenses and other current liabilities			783,654				676,462
Earn-out and other amounts payable for acquisition			25,000				25,000
Due to related parties			354,736				388,763
Due to shareholders			74,124				123,326
Total current liabilities			2,084,106				2,211,027
Stockholders' Deficit:
Preferred stock - $0.001 par value, 10,000,000 shares authorized, none issued and outstanding			-				-
Common Stock, $0.001 par value, 250,000,000 shares authorized, 165,413,115 and 159,515,885 shares issued and outstanding in 2015 and 2014, respectively			165,413				159,516
Additional paid-in capital			1,908,498				1,324,672
Accumulated deficit			(3,406,420	)			(2,761,686	)
Total Stockholders' Deficit			(1,332,509	)			(1,277,498	)
Total Liabilities and Stockholders' Deficit		$	751,597			$	933,529

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

 

Titanium Healthcare, Inc.

Unaudited Condensed Consolidated Statements of Operations

 

		Successor Company								Predecessor Company
		Three months ended March 31,								Three months ended March 31,
		2015				2014				2014
Revenues		$	664,971			$	-			$	896,231
Operating expenses
Professional fees			327,957				100,390				-
Rent to related party			30,000				10,000				-
Personnel costs			511,945				-				659,499
Shell acquisition costs			-				12,070				-
Transaction costs			76,848				-				-
Administrative services from related parties			-				-				3,650
License fee for software from member			-				-				8,250
Other general and administrative costs			323,843				124,507				49,272
Depreciation and amortization			38,339				-				12,927
Total operating expenses			1,308,932				246,967				733,598
Income (loss) from operations			(643,961	)			(246,967	)			162,633
Other income (expense)			(773	)			-				68
Income (loss) before income tax expense			(644,734	)			(246,967	)			162,701
Income tax expense			-				-				1,479
Net income (loss)		$	(644,734	)		$	(246,967	)		$	161,222
Income (loss) per weighted-average share of common stock or member unit outstanding - basic and diluted		$	(0.00	)		$	(0.00	)		$	161.22
Weighted-average number of shares of common stock or member units outstanding - basic and diluted			161,493,210				133,935,107				1,000

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

Titanium Healthcare, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

 

		Successor Company								Predecessor Company
		Three months ended March 31,								Three months ended March 31,
		2015				2014				2014
Cash flows provided by (used in) operating activities
Net income (loss)		$	(644,734	)		$	(246,967	)			161,222
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization			38,339				-				12,927
License fee for software contributed by a member			-				-				8,250
Changes in operating assets and liabilities:
Accounts receivable			(23,144	)			-				(135,941	)
Inventories			(1,767	)			-				-
Prepaid expenses and other assets			9,527				-				1,606
Accounts payable			(150,884	)			-				(21,102	)
Accrued expenses and other current liabilities			107,192				137,860				26,165
Deferred revenue			-				-				(4,776	)
Accrued shell acquisition costs			-				(50,000	)			-
Due to related parties			(34,027	)			160,540				-
Net cash provided by (used in) operating activities			(699,498	)			1,433				48,351
Cash flows used in investing activities
Purchases of property and equipment			(23,279	)			-				(2,115	)
Proceeds from sale of property and equipment			1,000				-				-
Net cash used in investing activities			(22,279	)			-				(2,115	)
Cash flows provided by (used in) financing activities
Sale of common stock, net			589,723				(1,433	)			-
Due to shareholders			(49,202	)			(18	)			-
Distributions to members			-				-				(42,000	)
Net cash provided by (used in) financing activities			540,521				(1,451	)			(42,000	)
Net increase (decrease) in cash			(181,256	)			(18	)			4,236
Cash at beginning of period			199,861				38				107,087
Cash at end of period		$	18,605			$	20			$	111,323

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – Basis of Presentation and Plan of Operations

 

With respect to this report, the terms “we”, “us”, “our”, “Titanium”, “Titanium Healthcare” and the “Company” refer to Titanium Healthcare, Inc.

 

Background

 

We were organized on September 9, 2009, as a Nevada corporation to effect the reincorporation of Senior Management Services of Gainesville, Inc., a Texas corporation (“Senior Management Services”), mandated by the plan of reorganization for Senior Management Services as confirmed by the U. S. Bankruptcy Court for the Northern District of Texas, Dallas Division, on August 1, 2007. The emergence from Chapter 11 of Title 11 of the United States Code on August 1, 2007, created the combination of a change in majority ownership and voting control - that is, loss of control by the then-existing shareholders, a court-approved reorganization, and a reliable measure of the entity’s fair value - resulting in a fresh start, creating, in substance, a new reporting entity. Accordingly, our company, post-bankruptcy, had no significant assets, liabilities or operating activities. As a result, we were considered a shell company as defined in Rule 405 under the Securities Act of 1933, (Securities Act), and Rule 12b-2 under the Securities Exchange Act of 1934, (Exchange Act).

 

On December 19, 2013, and January 29, 2014, Titan Partners, LLC entered into a stock purchase agreement with two shareholders for the aquisition of 9,500,000 shares or 96%, and 392,956 shares or 2.92%, respectively, for a total of 9,892,956 shares or 98.92% of our then issued and outstanding common stock. After the completion of a forward stock split on July 10, 2014, Titan Partners, LLC owned 132,501,306 shares of our common stock.

 

On September 30, 2014, we closed a transaction, pursuant to which we acquired 100% of the equity securities of Preferred Rx, LLC ("Preferred Rx") in exchange for cash and contingent consideration. The equity purchase was accounted for as a business combination, wherein we are considered the acquirer for accounting and financial reporting purposes. Upon consummation of the share purchase, Preferred Rx became our 100% wholly-owned subsidiary. Preferred Rx is deemed our predecessor for accounting purposes and may be referred to herein as the “Predecessor Company”.

 

As a result of this acquisition, we became an active business operating through our subsidiary, the Predecessor Company. We do not consider our operations to be seasonal to any material degree. The Predecessor Company has historically been a closed door pharmaceutical company with 39 state pharmacy licenses focused on providing pharmacy services to medical facilities and patients of such facilities, particularly with respect to coordinating the delivery of prescriptions to nursing homes and long-term care facilities. We expanded the capabilities of the pharmacy to include filling compounded prescriptions and delivery services.

 

On October 6, 2014, we filed an amendment to our Articles of Incorporation with the Nevada Secretary of State to change our name to Titanium Healthcare, Inc. In addition, we changed our ticker symbol to “TIHC”. We have discontinued using the name SMSA Gainesville Acquisition Corp.

 

Plans of Operations

 

Our business plan is to become a premier healthcare ancillaries and life sciences company. The immediate focus of our plan is on prevention of prescription drug fraud, waste, and abuse through an offering of business and educational resources to combat the problem. In addition, we intend to focus on personalized medicine through innovation and responsible delivery to improve patient outcomes.

 

We believe that each of our proposed business verticals play a substantial role in the prevention of prescription drug fraud, waste, and, abuse. The compounding pharmacy offers alternatives to oral medicines; the urine drug toxicology laboratory is tantamount to monitoring the use of oral pain medicines and thus offering more control to prescribing physicians, and pharmacogenomic reporting allowing physicians more decision making tools in prescribing the proper medicines and dosages to their patients.

 

6

 

We acquired our first pharmacy, Preferred Rx, LLC (“Preferred Rx”), located in Arlington, Texas, on September 30, 2014, where we fill individual patient prescriptions. We plan to acquire, develop, and operate additional pharmacies and laboratories in various states across the United States, including, but not limited to Arizona, California, Connecticut, Georgia, Illinois, Maryland, Massachusetts, New Jersey, New York, Ohio, Texas, and Virginia.

 

We will continue to look for ways to expand our “prevention platform” by including other services and products that play a role in the prevention of prescription drug waste. Specifically, these services include pharmacy tracking software and single use injection kits. Our business plan also includes building a network of physicians, other providers, and distributors that can collaborate in the delivery of quality healthcare. In the future, we anticipate entering additional business lines of healthcare related services such as dermatopathology/histopathology laboratories, nutraceuticals, cosmeceuticals, pathology laboratories, risk factor testing, surgical hardware, biologics, and other lines devoted to the improvement of patient care.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“US GAAP”) for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

 

The preparation of our unaudited condensed consolidated financial statements requires the use of estimates that affect the reported value of assets, liabilities, and expenses. These estimates are based on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for our conclusions. We continually evaluate the information used to make these estimates as the business and economic environment changes, including evaluation of events subsequent to the end of the quarter through the financial statements issuance date. Actual results may differ from these estimates under different assumptions or conditions. Such differences could have a material impact on our future financial position, results of operations, and cash flows.

 

The balance sheet at December 31, 2014 has been derived from the audited financial statements at that date, but do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These interim unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in our 2014 Annual Report on Form 10-K and Form 10-K/A filed with the SEC on March 30, 2015 and April 27, 2015, respectively.

 

Note 2 – Going Concern Uncertainty and Private Placement

 

We have a limited operating history, recurring losses from operations, negative cash flows, capital deficiency, and our business plan has inherent risks. As of March 31, 2015, we had an accumulated deficit of $3,406,420 and a negative working capital of $1,756,980. Because of these factors it raises substantial doubt about our ability to continue as a going concern. As a result, our auditors issued an audit opinion on our 2014 annual financial statements which included a statement describing our going concern status. We have taken the following actions to obtain additional funding and implement our strategic plans as described below to provide the opportunity for us to continue as a going concern.

 

On March 10, 2014, we commenced a private placement of our shares of unregistered common stock pursuant to the exemption provided in Section 4(a)(2) of the Securities Act, as amended, and Rule 506(b) of Regulation D promulgated thereunder, to a class of accredited investors who have an interest in or an understanding of the healthcare industry as described further below (the “Private Placement”). We seek to raise $5,375,000 through this Private Placement to build a network of physicians, fund operations, acquisitions and contribute to undepreciated tangible asset goals.

 

During the Private Placement, we increased the number of our authorized shares of common stock from 100,000,000 to 250,000,000, which was completed on June 4, 2014, and we then completed a 13.3935 to 1 forward stock split on July 10, 2014. As part of the ongoing Private Placement, as of March 31, 2015 we had received signed subscription agreements from 210 investors raising $1,898,741 in capital and private placement costs of $139,859, and we had 165,413,115 shares of our common stock outstanding, of which 31,478,008 shares were sold in the Private Placement. For the three months ended March 31, 2015, we raised $589,723 in capital. The impact of the forward stock-split has been reflected retrospectively in all periods and notes in the accompanying financial statements. As of May 12, 2015, we have received signed subscription agreements from 216 investors raising $1,996,995 in capital, resulting in a total of 166,395,655 shares of our common stock outstanding, with a par value of $0.001, of which 32,460,548 shares were sold in the Private Placement.

 

7

 

Our business plan and pharmacy operations will require capital for additional acquisitions, and is expected to require capital for licensing, permits, and accreditation from various federal and state agencies as a condition to expanding our operations including, but not limited to, licensure by state medical boards. The process will include certain license applications or the acquisition of pharmacy or laboratory operations with the appropriate licenses, permits or accreditations. The development and operations could be adversely affected by the failure or inability to obtain the necessary approvals, changes in standards applicable to such approvals, and possible delays and expenses associated with obtaining such approvals. There is no assurance we will be successful in obtaining such licenses and permits.

 

Our ultimate continued existence is dependent upon our ability to generate sufficient cash flows from operations to support our daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis. We face considerable risk in our business plan and a potential shortfall of funding due to potential inability to raise capital in the private placement or increased costs associated with expanding our operations.

 

There can be no assurance that financing for our operations and business plan will be available, or, if available, such financing will be on terms satisfactory to us. If we are unable to obtain financing, we may not be able to operate successfully and any investment made in it may be lost.

 

Note 3 – Acquisition

 

On September 30, 2014, we entered into and closed the transaction contemplated by the Purchase and Sale Agreement (the “Purchase Agreement”) with Preferred Rx, LLC, a Texas limited liability company, and its equity holders. Pursuant to the terms of the Purchase Agreement, we acquired 100% of the issued and outstanding limited liability company membership interests of Preferred Rx in exchange for cash and contingent consideration (the “Share Purchase”). As a result of the Share Purchase, Preferred Rx became our wholly-owned subsidiary.

 

As consideration for the limited liability company membership interests of Preferred Rx, the equity holders would receive earn-out payments in the form of 100% of Preferred Rx’s actual EBITDA (“EBITDA” means our earnings before interest, taxes, depreciation and amortization) and EBITDA from any new customer or contract obtained by the equity holders associated with the call center operations of Preferred Rx for thirteen (13) months after the closing date (each such payment, an “Earn-out Payment”), net of cash previously paid. Each Earn-out Payment would be payable in arrears on the 20th day after the close of each calendar quarter. During October 2014, and in connection with the sale of certain assets and the payments made to the former members as discussed in further detail below, we have no further future obligation to pay any earn-out consideration with respect to our on-call pharmacy business under the Preferred Rx Purchase Agreement.

 

We also paid the equity holders for all of Preferred Rx’s current assets less current liabilities (excluding a $100,000 accrued contingent liability to an unrelated third party) that existed as of August 31, 2014 (“Net Working Capital”). The Net Working Capital was paid to each equity holder in an amount equal to the percentage of each equity holder’s pro rata share of our Net Working Capital in two equal installments on October 20, 2014 and November 20, 2014.

 

8

 

The following represents the acquisition values of the net assets acquired as of September 30, 2014, the acquisition date:

 

Current assets		$	336,785
Computer equipment and leasehold improvements			36,760
Information systems - software			167,806
Other assets			5,380
Customer relationship intangible			353,960
Pharmacy license intangible			127,435
Total assets		$	1,028,126
Current liabilities		$	(295,834	)
Earn-out and other amounts payable for acquisition:
Present value of minimum earn-out payable			(160,044	)
Contingent earn-out liability			(127,975	)
Net working capital payable			(158,801	)
Cash payable to sellers			(49,000	)
Total earn-out and amounts payable for acquisition			(495,820	)
Purchase price consideration		$	(791,654	)
Bargain purchase gain at September 30, 2014		$	236,472
Tax effect on bargain purchase gain			(81,400	)
Bargain purchase gain, net of tax at September 30, 2014		$	155,072

 

All assets and liabilities were recorded at their estimated fair values on the acquisition date. We derived the estimated fair values from assumptions we believe unrelated market participants would use based on both observable and unobservable marketplace factors. The earn-out liability and net working capital payable consideration (which excludes a $100,000 accrued liability) represent the estimated fair value of the amounts to be paid as of September 30, 2014, the date the transaction was consummated. Earn-out considerations represent the present value of minimum earn-out payable in the amount of $200,000, plus the projected payout for amounts based on EBITDA targets for the future thirteen months.

 

Our estimate of the net assets’ fair value exceeded the estimated fair value of the total consideration we paid and will pay over the earn-out period due to Preferred Rx’s uncertainties related to extending its contract with its largest customer to continue to perform on-call services. As a result, we recognized a $155,072 bargain purchase gain, which was $236,472 net of $81,400 in deferred tax liabilities.

 

Tangible assets and software acquired are valued at their estimated fair values over their estimated useful economic lives as of September 30, 2014, the date the transaction was consummated. We estimate the average useful lives of these assets to be five years and will depreciate or amortize the assets on a straight-line basis as it approximates the pattern of consumption.

 

Intangible assets acquired are valued at their estimated fair values using discounted cash flows (customer relationship) and replacement cost (pharmacy licenses) models as of September 30, 2014, the date the transaction was consummated. We estimate the average useful life for the customer relationship to be seven years and the pharmacy licenses to be two years, both on a straight line basis.

 

Sale of Certain Acquired Assets from Preferred Rx and Settlement of Earn-out Considerations

 

In a separate transaction on October 10, 2014, we entered into a definitive agreement to sell certain non-strategic assets associated with our on-call pharmacy business. The transaction was completed pursuant to the terms of a Transaction Agreement entered into between us, the former shareholders of Preferred Rx and Care Services, LLC (the “On-Call Transaction”). The assets sold in the On-Call Transaction included certain software and customer contracts associated with the on-call pharmacy business conducted by Preferred Rx.

 

9

 

Preferred Rx and Care Services, LLC (“Care Services”) also entered into a Services Agreement whereby Preferred Rx will provide certain on-call pharmacist services to Care Services for a period of up to one year in exchange for payment of certain payroll and applicable overhead expenses of Preferred Rx. Payments made by Care Services to Preferred Rx under the Services Agreement are treated in the unaudited condensed consolidated statements of operations for the three months ended March 31, 2015 as a reduction (reimbursement) of expenses since the charges incurred are billed based on actual services, there is no margin earned and we have no latitude in establishing the reimbursement price.

 

The purchase price for the sale of assets was $550,000, of which $495,000 was received at closing, and $55,000 will be held by Care Services, LLC for up to 15 months for potential indemnification claims. Of the $495,000 received, we retained $49,500 and the remaining $445,500 was paid to the former members of Preferred Rx in exchange for the release by each of such former members of the potential earn-out consideration provided for in the previously announced Purchase Agreement. As a result, we have no future obligation to pay any earn-out consideration with respect to the on-call pharmacy business under the Preferred Rx Purchase Agreement.

 

As a result of the On-Call Transaction, we derecognized $353,960 in intangible assets associated with the customer contracts being sold and settled $288,019 of acquisition earn-out considerations. We recognized a gain in the consolidated statements of operations of $196,040 on the sale of these assets and a loss of $206,981 on settlement of earn-out considerations. The differences between estimated fair values for the customer contracts acquired and earn-out considerations to the ultimate sale and settlement amounts related to the On-Call transaction were due to uncertainties regarding the life and expected renewals rates used in the cash flow projections in determining the related fair values at September 30, 2014.

 

Note 4 - Fair Value of Financial Instruments

 

We measure fair values using unadjusted quoted prices in active markets (Level 1 inputs), quoted prices for similar instruments in active or inactive markets, or other directly-observable factors (Level 2 inputs), or inputs that are unobservable and significant to the fair value measurement (Level 3 inputs). Financial instruments consist primarily of cash, accounts receivable, accounts payable, accrued expenses, acquisition earn-out, accrued shell acquisition costs, due to related party, and due to shareholder. The carrying values of each of these financial instruments are considered to be representative of their respective fair values due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions.

 

Note 5 – Disclosures About Segments Of Our Business And Related Information

 

We are organized along three operating and reporting segments consisting of (1) pharmacy, (2) on-call services and (3) pharmacogenomics. Our chief operating decision maker is considered to be the Chief Executive Officer. The chief operating decision maker allocates resources and assesses performance of the business and other activities at the three operating segment level.

 

Pharmacy

 

Our pharmacy services consist of fulfilling legal prescriptions for compounded medications that are mixed together upon receipt of such prescription for an individual patient to treat a condition diagnosed by the prescriber. Compounding operations began on September 30, 2014, upon the consummation of the acquisition of Preferred Rx.

 

On-call

 

Our on-call services consist of the coordination of delivery of prescriptions to medical facilities when the facilities’ normal pharmacy is unavailable, such as nights, weekends and holidays. We also provide on-call and call center solutions, including remote order entry and verification services. Major customer contracts were sold to Care Services on October 10, 2014. Revenue for contracts outside of those sold to Care Services were immaterial in the first quarter of 2015.

 

10

 

Pharmacogenomics

 

Our pharmacogenomics services consist of providing marketing, education, specimen transport, processing, and molecular and other laboratory testing services for physician practices and clinics for administrative service fees. Operations began on December 1, 2014, upon consummation of the Administrative Services Agreement with a pharmacogenomics lab.

 

The following table presents operating information by segment and a reconciliation of segment operating income to our consolidated operating income (loss):

 

		Successor Company								Predecessor Company
		Three months ended March 31,								Three months ended March 31,
		2015				2014				2014
Revenues:
On-call		$	2,067			$	-			$	896,231
Pharmacy			62,826				-				-
Pharmacogenomics			600,078				-				-
Total			664,971				-				896,231
Allocated segment operating expenses:
On-call			16,085				-				733,598
Pharmacy			122,944				-				-
Pharmacogenomics			125,664				-				-
Total			264,693				-				733,598
Segment income (loss):
On-call			(14,018	)			-				162,633
Pharmacy			(60,118	)			-				-
Pharmacogenomics			474,414				-				-
Total			400,278				-				162,633
Unallocated operating expenses:
Professional fees			327,957				100,390				-
Rent to related party			30,000				10,000				-
Personnel costs			407,107				-				-
Shell acquisition costs			-				12,070				-
Transaction costs			76,848				-				-
Other general and administrative costs			202,327				124,507				-
Total			1,044,239				246,967				-
Income (loss) from operations		$	(643,961	)		$	(246,967	)		$	162,633

 

Separate measures of our assets and cash flows by reportable segment, including capital expenditures, are not produced or utilized by us to evaluate segment performance. Assets are used on an interchangeable basis across our reportable segments.

 

11

 

Note 6 – Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consisted of the following:

 

		Successor Company
		March 31,				December 31,
		2015				2014
Compensation and employee benefits		$	268,067			$	338,001
Commissions			30,074				11,530
Professional fees			294,961				111,624
Software expenses			7,921				22,364
Telephone contingent liability			100,000				100,000
Deferred rent expenses			6,235				6,954
Other current liabilities			76,396				85,989
Total accrued expenses and other current liabilities		$	783,654			$	676,462

 

Note 7 - Related Party Transactions

 

Successor Company

 

On February 21, 2014, we executed a commercial real estate lease with GML Holdings, LP. The term of the lease was for a period of five years, commencing on February 21, 2014, and expiring June 30, 2019. The basic rent for the initial term of the lease was equal to $10,000 per month plus additional rent, which included all other charges and expenses related to the premises (e.g., taxes, charges for utilities and services used or consumed in the premises, and Landlord’s share of condominium assessments, dues, fees and charges as they relate to the premises). The General Partner of GML Holdings, LP (“GML”) is GML Holdings Management, LLC. Kamran Nezami, our Chairman of the Board of Directors and Chief Business Development Officer is a shareholder in GML Holdings Management, LLC. During the three months ended March 31, 2015, we incurred $30,000 in rent expense which is included in rent to related party in the unaudited condensed consolidated statements of operations. On April 29, 2015, we entered into a lease termination agreement with GML Holdings, LP. Under this agreement, we terminated the lease and agreed to pay $80,000 to the landlord in consideration of past-due rent, which amount is evidenced by a promissory note. In addition, the landlord was entitled to retain any and all security deposits.

 

In December 2013, Titan Partners, LLC, our majority shareholder, paid $41,057 of legal fees to further develop the current business plan on our behalf. During the three months ended March 31, 2015, we paid approximately $49,000 in legal and other fees on behalf of Titan Partners, LLC, resulting in approximately $8,000 due from Titan Partners, LLC. This amount was included in the due to shareholders line in the accompanying unaudited condensed consolidated balance sheets. The amount due to us is unsecured, non-interest bearing, and due on demand.

 

In October 2014, a shareholder paid approximately $82,000 to us to help fund operating expenses. This amount has been reflected as due to shareholders line in the accompanying unaudited condensed consolidated balance sheets. The amount due is unsecured, non-interest bearing, and due on demand.

 

In October 2014, we entered into certain noncancellable operating equipment leases with Healthlabs of America, LLC. Our Chairman of the Board of Directors and Chief Business Development Officer, Kamran Nezami, and our President and Chief Executive Officer, James York, are shareholders in Healthlabs of America, LLC. These operating leases had no financial impact to the unaudited condensed consolidated statements of operations during the three months ended March 31, 2015. The term and payments on these leases do not begin until the equipment has gone through an extensive validation process, which is expected to be late in the second quarter of 2015.

 

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From January 2014 through July of 2014, a related party, Healthscripts Management Services, LLC (“HMS”) performed certain administrative functions for us. Our Chairman of the Board of Directors and Chief Business Development Officer, Kamran Nezami, participated in the management of HMS through July 2014. At March 31, 2015, we owed HMS $284,736 for third party expenses paid on our behalf to facilitate development of our business plan in the prior year. We did not pay any management fees or mark-ups to HMS for these services. The amounts owed are included in the due to related parties line in the unaudited condensed consolidated balance sheets.

 

Effective March 25, 2015, we entered into pharmacy service agreements with certain Healthscripts of America entities, in which we will provide certain pharmacy fulfillment services beginning in April 2015 at rates considered to be fair market value for the services we provide. The Manager and a shareholder of each of the Healthscripts of America entities is Kamran Nezami, our Chairman of the Board of Directors and Chief Business Development Officer. 

 

Predecessor Company

 

Transactions with related parties and their affiliates are made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other unaffiliated third parties, and do not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. For the three months ended March 31, 2014, related parties include the following:

 

During the three months ended March 31, 2014, Preferred Rx used a company owned by a member for accounting services and incurred $3,650 in fees which are included in Administrative services from related parties in the unaudited condensed consolidated statements of operations.

 

One of the members of Preferred Rx also served on the board of directors of Preferred Rx’s bank.

 

Preferred Rx licensed its call center software from a member and recorded a license fee of $8,250 in the unaudited condensed consolidated statements of operations for the three months ended March 31, 2014. The license fee was based on the estimated fair value for the use of the software and was considered as contributed paid in capital for the three months ended March 31, 2014.

 

Note 8 - Income Taxes

 

Successor Company

 

The effective income tax rate for the three months ended March 31, 2015 and 2014 was 0%. At March 31, 2015 and 2014, based on current and past net operating losses and all available evidence, it was determined it was more likely than not that the net deferred assets will not be realized. Accordingly, a full valuation allowance was maintained against the deferred tax assets. The factors that cause the effective tax rate to vary from the federal statutory rate of 34% include the impact of certain non-deductible expenses and the change in valuation allowance against our net deferred tax assets.

 

Predecessor Company

 

The Predecessor Company is a limited liability company treated as a pass-through entity under the Code. As such, it did not pay federal corporate income taxes; however, its income and expenses were included in the federal income tax returns of its members.

 

The Predecessor Company recognized the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. There were no amounts recorded as a liability for unrecognized tax benefit in any of the periods presented.

 

Because the Predecessor Company is a pass-through entity for federal income tax purposes and for substantially all of the state jurisdictions in which it was required to file an income tax return, the effect of any changes in tax positions that result from an examination of its tax returns are borne principally by the individual members. Tax returns for 2009 and later are still subject to examination by the federal and state tax authorities. Any penalties and interest assessed by taxing authorities are included in income tax expense. There were no such amounts included in income tax expense in the three months ended March 31, 2014.

 

The Predecessor Company incurred state franchise taxes and the financial statements included a provision for the franchise tax effect of transactions reported in the financial statements. State franchise tax expense for the three months ended March 31, 2014, which is included in income tax expense was $1,479.

 

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Note 9 – Income (Loss) per Share

 

Basic income (loss) per share is computed by dividing net income (loss) applicable to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts, such as stock options and warrants to issue common stock, were exercised or converted into common stock. For the three months ended March 31, 2015 and 2014, there were no dilutive potential common shares and basic and diluted income (loss) per common share are the same. 

 

Note 10 - Capital Stock Transactions and Forward Stock-Split

 

On February 18, 2014, our Board of Directors adopted resolutions and filed a preliminary information statement with the SEC approving a certificate of an amendment to our Articles of Incorporation. At that time, our Articles of Incorporation authorized capital stock consisting of 100,000,000 shares of common stock. Following the amendment which was filed in Nevada on June 4, 2014, our authorized capital stock was increased to 250,000,000 shares of common stock.

 

On June 27, 2014, we announced that our Board of Directors had declared a stock dividend on the issued and outstanding shares of common stock to effect a 13.3935-to-1 forward stock split (the “Stock Split”) to be distributed on July 7, 2014 (the “Distribution Date”) to shareholders of record our common stock as of the close of business on June 23, 2014. On July 10, 2014, we issued an additional 131,360,950 shares of common stock as part of the Stock Split, thereby increasing our issued and outstanding shares of common stock to 141,960,131 shares. The impact of the Stock-Split has been retrospectively reflected in all periods and notes in filing.

 

Note 11 – Major Customer

 

One customer accounted for approximately 93% of the Predecessor Company’s total revenue for the three months ended March 31, 2014, and approximately 95% of the Predecessor Company’s total accounts receivable as of March 31, 2014. As a result of the sale of certain customer contracts to Care Services, LLC on October 10, 2014, we do not expect to recognize any additional revenue for this customer subsequent to the date of the sale of these contracts.

 

Note 12 - Subsequent Events

 

On April 29, 2015, we entered into a lease termination agreement with GML Holdings, LP. Under this agreement, we terminated the lease and agreed to pay $80,000 to the landlord in consideration of past-due rent, which amount is evidenced by a promissory note. In addition, the landlord was entitled to retain any and all security deposits.

 

Effective May 12, 2015, our Board of Directors expanded the size of the Board of Directors to four members and appointed Mr. Chuck Talley and Mr. Chris Mashburn to fill the positions created by the expansion. Mr. Talley is our Chief Financial Officer and Mr. Mashburn is our Chief Operating Officer. The appointments of Mr. Talley and Mr. Mashburn were not in connection with any arrangement or understanding between us, the individuals or any other person.

 

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Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Caution Regarding Forward-Looking Information

 

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.

 

These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of the factors that we believe could affect our results include:

 

	-	limitations on our ability to begin or grow revenue-generating operations and implement our business plan;
	-	limitations on available capital and resources, including financial and personnel resources;
	-	the timing of and our ability to obtain financing on acceptable terms;
	-	dependence on third-party payors;
	-	the effects of changing economic conditions;
	-	the loss of members of our management team or other key personnel;
	-	changes in governmental laws and regulations, or the interpretation or enforcement thereof and related compliance costs; and/or
	-	costs and other effects of legal and administrative proceedings, settlements, investigations and claims, which may not be covered by insurance.

 

There are likely other factors that could cause our actual results to differ materially from the results referred to in the forward-looking statements. All forward-looking statements attributable to us in this document apply only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by law.

 

In this report, unless the context indicates otherwise: “Titanium Healthcare, Inc.,” (formerly known as “SMSA Gainesville Acquisition Corp.”) the “Company,” “we,” “our,” “ours” or “us” refer to Titanium Healthcare, Inc.

 

Business

 

We were organized on September 9, 2009, as a Nevada corporation. On December 19, 2013 and January 29, 2014, Titan Partners, LLC entered into a stock purchase agreement with two shareholders for the acquisition of 9,500,000 shares or 96%, and 392,956 shares or 2.92%, respectively, for a total of 9,892,956 shares or 98.92% of our then issued and outstanding common stock. After the completion of our forward stock split Titan Partners, LLC owned 132,501,306 shares of common stock.

 

On September 30, 2014, we acquired 100% of the issued and outstanding limited liability company membership interests of Preferred Rx, LLC (“Preferred Rx”) in exchange for cash and contingent consideration. Upon consummation of the transaction, Preferred Rx became our wholly-owned subsidiary.

 

As a result of this acquisition, we became an active business operating through our subsidiary, Preferred Rx. Preferred Rx has historically been a closed door pharmaceutical company with 39 state pharmacy licenses focused on providing pharmacy services to medical facilities and patients of such facilities, particularly with respect to coordinating the delivery of prescriptions to nursing homes and long-term care facilities. We have expanded the capabilities of the pharmacy to include filling compounded prescriptions and delivery services.

 

15

 

On October 10, 2014, we sold certain non-strategic assets associated with our on-call pharmacy business conducted by Preferred Rx. The assets sold included certain software and customer contracts. These assets were sold due to uncertainty regarding the Predecessor Company’s ability to renew the revenue agreement with their largest customer, which was set to expire in January 2015. The largest customer requested to purchase the contracts, rather than renew the agreement.

 

On October 6, 2014, we filed an amendment to our Articles of Incorporation with the Nevada Secretary of State to change our name to Titanium Healthcare, Inc. In addition, we changed our ticker symbol to “TIHC”.

 

Our business plan is to become a premier healthcare ancillaries and life sciences company. The immediate focus of our plan is on prevention of prescription drug fraud, waste, and abuse through an offering of business and educational resources to combat the problem. In addition, we intend to focus on personalized medicine through innovation and responsible delivery to improve patient outcomes.

 

We believe that each of our proposed business verticals play a substantial role in the prevention of prescription drug fraud, waste, and, abuse. The compounding pharmacy offers alternatives to oral medicines; the urine drug toxicology laboratory is tantamount to monitoring the use of oral pain medicines and thus offering more control to prescribing physicians, and pharmacogenomic reporting allows physicians more decision making tools in prescribing proper medicines and dosages to their patients.

 

We plan to acquire, develop, and operate additional pharmacies and laboratories in various states across the United States, including, but not limited to Arizona, California, Connecticut, Georgia, Illinois, Maryland, Massachusetts, New Jersey, New York, Ohio, Texas, and Virginia.

 

We will continue to look for ways to expand our “prevention platform” by including other services and products that play a role in the prevention of prescription drug waste. Specifically, these services include pharmacy tracking software and single use injection kits. Our business plan also includes building a network of physicians, other providers, and distributors that can collaborate in the delivery of quality healthcare. In the future, we anticipate entering additional business lines of healthcare related services such as dermatopathology/histopathology laboratories, nutraceuticals, cosmeceuticals, pathology laboratories, risk factor testing, surgical hardware, biologics, and other lines devoted to the improvement of patient care.

 

Recent Significant Events

 

Private Placement

 

On March 10, 2014, we commenced a private placement of the right to acquire unregistered common stock pursuant to the exemption provided in Section 4(a)(2) of the Securities Act, as amended, and Rule 506(b) of Regulation D promulgated thereunder, to a class of accredited investors who have an interest in or an understanding of the healthcare industry (the “Private Placement”).

 

As of March 31, 2015 we sold an aggregate of 31,478,008 shares of common stock in exchange for a combined total of $1,898,741 in the ongoing Private Placement. As of March 31, 2015, the additional shares sold in the Private Placement represent 19.0% of the issued and outstanding shares of common stock.

 

Through May 12, 2015 we have sold an aggregate of 32,460,548 shares of common stock in exchange for a combined total of $1,996,995 in the ongoing Private Placement. As of May 12, 2015, the additional shares sold in the Private Placement represent 19.5% of the issued and outstanding shares of common stock.

 

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Three Months Ended March 31, 2015 compared to March 31, 2014

 

Business Segments

 

The following table presents revenue and operating expenses for our business segments. Other financial information about our segments is incorporated herein by reference to Note 5 of the notes to unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report.

 

		Successor Company								Predecessor Company
		Three months ended March 31,								Three months ended March 31,
		2015				2014				2014
Revenues:
On-call		$	2,067			$	-			$	896,231
Pharmacy			62,826				-				-
Pharmacogenomics			600,078				-				-
Total			664,971				-				896,231
Allocated segment operating expenses:
On-call			16,085				-				733,598
Pharmacy			122,944				-				-
Pharmacogenomics			125,664				-				-
Total			264,693				-				733,598
Segment income (loss):
On-call			(14,018	)			-				162,633
Pharmacy			(60,118	)			-				-
Pharmacogenomics			474,414				-				-
Total			400,278				-				162,633
Unallocated operating expenses:
Professional fees			327,957				100,390				-
Rent to related party			30,000				10,000				-
Personnel costs			407,107				-				-
Shell acquisition costs			-				12,070				-
Transaction costs			76,848				-				-
Other general and administrative costs			202,327				124,507				-
Total			1,044,239				246,967				-
Income (loss) from operations		$	(643,961	)		$	(246,967	)		$	162,633

 

Revenues

 

We acquired our first pharmacy and began servicing our compounding prescription business through that pharmacy on September 30, 2014. Prior to this acquisition, we were a shell company with no active revenue generating business. During the first nine months of 2014, we were focused on potential acquisitions, administrative and compliance responsibilities. We commenced our compounding business in the fourth quarter of 2014, and we had compounding revenue of $62,826 for the three months ended March 31, 2015. We expect compounding revenues to increase in the second quarter of 2015 as a result of pharmacy service agreements we entered into with certain Healthscripts of America entities, in which we will provide certain pharmacy fulfillment services beginning in April 2015.

 

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Net revenue for the on-call business was $2,067 for the three months ended March 31, 2015, which was down significantly from revenue generated by the Predecessor Company in the prior period due to the sale of certain customer contracts to Care Services, LLC (“Care Services”) on October 10, 2014. As a result of this sale, we expect future on-call revenue to be minimal.

 

On December 1, 2014, we entered into an Administrative Services Agreement with a lab that performs pharmacogenomics testing in which we perform marketing, education, specimen transport, processing and molecular and other laboratory testing services for physician practices and clinics. Under this agreement, we are paid on a monthly basis by the lab for services performed. During the three months ended March 31, 2015, we had revenue of $600,078 for our pharmacogenomics business.

 

Operating Expenses

 

Total segment operating expenses for the Successor Company were $264,693 and $0 for the three months ended March 31, 2015 and 2014, respectively. These amounts consisted primarily of personnel costs incurred to add additional employees, and materials costs to support our new pharmacy and pharmacogenomics business lines, and costs to operate our on-call business which was acquired through the acquisition of Preferred Rx.

 

The large decline in operating expenses between the Successor Company and the Predecessor Company for the three months ended March 31, 2015 and 2014 for the on-call business was due to the Services Agreement entered into with Care Services in which Care Services would reimburse us for costs incurred with servicing customer contracts purchased by them on October 10, 2014. As a result of this sale, we expect future operating expenses associated with our on-call business to be minimal.

 

The increase in total unallocated operating expenses from the three months ended March 31, 2015 to the same period ended March 31, 2014, was due to expenses associated with the acquisition of Preferred Rx and due diligence on other potential acquisitions, legal fees, accounting fees, private placement costs, personnel costs, and rent to start the execution of our business plan. We expect operating expenses to increase in the future as we continue building the infrastructure necessary to implement our business plan.

 

Liquidity and Capital Resources

 

Going Concern Uncertainties

 

We have a limited operating history, recurring losses from operations, negative cash flows, capital deficiency, and our business plan has inherent risks. As of March 31, 2015, we had an accumulated deficit of $3,406,420 and a negative working capital of $1,756,980. Because of these factors it raises substantial doubt about our ability to continue as a going concern. As a result, our auditors issued an audit opinion on our 2014 annual financial statements which included a statement describing our going concern status.

 

Through the acquisition of Preferred Rx, which has positive operating cash flows, and recently added products, along with our engagement in a private placement of equity securities, we believe we will generate sufficient capital to continue to implement our business plan. Furthermore, we have historically met our capital requirements through short-term and long-term borrowings and capital contributions from our majority stockholder. Once our business plan is fully implemented, we anticipate we will be able to provide the necessary liquidity from our cash on hand and cash flow from operations; however, if we do not generate sufficient cash flow from operations, we may attempt to continue to finance our operations through equity and/or debt financings. 

 

It is the belief of management that this plan will provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. There is no legal obligation for either management or any stockholder to provide funding in the future. We may also experience difficulty or delays in implementing our business plan, which will have a significant adverse impact on our liquidity and capital resources. 

 

Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we might seek to compensate providers of services by issuances of stock in lieu of cash. 

 

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Cash Flows of Successor Company

 

At March 31, 2015 and 2014, excluding amounts due to shareholders and shell acquisition costs, we had working capital of approximately $(1,682,856) and $(251,929), respectively. The increased use of working capital was primarily funded by a related party who performed our administrative services for us as we began executing our business plan, deferring payments to certain vendors, through acquisition earn-out and working capital considerations, and through the sale of our common stock. 

 

Investing activities for the three months ended March 31, 2015 primarily related to capital expenditures associated with machinery and equipment and software to enhance our compounding and lab operations.

 

Financing activities for the three months ended March 31, 2015 included $589,723 in funding, net of costs, associated with our private placement and legal fee payments made for our largest shareholder, Titan Partners, LLC.

 

Cash Flows of Predecessor Company

 

Operating cash flows for the three months ended March 31, 2014 were $48,351 primarily due to net income and positive cash flows generated from operating the on-call business.

 

Investing activities for the three months ended March 31, 2014 primarily related to capital expenditures to make improvements to software used to support the on-call business.

 

Financing activities included $42,000 in distributions to member owners during the three months ended March 31, 2014.

 

Critical Accounting Policies

 

There have been no significant changes in the critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014. 

 

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

 

Smaller reporting companies are not required to provide the information required by this item.

 

Item 4 - Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, including the CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of March 31, 2015. Our disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

In connection with the preparation of this Report, under the supervision and with the participation of our management, including our President and CEO and our CFO, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission entitled “Internal Control — Integrated Framework (2013)” (the “COSO Framework”).” As described below, as of December 31, 2014, previous management identified material weaknesses in our internal control over financial reporting, which is an integral component of our disclosure controls and procedures.

 

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It was also determined that there were material weaknesses and significant deficiencies in Preferred Rx’s internal control over financial reporting as of December 31, 2013 and as of September 30, 2014. Preferred Rx was a private entity with limited accounting personnel and other supervisory resources to execute accounting processes and address internal controls over financial reporting. In particular, in connection with the audit of Preferred Rx’s financial statements for the year ended December 31, 2013 and the preparation of the financial statements for the nine months ended September 30, 2014, Preferred Rx’s management and its independent registered public auditors identified material weaknesses relating to the failure to record certain entries and adjustments during the year and quarter end close processes, and to have appropriate procedures and controls in place around Preferred Rx’s information technology process. The material weaknesses resulted in several adjustments to the financial statements.

 

A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our remediation efforts with respect to these weaknesses are continuing. As a result of these ongoing material weaknesses, our President and Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not sufficient as of March 31, 2015.

 

Our management continues to work to strengthen our disclosure controls and procedures and internal control over financial reporting in connection with the material weaknesses identified by the current and previous management teams. We intend to continue taking measures, including hiring competent employees and engaging outside professionals, as may be necessary and advisable, to assist us as we continue to address and rectify the material weaknesses. 

 

In addition, we have designed and plan to implement as funds allow, and in some cases have already implemented, the specific remediation initiatives described below:

 

	·	We have hired a Chief Financial Officer with prior public accounting firm experience auditing public companies and leading the finance function of public companies, which we believe will bring additional resources and expertise to address our more complex transactions to help develop accounting policies and procedures. His duties include the design and implementation of internal controls over financial reporting.
	·	In September 2014, we hired a VP of Finance and a Controller, both with previous public company experience maintaining an effective control environment including preparing timely and accurate financial information. Since their start, we have completed and implemented the following:

 

		-	Thorough scoping and mapping analysis to ensure all significant financial statement accounts were mapped to company key controls, updated the components of the COSO Framework, and financial statement assertions.
		-	An Enterprise Risk Assessment and Fraud Risk Assessment with all members of management to ensure all identified financial statement risks were appropriate covered by company key controls.
		-	Engaged tax experts to assist in the completion of quarterly and annual tax provisions.
		-	Delegation of authority, defining responsibilities and levels of approval needed based on qualitative and quantitative risks of transactions.
		-	Access controls surrounding cash accounts and transactions.
		-	Whistleblower hotline to allow individuals to anonymously report any incidents of suspected fraud or possible unethical behavior.

 

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	·	We implemented procedures with respect to the proper communication, approval, and documentation and accounting review of contracts.
	·	We continue to evaluate our accounting systems to determine appropriate enhancements for the combined entity.
	·	We intend to strengthen information technology procedures and controls for the predecessor entity.
	·	We implemented a new accounting policy setting forth specific requirements regarding supporting documentation standards and review and approval procedures for manual journal entries, including specifying the types and levels of review to be performed based on specifically defined criteria associated with the nature and magnitude of manual journal entries.
	·	We implemented a Code of Business Conduct and Ethics designed to provide guidance in addressing potentially troublesome situations; to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, and; promote full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or furnish to, the SEC and in other public communications we make.

 

We believe the remediation steps outlined above, which in some cases have already been implemented, have improved and will continue to improve the effectiveness of our internal control over financial reporting. However, we have not completed all of the corrective processes and procedures identified above. Accordingly, as we continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses described above, we will perform additional procedures prescribed by our management, including the use of manual mitigating control procedures, and will employ any additional tools and resources deemed necessary to provide assurance that our financial statements continue to be fairly stated in all material respects.

 

As our management continues to evaluate and work to improve our disclosure controls and procedures and internal control over financial reporting, we may determine to take additional measures to address these deficiencies or determine to modify certain of the remediation measures described above. Our management does not expect to conclude that our disclosure controls and procedures are effective until our efforts to remediate the material weaknesses in our internal control over financial reporting described above have been in effect for a period of time sufficient to provide reasonable assurance to our management of achieving the desired control objectives.

 

Our CEO and CFO do not expect that once implemented our disclosure controls and our internal controls will prevent all error and all fraud. The design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be considered relative to their cost. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that we have detected all of our control issues and all instances of fraud, if any. The design of any system of controls also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions.

 

Changes in Internal Control over Financial Reporting

 

Other than as described above, there have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

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Part II - Other Information

 

Item 1 - Legal Proceedings

 

None.

 

Item 1A - Risk Factors

 

Our business is subject to a number of risks, some of which are beyond our control. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A. - “Risk Factors” of our Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended December 31, 2014, as filed with the SEC on March 30, 2015 and April 27, 2015, respectively, that could have a material adverse effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. As of May 14, 2015, there have been no material changes to the risk factors disclosed in our most recent Annual Report on Form 10-K. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or operating results.

 

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

 

On March 10, 2014, we commenced a private placement of unregistered common stock pursuant to the exemption provided in Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder, to a class of accredited investors who have an interest in or an understanding of the healthcare industry.

 

The information required by this Item was previously disclosed in our Annual Report filed with the SEC on March 30, 2015. Since that filing, we have sold the following shares of common stock in the Private Placement:

 

	·	On March 24, 2015, we issued 6,630 shares of common stock for an aggregate purchase price of $663 to one non-accredited investor that satisfied investor suitability criteria required for a private placement.
	·	On March 27, 2015, we issued 57,200 shares of common stock for an aggregate purchase price of $5,720 to one non-accredited investor that satisfied investor suitability criteria required for a private placement.
	·	On March 31, 2015, we issued 11,440 shares of common stock for an aggregate purchase price of $1,144 to one accredited investor.
	·	On April 1, 2015, we issued 143,000 shares of common stock for an aggregate purchase price of $14,300 to one accredited investor.
	·	On April 2, 2015, we issued 57,200 shares of common stock for an aggregate purchase price of $5,720 to one accredited investor.
	·	On April 15, 2015, we issued 196,340 shares of common stock for an aggregate purchase price of $19,634 to two accredited investors.
	·	On April 16, 2015, we issued 300,000 shares of common stock for an aggregate purchase price of $30,000 to one accredited investor.
	·	On May 5, 2015, we issued 286,000 shares of common stock for an aggregate purchase price of $28,600 to one accredited investor.

 

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Item 6 - Exhibits

 

Exhibit No.		Description
2.1		Share Purchase Agreement, dated September 30, 2014, by and among SMSA Gainesville Acquisition Corp., Preferred Rx, LLC, and the Shareholders of Preferred Rx, incorporated herein by reference to our Form 8-K filed with the SEC on October 6, 2014
2.2		Transaction Agreement for the Acquisition of Certain Assets of Preferred Rx, LLC by Care Services, LLC, incorporated herein by reference to our Form 8-K filed with the SEC on October 17, 2014
3.1		Articles of Incorporation of SMSA Gainesville Acquisition Corp., incorporated herein by reference to our Form 10-12G filed with the SEC on October 21, 2009
3.2		Amendment No. 1 to Articles of Incorporation, incorporated herein by reference to our Form 8-K filed with the SEC on October 6, 2014
3.3		Bylaws of SMSA Gainesville Acquisition Corp., incorporated herein by reference to our Form 10-12G filed with the SEC on October 21, 2009
10.1		Lease Agreement, dated February 21, 2014, between GML Holdings, LP and SMSA Gainesville Acquisition Corp., incorporated herein by reference to our Form 8-K filed with the SEC on February 27, 2014
10.2		Lease Agreement, dated July 23, 2007, between Preferred Rx, LLC and Oak Hollow Partners LLC, incorporated herein by reference to our Form 8-K filed with the SEC on October 6, 2014
10.3		Employment Agreement between Titanium Healthcare, Inc. and Kamran Nezami, incorporated herein by reference to our Form 8-K filed with the SEC on March 6, 2015**
10.4		Promissory Note delivered to GML Holdings, LP dated April 29, 2015, incorporated herein by reference to our Form 8-K filed with the SEC on May 5, 2015
10.5		Lease Termination Agreement between Titanium Healthcare, Inc. and GML Holdings, LP dated April 29, 2015, incorporated herein by reference to our Form 8-K filed with the SEC on May 5, 2015
14.1		Code of Ethics, incorporated herein by reference to our Form 8-K filed with the SEC on October 6, 2014
31.1		Certification of Chief Operating Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002*
31.2		Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002*
32.1		Certification of Chief Operating Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002*
32.2		Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002*
101		Interactive data files pursuant to Rule 405 of Regulation S-T.*
*		Filed herewith
**		Management contract or compensatory plan or arrangement

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Titanium Healthcare, Inc.
Dated: May 14, 2015	By:	/s/ Chris Mashburn
	Name:	Chris Mashburn
	Title:	Chief Operating Officer

  

	By:	/s/ Chuck Talley
	Name:	Chuck Talley
	Title:	Chief Financial Officer

 

 

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