UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR

15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-33187

INSTACARE CORP.

(Exact name of small business issuer as specified in its charter)

2660 Townsgate Road

Suite 300

Westlake Village, CA 91361

(Address of principal executive offices)

(805) 446-1973

(Issuer’s telephone number)

Copies of Communications to:

Stoecklein Law Group

402 West Broadway, Suite 400

San Diego, CA 92101

(619) 595-4882

Fax (619) 595-4883

Check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the last 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

The number of shares of Common Stock, $0.001 par value, outstanding on September 30, 2005, was 506,546,014 shares.

Transitional Small Business Disclosure Format (check one):

Yes No X        

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements.

InstaCare Corp.

Consolidated Balance Sheet

Unaudited

See notes to condensed financial statements.

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InstaCare Corp.

Consolidated Statement of Operations

Unaudited

See notes to condensed financial statements.

4

InstaCare Corp.

Consolidated Statement of Cash Flows

(Unaudited)

See notes to condensed financial statements.

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InstaCare Corp.

(formerly CareDecision Corporation)

Consolidated Statements of Cash Flows (Continued)

(unaudited)

The accompanying notes are an integral part of these financial statements

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InstaCare Corp.

Notes To Consolidated Financial Statements

Note 1 - Basis of presentation

The consolidated interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these consolidated interim financial statements be read in conjunction with the consolidated financial statements of the Company for the period ended December 31, 2004 and notes thereto included in the Company's Form 10-KSB. The Company follows the same accounting policies in the preparation of consolidated interim reports.

The Company was organized July 6, 2000 (Date of Inception) under the laws of the State of Nevada as Promedicius, Inc.. In May 2001 the Company changed its name to Medicius, Inc. On June 21, 2002, the Company merged with ATR Search Corp., a development stage company, and a Nevada corporation, and filed amended articles of incorporation changing its name to CareDecision Corporation and subsequently changed its name to InstaCare Corp. effective April 14, 2005. The Company was in the development stage through December 31, 2004. The year 2005 will be the first year during which the Company will be considered an operating entity no longer in the development stage.

Results of operations for the interim periods are not indicative of annual results.

Note 2 - Going concern

The Company has an accumulated deficit as of September 30, 2005, of $13,299,658. These conditions raise substantial doubt about the Company's ability to continue as a going concern. From time to time the Company might need to turn to the capital markets to obtain additional financing to fund payment of obligations and to provide working capital for operations. Management is not currently seeking additional financing. The Company intends to acquire interests in various business opportunities, which in the opinion of management will provide a profit to the Company. Management believes that its current business and other merger and acquisition activities will generate sufficient cash flows from future operations to pay the Company's obligations and working capital needs. There is no assurance any of these transactions will occur. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Note 3 - Business combinations

On November 4, 2004, the Company entered into a definitive “Agreement and Plan of Merger” whereby the Company’s wholly owned subsidiary, Pharma Tech Solutions, Inc. (“Pharma Tech”), would acquire all of the outstanding shares of CareGeneration, Inc. (“CareGen”), a Nevada corporation, in exchange for 39,750,000 shares of Pharma Tech’s $0.001 par value common stock and 42,500,000 shares of the Company’s $0.001 par value common stock. On February 5, 2005, the Company consummated the Merger through the exchange of shares. CareGen ceased to exist and all assets, certain liabilities and capital accounts were assumed by Pharma

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Tech as the surviving corporation. The Merger was been structured as a tax-free exchange pursuant to internal revenue code 368, as amended.

Note 4 - Fixed assets

Depreciation expense totaled $39,410 and $77,787 for the nine-month period ended September 30, 2005 and 2004, respectively.

Note 5 - Convertible notes payable

Pinnacle Investment Partners, LP Promissory Note

On March 24, 2004, the Company was loaned $700,000 from Pinnacle Investment Partners, LP (Pinnacle). The Secured Convertible Promissory Note bears interest at the rate of 12% per annum, initially matured on September 25, 2004, but was extended for an additional six months at the option of the Company, and was secured by 14,000,000 shares of the Company’s $0.001 par value common stock. Pinnacle, at its option, may elect to convert some or all of the outstanding principal amount of the Note into shares of the Company’s common stock at a conversion price of $.08 and upon the renewals to $0.025 per share, unless such conversion would result in Pinnacle being deemed the “beneficial owner,” within the meaning of Rule 13d-3 of the Securities Act of 1934. In the event the Company fails to pay any installment or principal or interest when due, the interest rate will then accrue at a rate of 24% per annum on the unpaid balance until the payment default is cured.

On February 10, 2005, the Company entered into a “Note Extension Agreement” with Pinnacle Partners, LP. The amended Agreement increased the principal balance of the original secured promissory note dated March 24, 2004 of $700,000 to $1,100,088 and the maturity date was extended to April 26, 2006. Pursuant to the Agreement, the Company issued, to Pinnacle’s counsel, an additional 83,000,000 shares of its common stock to be held in escrow as collateral for the additional principal of $400,000 and to further securitize the original $700,000 face value loan. In accordance with the Agreement, Pinnacle may sell under rule 144 of the Securities Act of 1933 as amended, whereby all proceeds net of commissions shall be used to pay down the indebtedness under the Note. During the nine-months ended September 30, 2005, Pinnacle exercised its right to sell 4,880,000 of the escrowed shares whereby reducing the principal balance of its note in the amount of $39,292.

In addition, Pinnacle has agreed to accept 13,000,000 shares of the Company’s $.001 par value common stock as payment for due diligence fees totaling $70,000 and a loan commitment fee in the amount of $157,500. The Company has recorded financing expenses in connection with the aforementioned transaction in the amount of $227,500 and total financing cost of $353,500 and $408,255 during the nine months ending September 30, 2005 and 2004, respectively.

On February 5, 2005, the Company incurred additional fees in connection with its financing activities in the amount of $79,000. The Company will amortize fees over a one-year period, which is equivalent to the terms of the financing arrangement. As of September 30, 2005, the Company has expensed $46,083 as financing costs.

The Company recorded interest expense totaling $394,192 and $74,301 during the nine-months ended September 30, 2005 and 2004.

Note 6 - Commitments

On January 16, 2005, the Company entered into a three month consulting agreement with Steven Bayern, whereby Mr. Bayern agreed to provide business advisory and strategic planning and development services to

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the Company. As compensation for his services, the Company agreed to issue Mr. Bayern 5,000,000 shares of its $0.001 par value common stock with 1,250,000 vesting 15 days after the execution of agreement. The Company has expensed $42,500 as consulting fees per the agreement. This agreement was terminated by mutual consent of the parties on April 30, 2005, no other shares have been issued.

On February 1, 2005, the Company entered into a financial consulting agreement with Pylon Management, Inc. expiring on December 31, 2005. Pursuant to the agreement, Pylon Management will be compensated for services in the form of option to purchase up to 18,500,000 shares of the Company’s common stock at $0.02 per share. The Company has granted 3,500,000 options. This agreement was terminated by mutual consent of the parties on July 1, 2005, no other options have been issued.

On February 10, 2005, the Company entered into a six-month consulting agreement with Victor Pallante for financial advisory services in exchange for cash in the amount of $50,000 due upon execution of the agreement and 5,000,000 shares of the Company’s $0.001 par value common stock to be considered earned over the term of the agreement and issued incrementally. The company has issued 3,000,000 of the agreed upon compensation shares. As of September 30, 2005, the Company recorded an accrued liability in the amount of $22,000 representing the 2,000,000 shares due to Mr. Pallante. During the nine-months ending September 30, 2005, the Company has expensed consulting fees in the amount of $50,000 and share-based consulting fees in the amount of $67,000.

Note 7 - Stockholder’s equity

On September 27, 2005, the Company amended its Articles of Incorporation to increase its authorized shares. The Company is authorized to issue 5,000,000 shares of $0.001 par value preferred stock; of which 750,000 shares are designated as Series A, 1,000,000 shares are designated as designated as Series C, 1,000 shares are designated as Series D, and 1,750,000,000 shares of $0.001 par value common stock.

Series “A” convertible preferred stock

Holders of series “A”: convertible stock shall not have the right to vote on matters that come before the shareholders. Series “A” Convertible Preferred stock may be converted at a rate of eighteen (18) shares of common stock for each share of Series “A” Convertible Preferred stock. Series “A” Convertible Preferred stock shall rank senior to common stock in the event of liquidation. Holders’ of Series “A” convertible stock shall be entitled to a 6% annual dividend payable in common stock, accrued and payable at the time of conversion, subject to adjustments resulting from stock splits, recapitalization, or share combination.

The Company issued 207,526 of its $0.001 par value preferred shares in April 2004 and recorded financing costs of $354,800. Each preferred share is convertible into eighteen (18) shares of the Company’s $0.001 par value common stock.

Series “C” convertible preferred stock

Holders of series “C”: convertible stock shall not have the right to vote on matters that come before the shareholders. Series “C” convertible preferred stock may be converted, the number of shares into which one share of Series “C” Preferred Stock shall be convertible shall be determined by dividing the Series “C” Purchase price by the existing conversion price which shall be equal to eighty percent of the market price rounded to the nearest thousandth, not to exceed $0.02 per share. Series “C” convertible stock shall rank senior to common stock in the event of liquidation. Holders’ of Series “C” convertible stock shall be entitled to a mandatory monthly dividend equal to the share price multiplied by the prime interest rate plus five tenths percent. Series “C” convertible stock shall have a redemptions price of $100 per share, subject to adjustments resulting from stock splits, recapitalization, or share combination.

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On February 7, 2005, the Company reached an agreement with Mercator Momentum Fund, LP and Monarch Pointe Fund, Ltd. and Mercator Advisory Group, LLC (“the Purchasers”) whereby the Purchasers acquired 20,000 shares of the Company’s Series “C” preferred stock for cash in the amount of $2,000,000. Each share of preferred series “C” stock is convertible into shares of the Company’s common stock at a rate equal to 80% of the market price prior to conversion. The Company will also issue 100,000,000 warrants to purchase shares of the Company’s common stock, 50,000,000 of the warrants having an exercise price of $0.02 and 50,000,000 having an exercise price of $0.03. The value of the warrants, using the Black-Scholes pricing model, was $100,000 recorded as a financing expense.

Series D convertible preferred stock

Holders of series “D”: convertible stock shall not have the right to vote on matters that come before the shareholders. Series “D” convertible preferred stock may be converted, the number of shares into which one share of Series “D” Preferred Stock shall be convertible shall be determined by dividing the Series “D” Purchase price by the existing conversion price which shall be equal to eighty percent of the market price rounded to the nearest thousandth, not to exceed $0.02 per share. Series “D” convertible stock shall rank senior to common stock in the event of liquidation. Holders’ of Series “D” convertible stock shall be entitled to a mandatory monthly dividend equal to the share price multiplied by the prime interest rate plus five-tenths percent. Series “D” convertible stock shall have a redemptions price equal to 101% of the purchase price per share, subject to adjustments resulting from stock splits, recapitalization, or share combination.

Common stock

On January 13, 2005, the Company issued 7,250,000 shares of its $0.001 par value common stock for services received in connection with financing arrangements valued at $137,750, the fair market value of the underlying shares.

On February 2, 2005, the Company issued 10,790,000 shares of its $0.001 par value common stock in exchange for consulting services valued at $183,430, the fair market value of the underlying shares.

On March 14, 2005, the Company issued 42,500,000 shares of its $0.001 par value common stock pursuant to the “Agreement and Plan of Merger,” entered into on November 4, 2005, to the shareholders of CareGen, Inc. (see note 3). The Company recorded an investment in the amount of $42,500. Additionally, the Company issued 10,000,000 shares of common stock to various individuals for cash in the amount of $28,050 and services valued at $151,950, which were expensed as stock-based compensation for consulting services as of September 30, 2005.

On March 14, 2005, the Company issued 17,500,000 shares of its $0.001 par value common stock in exchange for services rendered in connection with financial consulting, valued at $190,000, and cash in the amount of $125,000.

April 5, 2005, the Company issued 14,750,000 shares of its par value common stock in exchange for services rendered in connection with various consulting agreements. The value of the services is $184,500, the fair market value of the underlying shares.

On May 5, 2005, a note holder elected to convert its face value note in the amount of $101,600 into 10,796,828 shares of the Company’s $0.001 par value common stock for full satisfaction of the loan plus accrued interest in the amount of $60,352.

On June 28, 2005, a note holder elected to convert its face value note in the amount of $114,350 into 16,090,000 shares of the Company’s $0.001 par value common stock for full satisfaction of the loan plus accrued interest of $14,370. The common shares were issued on August 1, 2005.

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On August 2, 2005, the Company issued 12,658,664 shares of our $0.001 par value common stock valued at $12,659 in exchange for 5,433,753 shares in Pharma Tech.

On August 8, 2005, the Company issued 1,010,101 restricted shares of our $0.001 par value common stock valued at $14,141 to Lippert Heilshorn & Associates in exchange for investor relation services performed pursuant to a consulting agreement.

On September 28, 2005, the Company issued 2,000,000 restricted shares of our $0.001 par value common stock valued at $22,000 to Svetislav Millic pursuant to terms of an Intangible Property License Acquisition Agreement dated June 7, 2005.

On September 28, 2005, the Company issued 2,000,000 restricted shares of our $0.001 par value common stock valued at $22,000 to Nathan Kaplan pursuant to terms of an Intangible Property License Acquisition Agreement dated June 7, 2005.

On September 28, 2005, the Company issued 100,000 shares of our $0.001 par value common stock to Jeff Stanlis. Mr. Stanlis provided copy writing and editing services to the company. The value of the services provided was $800.

There have been no other issuances of preferred or common stock as of September 30, 2005.

Note 8 - Warrants and options 

Warrants 

During the nine-moths ended September 30, 2005, the Company issued 100,000,000 warrants to purchase shares of the Company's common stock. 50,000,000 of the warrants having an exercise price of $0.02 and 50,000,000 having an exercise price of $0.03. The value of the warrants, using the Black-Scholes pricing model was $100,000 and this was recorded as financing expense.

Options

On February 15, 2005, the Company granted stock options to three of its officers and director, to purchase 63,000,000 shares of $0.001 par value common stock at a strike price of $0.02 per share pursuant to the Company’s 2005 Stock Option Plan. The value of the options on the grant date using the Black-Scholes Model is $115,290, which has been recorded as stock-based compensation expense on the Statement of Operations as of September 30, 2005.

The following is a summary of activity of outstanding stock options under the 2003-2005 Stock Option Plan:

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The following is a summary of information about the 2003-2005 Stock Option Plan options outstanding at September 30, 2005

The fair value of each option and warrant grant are estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants under the fixed option plan:

The Black-Scholes option valuation model was developed for use in estimating the fair value of short-term traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

The weighted average fair value of options granted with exercise prices at the current fair value of the underlying stock during 2005 was approximately $0.02 per option.

Note 9 - Subsequent events

On October 1, 2005, the Company granted options to purchase 8,500,000 shares of our common stock at an exercise price of $0.0005 per share to Barbara Asbell pursuant to a consulting agreement dated October 1, 2005. On October 1, 2005, Ms. Asbell exercised the 8,500,000 options and 8,500,000 shares were issued.

On October 1, 2005, the Company granted options to purchase 8,750,000 shares of our common stock at an exercise price of $0.0005 per share to Anthony Quintiliana pursuant to a consulting agreement dated October 1, 2005. On October 1, 2005, Mr. Quintiliana exercised the 8,750,000 options and 8,750,000 shares were issued.

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On October 3, 2005, the Company issued 217,500 shares of our $0.001 par value common stock to Mordechi Mittledorf in exchange for stock-based consulting services provided by Mr. Mittledorf.

On October 3, 2005, the Company issued 217,500 shares of our $0.001 par value common stock to Isaac Orzechowitz in exchange for stock-based consulting services provided by Mr. Orzechowitz.

On October 3, 2005, the Company issued 100,000 shares of our $0.001 par value common stock to Joseph Makowsky in exchange for stock-based consulting services provided by Mr. Makowsky.

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FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Factors That May Affect Our Results of Operation” in this document and in our Annual Report on Form 10-KSB for the year ended December 31, 2004.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW AND OUTLOOK

We are a Wi-Fi PDA technology provider to the lodging and satellite media industries, a developer of patent-pending technologies for e-health and EMR applications and a distributor of life-saving prescription drugs. Our proprietary ResidenceWare, MD@Hand and Satelink technologies manage critical data, enhance productivity and e-commerce, and facilitate communication with applications in the healthcare, apartment, hotel/motel and satellite rebroadcast industries.

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Our principal business objective is to provide information technology (IT) for use with Internet-based communication, and network software systems and applications, that reside on and function through a Windows CE-Based PDA- available from most major computer brands such as Sony, Dell, IBM and Palm -to the medical fields and the real estate industry.

Our software operates on any Microsoft Windows CE "Pocket PC" based handheld device, either in a wireless or "wired" mode. The local host for our PDA devices is a Windows (9X, NT, XP or later) based PC, which, in turn, permits one to eight of the aforementioned PDA's to be linked to either a medical network or hotel/motel wide area network, or help-desk network, and allows each PDA to become a uniquely identified mobile node on that network, independent of PC linkage, thereby, assisting the professional, whether he be a doctor, hotel owner, hotel guest or satellite broadcast technician.

Our medical field objectives include:

Our real estate and hotel/motel objectives include building electronic commerce networks based on personal digital assistants (PDA) to the hotels, motels and single building, multi-unit apartment buildings with a desire to offer local advertising and electronic services to their tenants/guests.

CN Pharmacy Agreement

On June 7, 2005, we and our subsidiary PDA Services, Inc. (collectively “INCA”) entered into an exclusive agreement with Colonia Natural Pharmacy, Inc., a New Jersey corporation, also known as CN Pharmacy, and individuals Mr. Svetislav Milic and Mr. Nathan Kaplan. There are no material relationships between us or our affiliates and any of the parties, other than in respect of the material definitive agreement.

Under the terms of the “Intangible Property License Acquisition Agreement”, Mr. Svetislav Milic, will transfer, register and convey, and INCA or its subsidiary shall receive, free and clear of all liens, encumbrances and liabilities, the wholesale drug distribution license (License Number 5003178) granted to Mr. Svetislav Milic by the State of New Jersey, and all rights and benefits thereto, plus the goodwill and know-how of Svetislav Milic, and other related rights granted the Licensee by virtue of this conveyance. Unless otherwise agreed to, Milic shall remain the control party of the transferred license for a period of three years after transfer, registration and conveyance.

In tandem with the Intangible Property License Acquisition Agreement, the parties entered into an “Exclusive Agreement Regarding Wholesale Drug Distribution License and Wholesale Drug Distribution

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Operations” wherein the conveyance shall include the rights to use of Colonia Natural Pharmacy Inc.’s office and warehouse facility approved for the storage and delivery of pharmaceuticals, and CNP will have no role, and thus, no responsibility or liability, in the conduct of the “d/b/a” business, including ordering, distribution, or business management of the wholesale business conducted by INCA.

As consideration for the conveyance, we agreed to issue to the grantor(s) four million (4,000,000) shares of restricted common stock, plus twenty-percent (20%) of the Registrant’s ownership in PDA Services, Inc., the license transfer, registration and conveyance target company. In addition, on each anniversary date after the conveyance, we will issue to the grantor(s) an additional one million (1,000,000) shares of restricted common stock.

MAG Entities Agreement

On August 25, 2005, we formalized an agreement with Mercator Momentum Fund, LP, Monarch Pointe Fund, Ltd., and M.A.G., Capital, LLC, (collectively, the “MAG entities”) with respect to the registration default under Paragraph 8 of that certain Subscription Agreement dated February 7, 2005 by and between the parties (the “Subscription Agreement”). In consideration for the payment of the aggregate sum of $10,000 cash plus execution of the Secured Promissory Notes and Security Agreement attached as exhibits to the 8-K filed on October 21, 2005, the MAG entities agreed to waive the liquidated damages provision of Paragraph 10 with respect to any additional liquidated damages which may accrue after August 23, 2005, with the understanding that such waiver shall not be deemed a waiver of any other rights to which the MAG entities may have at law or equity.

Results of Operations

The following overview provides a summary of key information concerning our financial results for the period ended September 30, 2005 and 2004.

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Period ended September 30, 2005 compared to September 30, 2004

Revenue: Total revenue was $4,177,454 and $181,108 for the nine-month period ended September 30,  2005 and 2004, respectively. Historically, we have been in development stage. Our increase in revenue of $3,996,346 is due to commencement of operations in 2005. We cannot guarantee with certainty when we will begin to generate revenue sufficient to fund ongoing operations. Our future revenues will be reliant on the acceptance of our software systems, communication tools and suite of software applications as well as our growth in pharmaceutical sales.

Cost of sales: Consists of our cost of products held for resale. Cost of sales totaled $3,717,284 and $-0- for the nine-month period ended September 30, 2005 and 2004, respectively. The increase of $3,717,284 is also a result of our commenced operations in 2005.

EXPENSES  

General and administrative: Our general and administrative expenses relate to the overhead costs of our corporate office. General and administrative expenses for the nine-month period ended September 30, 2005 were $346,829 compared to $185,338 for the nine-month period ended September 30, 2004 for an increase of $161,491. This increase is attributable to the additional overhead incurred with the commencement of operating activities.

Consulting expenses were $26,800 and $-0- for the nine months ended September 30, 2005, respectively. The increase is a result of additional services incurred in connection with our financing activities during the period ended September 30, 2005 compared to 2004.

Payroll expenses were $748,383 and $265,011 for the nine-month period ended September 30, 2005 and 2004, respectively. Payroll expense consists of management and employee salaries and has increased $483,372. The increase is due to the addition of new employees and management to oversee the launch of our prescription drug and diagnostics channel business and our software systems, communication tools and suite of software applications.

Professional fees were $448,662 and $330,314 for the nine-month period ended September 30, 2005 and 2004, respectively resulting in an increase of $118,348. The increase is a result of additional legal fees incurred in connection with our financing activities during the period ended September 30, 2005 compared to 2004.

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Stock-based compensation was $737,829 and $1,432,969 for the nine-month period ended September 30, 2005 and 2004 respectively. The decrease of $695,140 was the result of our prior efforts to conserve our cash resources during fiscal, 2004 whereby we retained the services of outside consultants and specialty service providers who agreed to provide services in exchange for our common stock in lieu of cash.

Software development costs were $-0- and $141,240 for the nine-month periods ended September 30, 2005 and 2004, respectively. The decrease is a result of our completion of prior development efforts. We will continue to maintain and enhance our existing software as well as continue to focus on integrating our software systems, communication tools and suite of software applications with those of our partners.

Hardware costs were $48,743 and $185,431 for the nine-month periods ended September 30, 2005 and 2004, respectively resulting in a decrease of $136,688. Hardware costs represent our PDA based ResidenceWare products associated with the purchase and installation of computer server hardware at our hotel/motel customer sites. Our decrease was the result a decrease in our ResidenceWare sales during 2005.

Impairment loss on operating assets was $-0- and $278,428 for the nine-month periods ended September 30, 2005 and 2004 respectively. It is our company policy to periodically review all assets for impairment. Impairments are recognized in operating results to the extent that carrying values exceeds discounted cash flows of future operations. As of September 30, 2005, no impairment was identified.

Depreciation expense totaled $39,410 and $77,787 for the nine-month periods ended September 30, 2005 and 2004 respectively. Our decrease is a result of the impairment of assets recorded as of December 31, 2004.

Operating expenses totaled $2,396,655 and $2,896,518 for the nine-month periods ended September 30, 2005 and 2004, respectively resulting in an overall decrease in expense of $499,863. The decrease was primarily the result of our decrease in stock-based compensation agreements.

Net operating loss was $1,936,485 and $2,715,410 for the nine-month periods ended September 30, 2005 and 2004, respectively. Our net operating loss decreased in the amount of $778,925 as a result of increased gross profit and a decrease in expenses due to our commencement of operations.

Loss on debt settlement: we retired past debts valued at $417,833 and $377,136 for the nine-month periods ended September 30, 2005 and 2004, respectively. We periodically review the collectibility of all outstanding debts and when it is determined that the potential for collection is limited, we record a write-off of the outstanding balance. As of September 30, 2005, our write-down increased in the amount of $40,697.

Interest income was $13,861 and $2,204 for the nine-month periods ended September 30, 2005 and 2004, respectively resulting in an increase of $11,657. The increase was a result of our increased cash from operations available for deposit to interest bearing accounts.

Financing costs totaled $353,500 and $408,255 for the nine-month periods ended September 30, 2005 and 2004 respectively for a decrease of $54,755. The decrease was the result of our reduction in financing arrangements entered into in the current year.

Interest expense was $394,192 and $74,301 for the nine-month periods ended September 30, 2005 and 2004, respectively resulting in an increase of $319,891. The increase is a result of additional interest incurred on current debt obligations for failure to comply with all terms of the agreements.

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Net(loss) from operations was $3,176,098 and $3,572,898 for the nine-month periods ended September 30, 2005 and 2004. Our decrease in net loss of $396,800 is the result of increased revenues and a decrease in overall expenses. We expected to continue to incur losses from operations until such time as revenues can be generated to cover all overhead and financing costs.

Three-months ended in 2005 compared to three-months ended in 2004

Three Months Ended in 2005 Compared to Three Months Ended in 2004

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Revenue was $1,007,217 and $51,670 for the third quarter of 2005 and 2004, respectively. Historically, the Company has been in a development stage. Our increase is a result of our commencement of operations. As we emerge from the development stage, we have begun to generate revenue through our ResidenceWare and pharmaceutical supply sales.

Cost of sales totaled $953,391 and $-0- for the third quarter of 2005 and 2004, respectively. The increase in cost of sales is the direct result of our commencement of operations compared to our development stage during prior years.

EXPENSES  

General and administrative expenses were $104,214 and $44,020 for the three-month periods ended September 30, 2005 and 2004 resulting in an increase of $60,194. We anticipate continued increases in expenses of office and overhead-related supplies in conjunction with the generation of revenues from commenced operations.

Payroll expense was $220,316 and $100,066 for the three-month periods ended September 30, 2005 and 2004, respectively. The increase of $120,250 is the result of increased staffing requirements due to the commencement of our business operations.

Professional fees were $90,135 and $36,459 for the three-month periods ended September 30, 2005 and 2004, respectively. The credit reflected during the three-month period ended September 30, 2005 was the result of a reclassification of professional fees paid with stock in lieu of cash to stock-based compensation. Our cash paid professional fees remained the same.

Stock-based compensation was $64,159 and $444,450 for the three-month periods ended September 30, 2005 and 2004, respectively. The decrease of was the result of our prior efforts to conserve our cash resources during fiscal, 2004 whereby we retained the services of outside consultants and specialty service providers who agreed to provide services in exchange for our common stock in lieu of cash.

Software development was $-0- and $54,932 for the three-month periods ended September 30, 2005 and 2004, respectively. The decrease is a result of our completion of prior development efforts. We will continue to maintain and enhance our existing software as well as continue to focus on integrating our software systems, communication tools and suite of software applications with those of our partners.

Hardware costs were $5,778 and $95,638 for the three-month periods ended September 30, 2005 and 2004, respectively resulting in a decrease of $89,860. Hardware costs represent our PDA based ResidenceWare products associated with the purchase and installation of computer server hardware at our hotel/motel cust