================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______to______
Commission File No. 2-75313
-------
PROCARE AMERICA, INC.
(FORMERLY KNOWN AS ROYAL EQUITY EXCHANGE, INC.)
(Exact name of registrant as specified in its charter)
NEVADA 84-0871427
------ ----------
(State or Other Jurisdiction (I.R.S. Employer)
Incorporation or Organization) Identification No.)
12995 SO. CLEVELAND AVENUE, SUITE 109, FT MYERS, FL 33907
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (941) 418-0021
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT;
TITLE OF CLASS COMMON STOCK $0.001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 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 [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrants knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
as of June 30, 2001 was approximately $8,574.
There were 10,209,485 shares of the Registrants common stock
outstanding as of June 30, 2001
================================================================================
FORWARD LOOKING STATEMENTS OR INFORMATION
Certain statements, other than statements of historical fact, included
in this Annual Report, including, without limitation, the statements under
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" are, or may be deemed to be, forward-looking statements
that involve significant risks and uncertainties, and accordingly, there is no
assurance that these expectations will be correct. These expectations are based
upon many assumptions that the registrant believes to be reasonable, but such
assumptions ultimately may prove to be materially inaccurate or incomplete, in
whole or in part and, therefore, undue reliance should not be placed on them.
Several factors which could cause actual results to differ materially from those
discussed in such forward-looking statements include, but are not limited to:
pricing policies of competitors, the ability to attract and retain employees in
key positions and uncertainties and changes in general economic conditions. All
subsequent forward-looking statements attributable to the registrant or persons
acting on its behalf are expressly qualified in their entirety.
PART I
ITEM 1. BUSINESS
The Company was a development stage business that is focused on
providing certain medical services, primarily that of a "home health agency"
through its wholly owned operating subsidiary ProCare Home Health, Inc. The
Company provided nursing and assisted nursing services to individual patients in
their homes, and/or nursing and assisted nursing services and staffing by
contractual arrangement with local nursing homes, assisted living facilities and
hospitals. The Company is licensed to provide these services by the Agency for
Health Care Administration, State of Florida. The Company provided these
services on a completely private basis. The Company terminated its business in
April, 2000.
ENVIRONMENTAL MATTERS
The Company, when operational, is subject to various federal, state and
local regulations concerning the environment and hazardous waste disposal.
Efforts to maintain compliance with such regulations have not required
expenditures material to the Company's overall operating performance or
financial condition.
EMPLOYEES
As of June 30, 2001, the Company and its wholly owned subsidiary
ProCare Home Health, Inc. had no wage or salaried employees.
ITEM 2. PROPERTIES
In May 1997 the Company entered into a three-year lease agreement for
office space at 12995 South Cleveland Avenue, Suite 109, Ft. Myers, Florida,
33907, which serves as the Company's principal operational and executive office.
The lease terminated at the end of April, 2000.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings pending or to the knowledge of the
Company threatened, that, if determined adversely to the Company would have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock (symbol: PCAM) was listed on the
Over-the-Counter (OTC) Bulletin Board. In March of 2000 the Company was
de-listed for non-compliance with SEC filing requirements. The shares are now
listed on the "pink sheets" as published by the National Quotation Bureau.
The Company's common stock is not listed on any national stock exchange
or on NASDAQ. The OTC Bulletin Board is a regulated quotation service that
displays real-time quotes, last-sale prices and volume
2
information for non-listed (over-the-counter) equity securities. The OTC
Bulletin Board is a reporting system for participating market makers, not an
issuer listing service, and should not be confused with the NASDAQ Stock Market.
Participating market makers in the bulletin board system enter quotes and trade
reports on a closed computer network and the information is made publicly
available through numerous websites and other locations. The OTC Bulletin Board
is distinct from the "pink sheets" published by the National Quotation Bureau
which also report on transactions in non-listed equity securities.
Stockholders of record at June 30, 1999 numbered approximately 809. The Company
has not paid cash dividends on its Common Stock in the past and currently plans
to retain earnings, if any, for business development and expansion.
Price per Share
---------------
High Low
----------------
Fiscal year 2000
First Quarter (July 1, 2000
through September 30, 2000) $.25 $.01
Second Quarter (October 1, 2000
through December 31, 2000) $.06 $.001
Third Quarter (January 1, 2001
through March 31, 2001) $.001 $.0001
Fourth Quarter (April 1, 2001
through June 30, 2001) $.0001 $.0001
ITEM 6. SELECTED FINANCIAL DATA
The following table depicts selected consolidated financial data for
the year period ended June 30, 2000 as derived from the consolidated financial
statements of the Company. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's audited consolidated financial statements and
notes thereto appearing elsewhere herein.
Fiscal Years Ended June 30,
---------------------------
2001 2000
---- ----
Income Statement Data
Net Sales $ 0 $ 321,685
Net Income (loss) $ (67,030) $ (686,352)
Per Share Data
Net Income (loss) $ (.01) $ (.07)
As of June 30,
--------------
2001 2000
---- ----
Balance Sheet Data
Total Assets $ 138 $ 11,671
Total Liabilities $ 586,934 $ 531,437
Stockholders' Equity (Deficit) $ (586,796) $ (519,766)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
HISTORICAL EVENTS
3
Reverse Split of Common Stock; Surrender of Control Shares; Merger
On December 29, 1995, the Company declared a 40 for 1 reverse split of
the Company's outstanding common stock whereby 1,449,779 shares of common stock
were issued in exchange for 57,991,165 shares of common stock outstanding.
Before and after the exchange, the Company had 500,000,000 authorized shares of
common stock (NOTE: other documents of the Company reflect that this stock split
occurred on March 15, 1996). Subsequent to this stock split, the then control
shareholder of the Company, Robert Slominski, surrendered 900,000 shares of the
Company, leaving 549,779 shares of the Company outstanding.
In June 1996 the Company entered into a merger transaction whereby all
of the shares of ProCare America, Inc. were acquired by the Company in exchange
for 3,888,984 shares of the Company (NOTE: other documents of the Company
provided by the previous audit firm reflect the merger as occurring February 7,
1996 with the number of shares in the transaction being 4,056,484).
Approximately 1,300,000 of these shares were issued to Owen L. Stephens who
became Chairman of the Board of Directors, President and Chief Executive Officer
of the Company. Subsequently, Mr. Stephens resigned these positions as discussed
below.
As of May 8, 1997, the Company had issued and outstanding 5,692,913
shares of common stock.
Resignation of Board Members and Election of New Board Members and Officers;
Resignation of Bookkeeper
Certain of the shareholders of the Company were not satisfied with the
performance of the Company and sought a change in the Company's board of
directors and management. Responding to pressures from these Company
shareholders, Owen L. Stephens, by letter dated January 29, 1997, tendered his
resignation as a director of the Company, Chairman of the Board, President and
Chief Executive Officer of the Company and all positions with subsidiaries of
the Company; by letter dated January 29, 1997, Maryann Stephens tendered her
resignation as an officer and director of the Company and all positions with
subsidiaries of the Company; and, by letter dated January 30, 1997, Donna Kay
tendered her resignation as a director of the Company and all positions with
subsidiaries of the Company. At a special meeting of the board of directors held
on February 11, 1997, the sole remaining director, William Strahan, accepted the
foregoing resignations. The foregoing former directors, Mr. Stephens, Mrs.
Stephens and Mrs. Kay, have not expressed to the Company, and have not furnished
the Company with a letter describing, any disagreement they may have had with
the Company's operations, policies or practices.
At the February 11, 1997 board meeting, the sole remaining director,
William Strahan, elected Donald Strong to fill the board vacancy created by the
resignation of Owen Stephens, James Karabasz to fill the board vacancy created
by the resignation of Maryann Stephens and Fred Hodgdon to fill the board
vacancy created by the resignation of Donna Kay. Following their election, the
newly constituted board of directors elected Mr. Strahan as Chairman of the
Board, Donald Strong as President and Secretary and James Karabasz as Treasurer.
By letter dated February 14, 1997, Richard E. Shield, P.A. a certified
public accountant, stated that he thought because of non-payment of his fees it
was prudent to terminate his present engagement with the Company in light of the
changes in the Company's organization and management. Mr. Shield prepared the
Company's payroll tax returns and W-2's and, according to Mr. Shield's letter,
provided other consultation and accounting services to the Company. In his
letter to the Company, Mr. Shield indicated his willingness on being brought
current on his fee payments to be re-engaged by the Company. Mr. Shield was not
engaged as the Company's principal accountant to --- audit the Company's
financial statement. The Company's principal accountant was Stirtz, Bernards &
Company. Effective February 4, 1998 the Company entered into a letter of
engagement with Wentzel, Berry & Alvarez P. A. (now known as Wentzel, Berry,
Wentzel & Phillips, P. A.) as the principal audit firm. This action was ratified
by the shareholders on September 16, 1998.
Failure to File Periodic Reports and Provide Audited Financials; Absence of
Current Information
Based upon information recently learned by the Company's new directors
and officers, it appears that the prior management of the Company did not file
the periodic reports as required under the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder since November 13, 1991, when
the Company filed the Form 8-K, Current Report, discussed above.
The current board of directors believes that prior management did not
provide the new board with full and current information on the operations and
financial condition of the Company. The board of directors has acted to seek and
obtain updated and complete information on the Company. The current board of
directors and current management have instituted a program to begin the audit
process necessary to bring the Company's reporting current. Representatives of
management and the new audit firm of Wentzel, Berry, Wentzel and Phillips have
met
4
with the previous audit firm to review records. Management is compiling the data
requested by the audit firm to the best of its ability and is providing any and
all assistance to expedite the completion of the audits.
Retention of Management Organization
At its meeting of February 19, 1997, the board authorized the retention
of a medical management service to manage the day to day affairs of the Company,
under the supervision of the board of directors, pursuant to the terms of an
engagement letter which sets forth the duties to be performed. The long-term
goals to be accomplished by the medical management service were to organize the
books and records of the Company, assist the Company in its fund-raising
efforts, retain competent personnel to provide medical services to patients of
the Company, advise the Company on recommended actions to return the Company to
a fully operational status and explore possible acquirors for the Company should
this be in the best interest of the shareholders. These goals were progressive
and their accomplishment was dependent upon the Company obtaining an adequate
source and level of funding in the immediate future.
The principals of this management entity were Brent Peterson, who
previously served for a short period of time as an officer and director of one
of the Company's subsidiaries, and Paul Schryver. While the principals of the
management entity were experienced businessmen, they had not previously provided
management services to a medical provider.
The business did not succeed and all business was terminated in April,
2000.
RESULTS OF OPERATIONS
Operating Income
For the year ended June 30, 2000 the net patient services revenue
totaled $321,685. Other revenue totaled $24, for total revenue of $321,709.
For the year ended June 30, 2001 there was no net patient services
revenue. Other revenue totaled $67, for total revenue of $67.
Accounts Payable and Receivable: Assets of the Company
As of June 30, 2000, the Company had accounts payable of $33,899, notes
payable to others of 123,000, notes payable officer and director $52,193 accrued
payroll taxes of $275,946 and accrued interest of $31,399. As of June 30, 2000
total accruals and notes payable totaled $516,437. Total assets of the company
were $11,671.
As of June 30, 2001, the Company had accounts payable of $43,052, notes
payable to others of $145,700, notes payable officer and director $54,112,
accrued payroll taxes of $275,946 and accrued interest of $60,624. As of June
30, 2001 total accruals and notes payable totaled $586,934. Total assets of the
company were $138.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The following consolidated financial statements of the Company and its
Independent Accountants' Opinion are set forth at the end of this Report:
(i) Consolidated Balance Sheets-as of June 30, 2001.
(ii) Consolidated Statements of Operations, Cash Flows and
Shareholders' Equity (Deficit) for the year's ended June 30,
2001.
(iii) Notes to the Consolidated Financial Statements; and Opinion of
Independent Accountants dated April 25, 2002.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
5
There have been no disagreements between management and the previous
and current accounting firms as regards any accounting issues or financial
disclosure matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Bearnard McClain 85 President, Director
Kathryn McClain 77 Secretary, Director
William Strahan 66 Director
Joseph Ellis 56 Director
Bernard McClain, President and Director. Mr. McClain has been retired
for more than the past 5 years.
Kathryn McClain, Secretary and Director. Ms McClain has been retired
for more than the past 5 years.
William Strahan, Director. Mr. Strahan is semi retired, in addition to
working with the Company he is a part time accountant with H & R Block
in Naples, Florida
Joseph Ellis, Director. Mr. Ellis is a part owner of Naples Farmers
Market, he was also a part owner of Johnny T's Restaurant of Naples,
Florida. He has served in marketing for the Company, and in marketing
for Encore Senior Living assisted living facility.
Bernard McClain and Kathryn McClain resigned as officers and directors
in October, 2001. At the same time Kenneth Roko, Randy Wagner and Gary
Mann were appointed as directors. Kenneth Roko was elected Chairman of
the Board, Joseph Ellis was elected President and William Strahan was
elected Secretary.
ITEM 11. EXECUTIVE COMPENSATION
Current Officers Annual Compensation
---------------- -------------------
None
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Number of Shares Percent
Name of Beneficial Owner Beneficially Owned(1) of Total(2)
- ------------------------ --------------------- -----------
Gerald Hansen................. 460,156 5.85%
Owen & Maryann Stephens....... 1,175,000 14.95%
All beneficial owners
As a group............... 1,635,156 20.80%
(1) Except as other wise indicated, the persons named in the table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them. The information shown above is based upon
information furnished to the company by the named persons. Information
relating to beneficial ownership of shares is based upon "beneficial
ownership" concepts set forth in the rules promulgated by the
Securities Exchange Act of 1934, as amended. Under such rules a person
is deemed to be a "beneficial owner" of a security if that person has
or shares "voting power" which includes the power to vote or to direct
the voting of such security, or "investment power", which includes the
power to dispose or to direct the disposition of such security. A
person is also deemed to be a beneficial owner of any security of
which that person has the right to acquire beneficial ownership within
60 days. Under the rules, more than one person may be determined to be
a beneficial owner of the same securities.
(2) In calculating the percentage ownership for a given individual or
group, the number of shares of the company's common stock outstanding
includes unissued shares subject to options, warrants, rights or
conversion privileges exercisable within 60 days by such individual or
group, but unissued shares are not deemed outstanding in calculating
the percentage ownership for other persons or groups.
6
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Company's Form 8-K filed May 8, 1997
under the caption "Granting of Options" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
A Form 8-K was filed on April 22, 2002 showing the change of
independent accountant from Waentzel Berry Wentzel & Phillips, PA to Stirtz
Bernards Boyden Surdel & Larter, PA.
CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of ProCare America,
Inc. (formerly known as Royal Equity Exchange, Inc.) and subsidiaries
and Report of Independent Accountants are attached to this report:
7
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ProCare America, Inc.
(formerly known as Royal Equity Exchange, Inc.)
(Registrant)
By /s/Kenneth Roko
-----------------------------------
Chairman of the Board
Date: July 31, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title
By /s/ Randy Wagner Director
---------------------------------------
Randy Wagner
By: /s/ William Strahan Secretary, Director
---------------------------------------
William Strahan
By: /s/ Joseph Ellis President, Director
---------------------------------------
Joseph Ellis
By: /s/ Gary Mann Director
---------------------------------------
Gary Mann
8
PROCARE AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001 AND 2000
PROCARE AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001 AND 2000
TABLE OF CONTENTS
-----------------
Page
----
Independent Auditors' Report 1
Consolidated Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity (Deficit) 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
To the Board of Directors
PROCARE AMERICA, INC. AND SUBSIDIARY
Fort Myers, Florida
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated balance sheets of ProCare America,
Inc. and Subsidiary as of June 30, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ProCare America,
Inc. and Subsidiary as of June 30, 2001 and 2000, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred an accumulated
deficit of $3,313,107 as of June 30, 2001, and current liabilities exceed
current assets by $579,296. These conditions raise substantial doubt about their
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Stirtz Bernards Boyden Surdel & Larter, P.A.
Edina, Minnesota
April 25, 2002
PROCARE AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30,
---------------------------
2001 2000
----------- -----------
ASSETS
------
Current assets:
Cash $ 138 $ 11,671
----------- -----------
Total current assets 138 11,671
----------- -----------
$ 138 $ 11,671
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Notes payable - other $ 145,700 $ 123,000
Accounts payable 43,052 33,899
Accounts payable - officer and director 54,112 52,193
Accrued payroll taxes 275,946 275,946
Accrued interest 60,624 31,399
----------- -----------
Total current liabilities 579,434 516,437
----------- -----------
Long-term portion of notes payable - other 7,500 15,000
----------- -----------
Total liabilities 586,934 531,437
----------- -----------
Stockholders' equity (deficit):
Common stock, par value $.001 per share, 500,000,000 shares
authorized; issued and outstanding 10,209,485 and
10,100,552 shares at June 30, 2001 and 2000, respectively 10,210 10,101
Common stock (paid not yet issued), par value $.001 per
share, outstanding 150,000 and 258,933 shares at
June 30, 2001 and 2000, respectively 150 259
Additional paid-in capital 2,715,951 2,715,951
Accumulated deficit (3,313,107) (3,246,077)
----------- -----------
Total stockholders' equity (deficit) (586,796) (519,766)
----------- -----------
$ 138 $ 11,671
=========== ===========
See Notes to Consolidated Financial Statements.
2
PROCARE AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
-----------------------------
2001 2000
------------ ------------
Net patient service revenue $ -- $ 321,685
Other 67 24
------------ ------------
67 321,709
------------ ------------
Expenses:
General and administrative 32,871 211,682
Payroll -- 506,302
Consulting fees paid to directors and stockholders -- 253,103
Interest expense 34,226 27,647
Loss on disposal/abandonment of fixed assets -- 9,327
------------ ------------
67,097 1,008,061
------------ ------------
Net loss $ (67,030) $ (686,352)
============ ============
Net loss per common share $ (.01) $ (.07)
============ ============
Weighted average number of common shares outstanding 10,359,485 9,864,348
============ ============
See Notes to Consolidated Financial Statements.
3
PROCARE AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 2001 AND 2000
COMMON STOCK
COMMON STOCK (PAID NOT YET ISSUED)
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNTS
---------- ---------- ---------- ----------
BALANCE, June 30, 1999 7,815,692 $ 7,816 895,793 $ 896
Retirement of treasury stock -- -- -- --
Common stock issued for
services in March 2000,
$.21 per share 1,453,000 1,453 -- --
Conversion of notes payable
at $.50 per share 195,000 195 -- --
Issuance of previously paid,
unissued shares 636,860 637 (636,860) (637)
Net loss -- -- -- --
---------- ---------- ---------- ----------
BALANCE, June 30, 2000 10,100,552 10,101 258,933 259
Issuance of previously paid,
unissued shares 108,933 109 (108,933) (109)
Net loss -- -- -- --
---------- ---------- ---------- ----------
BALANCE, June 30, 2001 10,209,485 $ 10,210 150,000 $ 150
========== ========== ========== ==========
[WIDE TABLE CONTINUED FROM ABOVE]
ADDITIONAL
PAID-IN ACCUMULATED TREASURY
CAPITAL DEFICIT STOCK TOTAL
----------- ----------- ----------- -----------
BALANCE, June 30, 1999 $ 2,335,059 $(2,559,725) $ (25,000) $ (240,954)
Retirement of treasury stock (25,000) -- 25,000 --
Common stock issued for
services in March 2000,
$.21 per share 308,587 -- -- 310,040
Conversion of notes payable
at $.50 per share 97,305 -- -- 97,500
Issuance of previously paid,
unissued shares -- -- -- --
Net loss -- (686,352) -- (686,352)
----------- ----------- ----------- -----------
BALANCE, June 30, 2000 2,715,951 (3,246,077) -- (519,766)
Issuance of previously paid,
unissued shares -- -- -- --
Net loss -- (67,030) -- (67,030)
----------- ----------- ----------- -----------
BALANCE, June 30, 2001 $ 2,715,951 $(3,313,107) $ -- $ (586,796)
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
4
PROCARE AMERICA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
YEARS ENDED JUNE 30,
-------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net loss $ (67,030) $(686,352)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization -- 1,814
Loss on disposal/abandonment of fixed assets -- 9,327
Accounts receivable -- 10,454
Prepaid expenses -- 1,785
Accounts payable 11,072 (9,960)
Accrued expenses 29,225 210,819
Common stock and warrants issued for services -- 310,040
--------- ---------
Net cash flows from operating activities (26,733) (152,073)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 2,500
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable - other 15,200 162,500
Payment on notes payable - other -- (17,849)
--------- ---------
Net cash flows from financing activities 15,200 144,651
--------- ---------
Net increase in cash (11,533) (4,922)
Cash, beginning of year 11,671 16,593
--------- ---------
Cash, end of year $ 138 $ 11,671
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 5,000 $ 1,458
========= =========
See Notes to Consolidated Financial Statements.
5
PROCARE AMERICA, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001 AND 2000
1. UNCERTAINTY - GOING CONCERN
The Company has incurred losses since its inception and, as a result, has
an accumulated deficit of $3,313,107 and a stockholders' deficit of
$586,796 at June 30, 2001. The Company has incurred losses of $67,030 in
2001 and $686,351 in 2000. During 2000, all of the Company's revenue
producing activities were closed down. As such, the Company does not have
an operating business at June 30, 2001. The Company's ability to continue
as a going concern depends upon successfully restructuring its debt and
obtaining sufficient financing to maintain adequate liquidity for a new
business opportunity (see Note 9). The accompanying consolidated financial
statements have been prepared on a going concern basis which assumes
continuity of operations and realization of assets and liabilities in the
ordinary course of business. The consolidated financial statements do not
include any adjustments that might result if the Company was forced to
dissolve the Company.
The Company plans to re-organize its financial affairs by negotiating with
creditors to restructure and convert debt to equity and actively seek new
business opportunities. There can be no assurance that these actions will
be successful.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
Nature of Business
ProCare America, Inc. (PAI) was incorporated in Minnesota on September
22, 1993. Effective February 7, 1996, PAI merged with Royal Equity
Exchange, Inc. (REE), a publicly held corporation. Pursuant to the
merger agreement, PAI stockholders exchanged all of their outstanding
stock of PAI for 4,056,484 shares of REE common stock. Immediately
following the exchange, 88.1% of the REE stock outstanding was held by
former PAI stockholders. Accordingly, for financial statement
purposes, the transaction has been accounted for as if PAI had
acquired REE. On November 4, 1998, REE changed its name to ProCare
America, Inc.
From the date of incorporation until February 1998 the Company
acquired, operated and administratively dissolved several entities
focused in the healthcare field. In February 1998, ProCare Home
Health, Inc. was incorporated as a Florida corporation to become the
operating entity under ProCare America, Inc. On May 22, 1998, the
Company received its new Home Health Agency license. In June 1998, the
Company began treating patients as a home health agency. The
continuing nature of the business of the Company was to provide
nursing (RN's and LPN's) and assisted nursing (CNA's) to individual
patients in their homes and/or nursing and assisted nursing staffing
to local hospitals, retirement facilities (ALF's) and nursing homes.
The latter services were provided under contract with the respective
facility. The business of the Company was conducted on a completely
private basis. The Company did not have the financial resources to
apply for accreditation to become a preferred insurance provider or a
Medicare provider. In April 2000, the business of ProCare Home Health,
Inc. was closed down. Prior to ceasing operations, the Company was in
the development stage. The Company is aggressively seeking potential
buyers and/or mergers with an operating entity. See Note 7 -
Subsequent Events regarding new merger agreement.
(Continued)
6
PROCARE AMERICA, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001 AND 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
(CONTINUED)
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of ProCare America, Inc. (the Company) and its wholly-owned
subsidiary ProCare Home Health, Inc. (PHH). All material inter-company
balances and transactions have been eliminated in consolidation.
Pervasiveness of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Net Patient Service Revenue
Patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payers and others for services
rendered.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed
using the straight-line method over the estimated useful lives.
Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the remaining lease term or
the estimated useful lives of the improvements. When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or
loss is recognized. The cost of maintenance and repairs is expensed as
incurred and significant renewals and betterments are capitalized.
Advertising Costs
Advertising costs are expensed as incurred. Total advertising expense
for fiscal 2001 and 2000 was $-0- and $7,500, respectively.
(Continued)
7
PROCARE AMERICA, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001 AND 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
(CONTINUED)
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), and
related interpretations, in accounting for its employee stock options
rather than the alternative fair value accounting allowed by SFAS No.
123, "Accounting for Stock-Based Compensation." APB No. 25 provides
that the compensation expense relative to the Company's employee stock
options is measured based on the intrinsic value of the stock option.
SFAS No. 123 requires companies that continue to follow APB No. 25 to
provide a pro-forma disclosure of the impact of applying the fair
value method of SFAS No. 123.
The Company follows SFAS No. 123 in accounting for stock options
issued to non-employees.
Net Loss Per Common Share
Net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding. Fully diluted
and basic earnings per common share are the same amounts of each of
the periods presented. In loss periods, dilutive common equivalent
shares are excluded, as the effect would be anti-dilutive.
Income Taxes
The Company has implemented Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes." The Company accounts
for income taxes using the asset and liability method. Under this
method, deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred income tax assets
and liabilities are measured using enacted tax rates applied to
taxable income. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is
provided for deferred income tax assets when it is more likely than
not that the asset will not be realized.
Fair Value of Financial Instruments
The Company's financial instruments include long-term debt. The
carrying value of the Company's long-term obligations approximates
fair value based upon borrowing rates currently available to the
Company for borrowings with comparable maturities.
(Continued)
8
PROCARE AMERICA, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001 AND 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
(CONTINUED)
New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes new standards for recognizing all
derivatives as either assets or liabilities and measuring those
instruments at fair value. SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities Deferral of the Effective Date of
FASB Statement No. 133," changed the effective date to fiscal years
beginning after June 15, 2000. SFAS 138 issued in June 2000 amended
certain aspects of SFAS 133. The Company was required to adopt the new
standard beginning with the first quarter of fiscal 2001. The impact
of adoption on the Company's financial statements is not material.
In June 2001, the FASB issued SFAS No. 141 "Business Combinations,"
SFAS No. 142 "Goodwill and Other Intangible Assets" and SFAS No. 143
"Accounting for Asset Retirement Obligations." In August 2001, the
FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets." These pronouncements establish new standards for
accounting for business combinations, goodwill and other intangible
assets, retirement obligations and impairment or disposal of
long-lived assets. SFAS No. 141 has an effective date for business
combinations initiated after June 30, 2001. SFAS No. 142 and SFAS No.
144 have an effective date for fiscal years beginning after December
15, 2001. SFAS No. 143 has an effective date for fiscal years
beginning after June 15, 2002. The impact of adoption of these
standards on the Company's financial statements is not material.
3. LEASES
In May 1997, the Company entered into a three-year lease agreement for
office space located in Fort Myers, Florida. The operations of ProCare Home
Health, Inc. ceased in April 2000 and the lease agreement was not renewed.
Rent expense including common area maintenance costs for the years ended
June 30, 2001 and 2000, was $-0- and $16,145, respectively.
(Continued)
9
PROCARE AMERICA, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001 AND 2000
4. NOTES PAYABLE - OTHER
Notes payable - other at June 30, 2001 and 2000, were as follows:
JUNE 30,
------------------------
2001 2000
---------- ----------
Notes payable to individuals, unsecured, 10% interest, principal and
accrued interest due at maturity, convertible option into common stock at
$.50 per share prior to maturity date, warrants issued to purchase common
stock equal to principal amount of note. First year warrant price at $.75
per share, second year warrant price at $1.00, past due, due on-demand. $ 80,000 $ 80,000
Notes payable to stockholders, unsecured, 10% interest, principal and
accrued interest due at maturity, convertible option into common stock at
$.50 per share prior to maturity date, warrants issued to purchase common
stock equal to principal amount of note. First year warrant price at $.75
per share, second year warrant price at $1.00, $43,000 past due, due
on-demand, remaining $15,000 maturing through September 2001. 58,000 58,000
Notes payable to stockholders, unsecured, 10% interest, principal and
accrued interest due at maturity, maturing through December 2002. 15,200 --
---------- ----------
153,200 138,000
Less: current portion (145,700) (123,000)
---------- ----------
Long-term portion $ 7,500 $ 15,000
========== ==========
Future maturity of notes payable are as follows:
Years ending June 30,
2002 $ 145,700
2003 7,500
----------
$ 153,200
==========
(Continued)
10
PROCARE AMERICA, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001 AND 2000
5. RELATED PARTY TRANSACTIONS
During 2000, the Company incurred consulting fees of $23,375 in cash and
issued common stock with a fair value of $229,728 for consulting services
to directors and stockholders of the Company. Amounts payable to a director
and stockholder were $54,112 and $52,913 at June 30, 2001 and 2000,
respectively. In addition, the Company issued notes payable to existing
stockholders in exchange for cash in 2001 and 2000 totaling $15,200 and
$65,000, respectively. These notes bear interest at 10% and were for terms
of 12 to 18 months. Interest expense on notes payable to stockholders
totaled $6,358 and $3,692 in 2001 and 2000, respectively.
6. STOCK OPTIONS AND WARRANTS
For options and warrants granted to employees at strike prices less than
the fair market value of the underlying shares on the date of the grant,
the difference in value is recognized as compensation expense. Options and
warrants granted to non-employees are recognized over the related service
period based on the estimated fair value of the options. There were no
warrants and/or options issued to non-employees. However, the Company
issued 600,000 warrants to the new Board of Directors in October 1997.
Stock option and warrant transactions (exclusive of detachable warrants as
discussed in Note 4 - Notes Payable) are summarized as follows:
YEAR ENDED JUNE 30, 2001 YEAR ENDED JUNE 30, 2000
----------------------------- ------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- -------------- --------- --------------
Outstanding:
Beginning of period 1,375,000 $ 1.11 1,400,000 $ 1.14
Granted -- -- -- --
Exercised -- -- -- --
Cancelled (1,325,000) 1.18 (25,000) .50
---------- -------- --------- -----------
Outstanding:
End of period 50,000* $ .50 1,375,000 $ 1.11
========== ======== ========= ===========
* 25,000 expire in 2002 and 25,000 in 2003.
Total detachable warrants related to notes payable outstanding at June 30,
2001, amounted to 142,500 and expired through March 2002.
(Continued)
11
PROCARE AMERICA, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001 AND 2000
6. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following table summarizes information about outstanding stock options
and warrants that are currently exercisable at June 30, 2001:
OPTIONS AND WARRANTS OUTSTANDING AND EXERCISABLE
------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE
EXERCISE OUTSTANDING AT CONTRACTUAL EXERCISE
PRICE JUNE 30, 2001 LIFE (YEARS) PRICE
-------- -------------- ------------ --------
$ .50 50,000 1.50 $ .50
7. REGULATORY MATTERS
During March 2000, the Securities and Exchange Commission ("SEC") notified
the Company that it has not met the reporting requirements under the
Securities Exchange Act of 1934 and consequently, the Company's stock
listing was taken off the over-the-counter bulletin board. The Company is
presently in the process of rectifying this matter with the SEC.
In addition, the Company is delinquent in paying its payroll taxes for
fiscal years 1998 to 2000. Total payroll taxes in delinquency, including
penalties and interest, were approximately $312,000 at June 30, 2001.
Lastly, the Company has not filed with the Internal Revenue Service its
annual corporation income tax returns for several years.
8. INCOME TAXES
At June 30, 2001, the Company has operating loss carryforwards for tax
purposes of approximately $3,000,000, which expire through 2021. In
addition, for tax purposes, the Company has elected to defer and amortize
in future periods certain start-up costs amounting to approximately
$200,000 at June 30, 2001. The Company has fully reserved the tax benefit
of the operating loss carryforwards and the temporary difference related to
deferred costs, amounting to approximately $1,300,000, because the
likelihood of realization of the benefit cannot be established.
The Internal Revenue Code contains provisions, which may limit the
operating loss carryforwards available if significant changes in
stockholder ownership of the Company occurs.
(Continued)
12
PROCARE AMERICA, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001 AND 2000
9. SUBSEQUENT EVENTS
In October 2001, the Board of Directors approved a merger agreement with
OnQ USA, Inc. ("OnQ"). Pursuant to the merger agreement, OnQ would transfer
all of its stock to the Company in exchange for 19,500,000 of the Company's
restricted common stock.
In addition, the Board of Directors approved to sell to certain
stockholders and individuals 3,319,790 shares of the Company's restricted
stock for $.01 per share.
13