EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Healthcare Resource Management Corporation:
We have audited the accompanying balance sheets of Healthcare Resource
Management Corporation, (the Company), as of December 31, 2000 and 2001, and the
related statements of income, stockholders' equity, and cash flows for each of
the years in the two-year period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the 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 financial statements referred to above present fairly,
in all material respects, the financial position of Healthcare Resource
Management Corporation as of December 31, 2000 and 2001, and the results of its
operations and its cash flows for each of the years in the two-year period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America.
KPMG LLP
Charlotte, North Carolina
April 5, 2002, except as to
Note 7, which is
as of April 23, 2002
1
HEALTHCARE RESOURCE MANAGEMENT CORPORATION
BALANCE SHEETS
<Table>
<Caption>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------ ---------------
2000 2001 2002
---------- ---------- ---------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 105,573 $ 305,282 $ 317,372
Accounts receivable............................... 1,201,568 1,577,323 1,628,660
Receivables from officer.......................... 21,577 6,047 203
Other receivables................................. -- 3,830 30,188
Refundable deposits............................... 32,844 43,092 44,657
Prepaid expenses.................................. 17,074 109,904 145,641
---------- ---------- ----------
Total current assets........................... 1,378,636 2,045,478 2,166,721
Fixed assets, net of accumulated depreciation....... 104,504 111,857 129,054
Cash surrender value of life insurance.............. 42,488 53,544 55,128
Other assets........................................ 86,308 64,435 64,247
---------- ---------- ----------
Total assets................................... $1,611,936 $2,275,314 $2,415,150
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 85,427 $ 95,546 $ 52,714
Accrued expenses.................................. 168,498 357,247 346,108
Secured borrowing................................. 936,870 1,176,937 1,113,836
Current portion of note payable................... 9,018 7,191 7,976
---------- ---------- ----------
Total current liabilities...................... 1,199,813 1,636,921 1,520,634
---------- ---------- ----------
Note payable, less current portion.................. 14,823 7,632 5,049
---------- ---------- ----------
Total liabilities.............................. 1,214,636 1,644,553 1,525,683
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value. Authorized 100,000
shares; issued and outstanding 1,610 shares at
December 31, 2000 and 2001 and March 31, 2002
(unaudited).................................... 1,610 1,610 1,610
Additional paid-in capital........................ 23,000 23,000 23,000
Retained earnings................................. 372,690 606,151 864,857
---------- ---------- ----------
Total stockholders' equity..................... 397,300 630,761 889,467
---------- ---------- ----------
Commitments and contingencies
Total liabilities and stockholders' equity..... $1,611,936 $2,275,314 $2,415,150
========== ========== ==========
</Table>
See accompanying notes to financial statements.
2
HEALTHCARE RESOURCE MANAGEMENT CORPORATION
STATEMENTS OF INCOME
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ------------------------
2000 2001 2001 2002
---------- ----------- ---------- ----------
(UNAUDITED)
Revenue.................................. $9,423,426 $13,061,645 $3,156,819 $3,764,420
Cost of revenue.......................... 7,073,573 9,569,838 2,289,579 2,743,789
---------- ----------- ---------- ----------
Gross profit............................. 2,349,853 3,491,807 867,240 1,020,631
---------- ----------- ---------- ----------
Expenses:
Selling, general, and administrative... 1,599,675 2,012,587 451,701 595,505
Depreciation and amortization.......... 40,004 37,784 9,727 10,554
---------- ----------- ---------- ----------
Total expenses........................... 1,639,679 2,050,371 461,428 606,059
---------- ----------- ---------- ----------
Income from operations................... 710,174 1,441,436 405,812 414,572
Interest expense, net.................... 206,070 257,459 63,456 59,062
---------- ----------- ---------- ----------
Income before income taxes............... 504,104 1,183,977 342,356 355,510
---------- ----------- ---------- ----------
State income taxes....................... 1,740 7,056 7,056 13,084
---------- ----------- ---------- ----------
Net income............................... $ 502,364 $ 1,176,921 $ 335,300 $ 342,426
========== =========== ========== ==========
</Table>
See accompanying notes to financial statements.
3
HEALTHCARE RESOURCE MANAGEMENT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000 AND 2001 AND THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
<Table>
<Caption>
COMMON STOCK
---------------- ADDITIONAL
SHARES AMOUNT PAID-IN CAPITAL RETAINED EARNINGS TOTAL
------ ------ --------------- ----------------- ----------
Balances, December 31,
1999...................... 1,610 $1,610 $23,000 $ 328,228 $ 352,838
Net income.................. -- -- -- 502,364 502,364
Dividends ($284 per
share).................... -- -- -- (457,902) (457,902)
------ ------ ------- ---------- ----------
Balances, December 31,
2000...................... 1,610 1,610 23,000 372,690 397,300
Net income.................. -- -- -- 1,176,921 1,176,921
Dividends ($586 per
share).................... -- -- -- (943,460) (943,460)
------ ------ ------- ---------- ----------
Balances, December 31,
2001...................... 1,610 1,610 23,000 606,151 630,761
Net income (unaudited)...... -- -- -- 342,426 342,426
Dividends ($52 per share)
(unaudited)............... -- -- -- (83,720) (83,720)
------ ------ ------- ---------- ----------
Balances, March 31, 2002
(unaudited)............... 1,610 $1,610 $23,000 $ 864,857 $ 889,467
====== ====== ======= ========== ==========
</Table>
See accompanying notes to financial statements
4
HEALTHCARE RESOURCE MANAGEMENT CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 2001 AND THE THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED) AND MARCH 31, 2002 (UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ----------------------
2000 2001 2001 2002
--------- ---------- --------- ---------
(UNAUDITED)
Cash flows from operating activities:
Net income............................... $ 502,364 $1,176,921 $ 335,300 $ 342,426
Adjustments to reconcile net income to
net cash provided by:
Operating activities:
Depreciation and amortization......... 40,004 37,784 9,727 10,554
Gain on sale of fixed assets and
investments......................... (25,362) (32,368) (38,877) --
Changes in assets and liabilities:
Accounts receivable................. (358,059) (354,178) (130,015) (51,337)
Receivables from officers........... 35,759 (6,047) 8,964 5,844
Other receivables................... -- (3,830) (13,160) (26,358)
Refundable deposits................. (16,961) (10,248) (7,117) (1,565)
Prepaid expenses.................... (10,155) (92,830) (90,749) (35,737)
Cash surrender value of life
insurance........................ (5,476) (11,056) (1,583) (1,584)
Other assets........................ (12,370) 21,119 189 188
Accounts payable.................... 42,066 10,119 (8,658) (42,832)
Accrued expenses.................... 85,612 188,749 32,505 (11,139)
--------- ---------- --------- ---------
Net cash provided by operating
activities..................... 277,422 924,135 96,526 188,460
--------- ---------- --------- ---------
Cash flows from investing
activities:
Purchase of fixed assets.............. (26,731) (44,383) (8,081) (27,751)
Cash proceeds on sale of fixed assets
and investments..................... 77,474 32,368 50,158 --
--------- ---------- --------- ---------
Net cash provided by (used in)
investing activities........... 50,743 (12,015) 42,077 (27,751)
Cash flows from financing activities:
Dividend payments..................... (457,902) (943,460) (141,680) (83,720)
Net cash receipts on secured
borrowing........................... 236,188 240,067 63,688 (63,101)
Payments on notes payable............. (29,436) (9,018) (1,198) (1,798)
--------- ---------- --------- ---------
Net cash used in financing
activities..................... (251,150) (712,411) (79,190) (148,619)
--------- ---------- --------- ---------
Net increase (decrease) in cash
and cash equivalents........... 77,015 199,709 59,413 12,090
Cash and cash equivalents at beginning of
period................................... 28,558 105,573 105,573 305,282
--------- ---------- --------- ---------
Cash and cash equivalents at end of
period................................... $ 105,573 $ 305,282 $ 164,986 317,372
========= ========== ========= =========
Supplemental disclosures of cash flow
information:
Cash paid for interest................ $ 206,425 $ 267,244 $ 64,255 $ 60,550
========= ========== ========= =========
Cash paid for taxes................... $ 1,740 $ 7,056 $ 7,056 $ 13,084
========= ========== ========= =========
</Table>
See accompanying notes to financial statements.
5
HEALTHCARE RESOURCE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
Healthcare Resource Management Corporation (the Company) recruits nurses
and places them on temporary assignments at hospitals and other healthcare
facilities throughout the United States.
The accompanying consolidated interim financial statements (including notes
to financial statements) of the Company as of March 31, 2002 and for the three
months ended March 31, 2001 and 2002, are unaudited. In the opinion of
management, the accompanying unaudited consolidated interim financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company at March 31,
2002, and the results of its operations and its cash flows for the three months
ended March 31, 2001 and 2002.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At December 31, 2000
and 2001, and March 31, 2002, the Company had money market accounts of $100,350,
$279,463 and $210,951 (unaudited), respectively, included in cash and cash
equivalents.
(c) Fixed Assets
Furniture and fixtures, equipment, and automobiles are stated at cost.
Additions and improvements are capitalized, and maintenance and repairs are
expensed when incurred. Depreciation on furniture and fixtures, equipment, and
automobiles is calculated using the straight-line method based on the estimated
useful lives of the related assets as follows: furniture and fixtures (7 years);
equipment (3 to 7 years); and automobiles (5 years).
(d) Concentration of Credit Risk
The majority of the Company's business activity is with hospitals located
throughout the United States. Credit is extended based on the evaluation of each
entity's financial condition and credit worthiness.
(e) Revenue Recognition
Revenue is recognized in the period in which services are provided.
(f) Advertising Expenses
Advertising costs of $364,211 and $420,500 for the years ended December 31,
2000 and 2001, respectively, and $109,406 (unaudited) and $141,934 (unaudited)
for the three months ended March 31, 2001 and 2002, respectively, are expensed
as incurred and are included in selling, general, and administrative expenses in
the accompanying financial statements.
(g) Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows, undiscounted and without interest, expected to be
generated by the asset. If
6
HEALTHCARE RESOURCE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
(h) Income Taxes
The Company has elected to file its federal income tax returns under the S
Corporation provisions of the Internal Revenue Code and was granted S
Corporation status for North Carolina state tax purposes. In accordance with the
federal provisions, corporate earnings flow through and are taxed solely at the
shareholder level. Under the provisions of the franchise tax laws in certain
states the Company conducts business, S Corporation earnings are assessed a
surtax at the corporate level and flow through to the shareholders to be taxed
at the individual level. Accordingly, income tax expense for the years ended
December 31, 2000 and 2001 aggregated $1,740 and $7,056, respectively.
(i) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
receivables from officers, other receivables, accounts payable, accrued
expenses, secured borrowing and note payable approximates their respective fair
values due to the short-term nature and liquidity of these financial
instruments.
(j) Derivative Instruments
The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133) on
January 1, 2001. SFAS 133 requires that all derivative instruments be recorded
on the balance sheet at fair value. The Company does not have any derivative
instruments to be accounted for under SFAS 133.
(k) New Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of
the purchase method for all business combinations initiated after June 30, 2001
and provides guidance on purchase accounting related to the recognition of
intangible assets and accounting for negative goodwill. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Under SFAS No. 142, goodwill will be tested annually and whenever
events or circumstances occur indicating that goodwill might be impaired. The
Company adopted the provisions of SFAS No. 142 as of January 1, 2002. The
adoption of SFAS No. 142 did not have a material impact on the Company's
financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
of Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. SFAS No. 144 requires companies to separately
report discontinued operations and extends that reporting to a component of an
entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The Company adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS
No. 144 will not have a material impact on the Company's financial statements.
7
HEALTHCARE RESOURCE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(l) Sale of Accounts Receivable
On January 5, 1999, the Company entered into an agreement to sell, on an
ongoing basis with full recourse, its trade accounts receivable. The Company is
responsible for repurchasing any receivables at fair value which have not been
collected 60 days from the date of the invoice. The buyer is responsible for
servicing the receivables. The agreement may be terminated by either party with
90 days notice prior to the end of the term of the agreement or terminated at
any other time upon mutual agreement of the parties. Upon termination, the
Company is required to repurchase all outstanding receivables and pay certain
termination fees. During 2000, the receivables were purchased by the buyer net
of a 1.45% non-refundable administrative fee. This fee was decreased to 1.25% in
2001 until October 12, 2001 when the fee was further reduced to .9%.
Additionally, the Company is required to pay the purchaser certain finance
charge fees based upon the age of outstanding receivables. The Company has
accounted for the cash proceeds received from the transfer as a secured
borrowing in accordance with SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". The secured
borrowing is $936,870, $1,176,937, and $1,113,837 (unaudited) at December 31,
2000 and 2001, and March 31, 2002, respectively. The Company incurred fees on
these secured borrowings of $203,608 and $265,984 for the years ended December
31, 2000 and 2001, respectively, and $63,981 (unaudited) and $60,163 (unaudited)
for the three months ended March 31, 2001 and 2002, respectively, which are
included in interest expense in the accompanying financial statements.
(m) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
(n) Reclassifications
Certain amounts in the prior periods financial statements have been
reclassified to conform to the current period presentation.
(2) FIXED ASSETS, NET
Fixed assets, net is comprised of the following at December 31, 2000 and
2001:
<Table>
<Caption>
2000 2001
--------- ---------
Furniture and fixtures...................................... $ 42,914 $ 54,389
Equipment................................................... 111,541 144,448
Automobiles................................................. 69,464 69,464
--------- ---------
223,919 268,301
Less accumulated depreciation............................... (119,415) (156,444)
--------- ---------
$ 104,504 $ 111,857
========= =========
</Table>
(3) NOTE PAYABLE
Note payable consists of a five year note on an automobile purchase with
monthly payments of $728 through 2004. This note payable is collateralized by an
automobile and has a 8.25% interest rate.
8
HEALTHCARE RESOURCE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) RELATED PARTY TRANSACTIONS
At December 31, 2001 and March 31, 2002, the Company had $6,047 and $203
(unaudited), respectively, due from officers. There were no receivables due from
officers at December 31, 2000.
For the years ended December 31, 2000 and 2001, and the three months ended
March 31, 2001 and 2002, the Company's shareholders received dividend
distributions of $457,902, $943,460, $141,680 (unaudited) and $83,720
(unaudited), respectively, principally related to the payments of the
shareholders' personal taxes on the Company's earnings. Additionally, the
Company paid its directors, who are also shareholders, director fees of $12,000,
$15,000, $15,000 (unaudited) and $0 (unaudited) for the years ended December 31,
2000 and 2001, and the three months ended March 31, 2001 and 2002 respectively.
(5) LEASES
The Company leases certain office facilities and equipment under various
operating leases that expire over the next three years. Future minimum lease
payments under noncancelable operating leases (with initial or remaining lease
terms in excess of one year) as of December 31, 2001 are as follows:
<Table>
Years ending December 31:
2002...................................................... $144,848
2003...................................................... 148,837
2004...................................................... 77,669
--------
Total minimum lease payments...................... $371,354
========
</Table>
Rent expense was $106,546 and $127,194 for the years ended December 31,
2000 and 2001, respectively.
Additionally, the Company leases apartments for nurses on temporary
assignments under short-term lease agreements. These lease commitments are not
included in the above future minimum lease payments due to their short
noncancellable term. The Company is required to pay an up-front deposit on these
apartments, which is classified as refundable deposits in the accompanying
financial statements.
(6) EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) defined contribution plan for its full-time
employees. The Company, at its discretion, matches 25% of the first 6%
contributed by each employee. The Company contributed $24,369 and $32,669 to the
401(k) plan for the years ended December 31, 2000 and 2001, respectively.
(7) SUBSEQUENT EVENT
On April 23, 2002, the Company was acquired by AMN Healthcare, Inc.
9