EXHIBIT 99.3
HEALTH PERSONNEL OPTIONS CORPORATION
FINANCIAL STATEMENTS
JUNE 30, 2000
HEALTH PERSONNEL OPTIONS CORPORATION
CONTENTS
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REPORT OF INDEPENDENT ACCOUNTANTS 1
BALANCE SHEET 2
STATEMENTS OF OPERATIONS 3
STATEMENT OF STOCKHOLDERS' EQUITY 4
STATEMENTS OF CASH FLOWS 5/6
NOTES TO FINANCIAL STATEMENTS 7/13
[JOSEPH DECOSIMO AND COMPANY LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Health Personnel Options Corporation
Cincinnati, Ohio
We have audited the accompanying balance sheet of Health Personnel Options
Corporation as of June 30, 2000, and the related statements of operations and
cash flows for each of the two years ended June 30, 2000. 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 Health Personnel Options
Corporation as of June 30, 2000, and the results of its operations and its cash
flows for each of the two years ended June 30, 2000, in conformity with
accounting principles generally accepted in the United States of America.
/s/ JOSEPH DECOSIMO AND COMPANY, PLL
Cincinnati, Ohio
November 29, 2000
1
HEALTH PERSONNEL OPTIONS CORPORATION
BALANCE SHEET
JUNE 30, 2000
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2000
ASSETS
CURRENT ASSETS
Cash $ 4,849
Accounts Receivable, net of allowance of $80,000 1,914,068
Prepayments 50,477
-----------
Total Current Assets 1,969,394
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EQUIPMENT, net 668,245
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OTHER ASSETS
Goodwill, net of accumulated amortization of $677,808 6,548,553
Agreements Not to Compete, net of accumulated amortization of $294,333 15,000
Deposits 62,463
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Total Other Assets 6,626,016
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TOTAL ASSETS $ 9,263,655
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft $ 358,832
Line of Credit 1,800,000
Current Portion of Long-Term Debt 380,763
Accounts Payable and Accrued Expenses 964,228
-----------
Total Current Liabilities 3,503,823
-----------
LONG-TERM DEBT 2,881,908
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STOCKHOLDERS' EQUITY
Preferred Stock - $1,000 par value - 4,257 shares authorized,
2,829 shares issued 2,828,570
Additional Paid-In Capital 1,571,430
Common Stock - no par value - 1,000,000 shares authorized;
194,200 issued and outstanding 2,425,400
Accumulated Deficit (3,947,476)
-----------
Total Stockholders' Equity 2,877,924
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,263,655
===========
The accompanying notes are an integral part of the financial statements.
2
HEALTH PERSONNEL OPTIONS CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2000 AND 1999
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2000 1999
SERVICE REVENUES $ 15,940,638 $ 9,521,465
COST OF SERVICES 11,977,556 7,515,150
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Gross Profit 3,963,082 2,006,315
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EXPENSES
Salaries and Benefits 2,578,870 1,353,666
Administrative Expenses 2,211,557 725,002
Rent 314,411 149,628
Depreciation and Amortization 735,585 344,578
------------ ------------
5,840,423 2,572,874
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LOSS FROM OPERATIONS (1,877,341) (566,559)
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OTHER INCOME (EXPENSE)
Interest Income 6,127 3,895
Interest Expense (410,218) (149,648)
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(404,091) (145,753)
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NET LOSS $ (2,281,432) $ (712,312)
============ ============
The accompanying notes are an integral part of the financial statements.
3
HEALTH PERSONNEL OPTIONS CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2000 AND 1999
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SERIES A SERIES B ADDITIONAL
PREFERRED STOCK PREFERRED STOCK PAID-IN COMMON STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT
BALANCE - June 30, 1998 1,400 $ 1,400,000 -- $ -- $ -- 114,400 $ 750,000 $ (953,732)
Issuance of Stock 1,429 1,428,570 1,571,430 79,800 1,675,400
Net Loss (712,312)
------ ----------- ------ ----------- ----------- ------- ----------- -----------
BALANCE - June 30, 1999 1,400 1,400,000 1,429 1,428,570 1,571,430 194,200 2,425,400 (1,666,044)
Net Loss (2,281,432)
------ ----------- ------ ----------- ----------- ------- ----------- -----------
BALANCE - June 30, 2000 1,400 $ 1,400,000 1,429 $ 1,428,570 $ 1,571,430 194,200 $ 2,425,400 $(3,947,476)
====== =========== ====== =========== =========== ======= =========== ===========
The accompanying notes are an integral part of the financial statements.
4
HEALTH PERSONNEL OPTIONS CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000 AND 1999
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2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Clients $ 15,685,500 $ 9,828,093
Cash Paid to Suppliers and Employees (17,053,780) (9,690,694)
Interest Received 6,127 3,895
Interest Paid (372,169) (118,930)
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,734,322) 22,364
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (274,364) (5,196)
Acquisition of Businesses (178,000) (4,474,098)
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NET CASH USED BY INVESTING ACTIVITIES (452,364) (4,479,294)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Bank Overdraft 358,832 --
Borrowings (Repayments) on Line of Credit 1,800,000 (100,842)
Issuance of Long-Term Debt 517,830 1,750,000
Payments of Long-Term Debt (576,594) (154,805)
Issuance of Common Stock -- 3,050,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES 2,100,068 4,544,353
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (86,618) 87,423
CASH - beginning of year 91,467 4,044
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CASH - end of year $ 4,849 $ 91,467
============ ============
The accompanying notes are an integral part of the financial statements.
5
HEALTH PERSONNEL OPTIONS CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000 AND 1999
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2000 1999
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES
Net Loss $(2,281,432) $ (712,312)
Depreciation 175,534 74,387
Amortization 560,050 270,191
Bad Debts 241,941 21,655
Changes in Operating Assets and Liabilities -
(Increase) Decrease in -
Receivables (915,561) 306,628
Prepayments 62,480 (25,550)
Deposits (17,660) (39,381)
Increase in Accounts Payable and Accrued Expenses 440,326 126,746
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $(1,734,322) $ 22,364
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Capital Lease Obligation Incurred for Equipment $ 351,483 $ --
Debt Issued for Acquisition of Business $ -- $ 538,593
Common Stock Issued for Acquisition of Business $ -- $ 1,625,400
Accounts Payable Assumed in Acquisition of Business $ -- $ 202,624
The accompanying notes are an integral part of the financial statements.
6
HEALTH PERSONNEL OPTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the company are as
follows:
DESCRIPTION OF BUSINESS - Health Personnel Options Corporation is engaged in the
business of temporary staffing of nurses, physical therapists, occupational
therapists, speech therapists, and other healthcare professionals and assistants
in the United States.
CASH AND CASH EQUIVALENTS - The company considers all money market accounts and
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. The company maintains at a single financial institution
cash and cash equivalent accounts which may exceed federally insured amounts at
times and which may at times significantly exceed balance sheet amounts due to
outstanding checks.
EQUIPMENT - Equipment is stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred and additions and improvements
that significantly extend the lives of assets are capitalized. Upon the sale or
other retirement of depreciable property, the cost and accumulated depreciation
are removed from the related accounts and any gain or loss is reflected in
operations.
Depreciation is provided on the straight-line method based on the estimated
useful lives of depreciable assets.
INTANGIBLE ASSETS - The costs of intangible assets are amortized on the
straight-line method over the following estimated useful lives:
YEARS
Goodwill 15
Agreements Not to Compete 3
INCOME TAXES - Deferred income taxes are recognized for estimated future tax
effects attributed to temporary differences between book and tax bases of assets
and liabilities and for carryforward items. Deferred tax assets are reduced, if
necessary, by a valuation allowance for the amount of tax benefits that may not
be realized.
ADVERTISING - The company expenses the costs of advertising as incurred.
Advertising expense totaled $173,527 for 2000 and $61,308 for 1999.
ESTIMATES AND UNCERTAINTIES - The preparation of 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 the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
STOCK-SPLIT - On September 28, 1999 the Company's Board of Directors authorized
a 100-to-1 split of its common stock effective September 28, 1999, for
stockholders of record at the close of business on September 28, 1999. All share
amounts in the accompanying financial statements have been restated to give
effect to the stock split.
7
HEALTH PERSONNEL OPTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
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OPERATIONS
The company's business strategy is to grow both internally and through the
acquisition of healthcare staffing companies throughout the United States. The
company will require additional equity and debt financings in order to
consummate these acquisitions. The company has incurred losses of $2,281,432 and
$712,312 for the years ended June 30, 2000 and 1999, respectively, due, in
part, to its strategy of having the management and operations resources in place
to manage current and projected revenue growth through acquisitions. Based on
planned revenue growth and financing plans, management believes that the company
has adequate financial resources to allow sufficient time to achieve profitable
business operations.
ACQUISITION OF DENTAL IMPRESSIONS, INC.
On January 5, 2000, the company purchased substantially all of the assets of
Dental Impressions, Inc. for $120,000 cash; $37,829 in a 5.74% promissory note
payable due January 5, 2001 and $30,000 due March 31, 2000.
The company executed a three-year noncompete/nonsolicitation agreement with
Dental Impressions, Inc. shareholders.
The acquisition was accounted for as a purchase in which the purchase price is
allocated to tangible and identifiable intangible assets based on their fair
market values. The excess of the purchase price over the fair market value of
assets purchased of $160,000 is being amortized to operations over its fifteen
year estimated useful life.
ACQUISITION OF HEALTH PERSONNEL OPTIONS CORPORATION
On April 8, 1999, the company purchased the assets (excluding cash) and
operations of Health Personnel Options Corporation and HPO Med Source, Inc.
d/b/a Preston Manthey & Assoc. for $4,474,098 cash; 774 shares of common stock
valued at $1,625,400; $459,280 in a 5.75% promissory note payable; $180,380 in a
5.75% promissory note payable and assumption of $202,624 in accounts payable and
accrued expenses.
The company executed three-year noncompete/nonsolicitation and twelve month
employment agreements with Health Personnel Options Corporation's sole
shareholder. On May 26, 1999, NationStaff, Inc. changed its name to Health
Personnel Options Corporation.
The acquisition was accounted for as a purchase in which the purchase price is
allocated to tangible and identifiable intangible assets based on their fair
market values. The excess of the purchase price over the fair market value of
assets purchased of $5,461,359 is being amortized to operations over its fifteen
year estimated useful life.
8
HEALTH PERSONNEL OPTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
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EQUIPMENT
Equipment consists of the following:
2000
Furniture and Fixtures $ 132,992
Equipment Under Capital Leases 533,997
Computer Software 173,597
Computer Equipment 131,645
---------
972,231
Accumulated Depreciation (303,986)
---------
$ 668,245
=========
Accumulated depreciation includes $139,515 for 2000 for equipment under capital
leases.
NOTES PAYABLE
Long-term debt consists of the following:
2000
Prime Plus 1% Term Note - payable $16,028 monthly
including interest through March, 2004 $ 871,583
12% Stockholder Promissory Note - interest payable
quarterly and semiannually; principal payable July,
2001 1,000,000
Prime Plus 1% Term Note - payable $9,031 monthly
including interest through March, 2003 418,521
5.75% Stockholder Promissory Note - interest payable
quarterly; principal payable April, 2004 459,280
8% Promissory Note - payable $4,700 monthly
including interest through May, 2000 787
5.74% Promissory Note - interest payable monthly;
principal payable January, 2001 $ 37,829
12% Stockholder Promissory Note - interest payable
monthly 50,000
Equipment Leases - payable $11,386 monthly
including interest implicitly at 7.75% to 9.8% 424,671
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3,262,671
Less Current Portion 380,763
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$2,881,908
==========
The company's prime plus 1% term notes are secured by substantially all of the
company's assets.
In connection with the company's issuance of its 12% stockholder promissory
note, it issued to the noteholder a warrant providing for the purchase of up to
5,100 shares of the company's common stock at $21 per share through April 7,
2006.
9
HEALTH PERSONNEL OPTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
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NOTES PAYABLE - continued
Aggregate maturities of long-term debt, excluding capital leases, for the years
subsequent to June 30, 2000, are as follows:
YEAR ENDING
June 30, 2001 $ 280,993
June 30, 2002 $ 1,210,670
June 30, 2003 $ 414,878
June 30, 2004 $ 931,459
The company has a prime plus 1% line of credit with a maximum of $1,800,000
available, expiring November, 2000. This line was fully utilized at June 30,
2000.
PREFERRED STOCK
The company's preferred stock consists of 1,400 shares of Series A Preferred
Stock and 1,429 shares of Series B Preferred Stock.
The company's preferred stock is convertible into common stock at any time at
the option of the preferred stockholder. The conversion rate is 81.43 shares of
common stock for each share of Series A Preferred Stock and 99.96 shares of
common stock for each share of Series B Preferred Stock and is adjusted based on
company performance or issuance of additional common shares. The preferred stock
is automatically converted into common stock at the closing of an underwritten
public offering of common stock which results in net proceeds to the corporation
of at least $10 million and a market capitalization of at least $40 million. The
holder of any preferred shares converted is immediately entitled to receive all
accrued and unpaid dividends.
Each holder of preferred stock has voting rights equivalent to the number of
common shares into which the preferred shares held by such holder could be
converted on the record date fixed for the vote of stockholders.
The holders of record of the preferred shares shall be entitled to receive, when
and if declared by the board of directors out of the retained earnings of the
corporation, cash dividends at the rate of 9% per annum. These dividends are
payable quarterly and are cumulative. The holders of preferred stock are also
entitled to receive any dividend paid to the holders of common stock in the
amount to which they would have been entitled to receive had the preferred
shares been converted to common shares immediately prior to the record date for
the dividends. As of June 30, 2000, dividends in arrears on preferred stock
totaled $715,000.
In the event of liquidation or dissolution of the company, the holders of
preferred stock are entitled to be paid $1,000 per share together with all
accrued and unpaid dividends prior to any payments to common stockholders. After
this payment to preferred stockholders, the common stockholders are entitled to
payment of $1,000 per common share. After these payments are made, the preferred
and common stockholders are entitled to share pro rata in the distribution of
the remaining assets of the corporation.
10
HEALTH PERSONNEL OPTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
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LEASES
The company leases equipment under capital leases, office space under operating
leases and leases short-term housing for its traveling nurses and therapists.
Future minimum lease payments under the capital leases and noncancelable
operating leases with initial terms of more than twelve months as of June 30,
2000 are as follows:
CAPITAL OPERATING
LEASES LEASES
YEAR ENDING
June 30, 2001 $131,612 $152,458
June 30, 2002 119,794 122,506
June 30, 2003 94,070 68,936
June 30, 2004 85,678 37,783
June 30, 2005 50,208 --
-------- --------
Total Minimum Lease Payments 481,362 $381,683
========
Less Amount Representing Interest 56,691
--------
Present Value of Minimum Lease Payments $424,671
========
Rent expense totaled $1,166,593 for 2000 and $667,316 for 1999.
INCOME TAXES
The provision for income taxes consists of the following:
2000 1999
DEFERRED PROVISION
Federal Income Tax $ 69,000 $ 30,000
State Income Tax 10,000 3,000
Benefit of Net Operating Loss Carryforward 811,000 247,000
--------- ---------
890,000 280,000
Change in Valuation Allowance (890,000) (280,000)
--------- ---------
$ -- $ --
========= =========
The provision for income taxes differs from the amount computed by applying
statutory rates to income before taxes because of state taxes, nondeductible
expenses and changes in the valuation allowance.
11
HEALTH PERSONNEL OPTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
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INCOME TAXES - continued
The tax effect of components of net deferred tax assets and liabilities is as
follows:
2000
DEFERRED TAX ASSETS
Net Operating Loss Carryforwards $ 1,376,000
Allowance for Doubtful Accounts 31,000
Intangible Assets 90,000
Accrued Expenses 57,000
-----------
1,554,000
DEFERRED TAX LIABILITIES
Equipment 26,000
-----------
1,528,000
VALUATION ALLOWANCE (1,528,000)
-----------
NET DEFERRED TAX ASSETS $ --
===========
The company has net operating losses available to offset future taxable income
totaling $3,528,000 expiring in 2012, 2013 and 2019.
RELATED PARTY TRANSACTIONS
Transactions and balances with related parties are as follows:
2000 1999
PREFERRED STOCKHOLDERS
Notes Payable $1,050,000 $ 750,000
Interest Expense $ 97,943 $ 20,959
Interest Payable $ 33,694 $ 20,959
COMMON STOCKHOLDERS
Notes Payable $ 459,280 $ 639,660
Interest Expense $ 28,956 $ 8,564
Interest Payable $ 6,602 $ 3,995
EMPLOYEE BENEFIT PLAN
The company offers a 401(k) Plan for all employees meeting certain eligibility
requirements. Employees may contribute up to 15% of their eligible compensation
to the plan, subject to the limits of Section 401(k) of the Internal Revenue
Code. The company makes contributions at the discretion of the Board of
Directors. There were no contributions during the years ending June 30, 2000 and
1999.
12
HEALTH PERSONNEL OPTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
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STOCK OPTIONS
During 1999, the company adopted an incentive stock option plan for certain
senior management employees. This plan provides for the issuance of up to 60,400
shares of common stock with an exercise price equal to the stock's current fair
market value with an option term of up to ten years. As of June 30, 2000, no
options were issued or outstanding.
SUBSEQUENT EVENT
During August, 2000, a customer with an outstanding account receivable of
$125,000 filed for protection from creditors under Chapter 11 of the U.S.
Bankruptcy Code. No amounts are considered recoverable from this customer. This
receivable arose subsequent to June 30, 2000; accordingly, the bankruptcy filing
has no impact of accounts receivable as of June 30, 2000 or bad debt expense for
the year ended June 30, 2000.
13