Exhibit 99.1
New Age Staffing, Inc.
Financial Statements
Years Ended December 31, 2002 and 2001 and
Period from September 27, 2000 (Inception) to December 31, 2000
New Age Staffing, Inc.
Contents
Report of Independent Auditors 3
Financial Statements
Balance sheets 4
Statements of operations 5
Statements of stockholders' equity 6
Statements of cash flows 7 - 8
Summary of accounting policies 9 - 11
Notes to consolidated financial statements 12 - 15
BDO Seidman, LLP One Sansome Street 11th Floor
Accountants and Consultants San Francisco, CA 94104
Phone 415-397-7900
Fax 415-397-2161
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
New Age Nurses, Inc.
New Orleans, Louisiana
We have audited the accompanying balance sheet of New Age Staffing, Inc. (the
"Company"), as of December 31, 2002 and 2001, and the related statements of
operations, stockholders' equity, and cash flows for each of the two year
periods ended December 31, 2002 and the period from September 27, 2000
(inception), through December 31, 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 audits 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 New Age Staffing, Inc. at
December 31, 2002 and 2001 and the results of its operations and its cash flows
for each of the two year periods ended December 31, 2002 and for the period from
September 27, 2000 (inception), through December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ BDO Seidman, LLP
April 16, 2003
San Francisco, California
3
New Age Staffing, Inc.
Balance Sheets
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December 31, 2002 2001
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Assets
Current Assets
Cash $ 37,086 $ -
Accounts receivable, net of
allowance for doubtful accounts of
$55,000 in 2002 and $9,000 in 2001 679,138 314,902
Unbilled accounts receivable 145,065 49,696
Prepaids and other current assets 49,774 1,214
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Total Current Assets 911,063 365,812
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Property and Equipment, net 35,491 3,569
Other Assets 95,436 -
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Total Assets 1,041,990 369,381
================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Bank overdrafts $ - $ 61,012
Advances payable to factor 388,912 -
Accounts payable and accrued expenses 257,329 151,161
Income taxes payable 113,000 -
Advances payable to stockholders 137,580 303,174
Current portion of capital lease obligation 2,064 -
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Total Current Liabilities 898,885 515,347
Capital Lease Obligation, less current portion 4,242 -
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Total Liabilities 903,127 515,347
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Commitments and Contingencies (Notes 8 and 12)
Stockholders' Equity
Common stock, no par value; 10,000 shares
authorized issued and outstanding 50,090 50,090
Retained earnings (deficit) 88,773 (196,056)
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Total Stockholders Equity 138,863 (145,966)
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Total Liabilities and Stockholders' Equity $1,041,990 $ 369,381
================================================================================
See accompanying summary of accounting policies and notes to financial
statements.
4
New Age Staffing, Inc.
Statements of Operations
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Period Ended
September 27, 2000
Year Ended Year Ended (inception) to
December 31, 2002 December 31, 2001 December 31, 2000
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Revenue From Services $ 5,663,672 $ 1,161,387 $ 89,888
Operating Expenses
Direct operating expenses 4,126,495 944,047 74,199
Selling, general, and
administrative 1,059,119 355,994 40,436
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Income (Loss) from Operations 478,058 (138,654) (24,747)
Interest Expense 80,229 32,655 -
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Income (Loss) Before
Income Taxes 397,829 (171,309) (24,747)
Provision for Income Taxes 113,000 - -
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Net Income (Loss) $ 284,829 $ (171,309) $ (24,747)
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See accompanying summary of accounting policies and notes to financial
statements.
5
New Age Staffing, Inc.
Statements of Stockholders' Equity
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Common Stock Total
----------------- Retained Stockholders'
Shares Amount Earnings Equity
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Inception, September 27, 2000 - $ - $ - $ -
Common stock issued to founders 9,000 90 - 90
Net loss - - (24,747) (24,747)
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Balance, December 31, 2000 9,000 90 (24,747) (24,657)
Common stock awarded to
employees and consultants 1,000 50,000 - 50,000
Net loss (171,309) (171,309)
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Balance, December 31, 2001 10,000 50,090 (196,056) (145,966)
Net income
284,829 284,829
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Balance, December 31, 2002 10,000 $ 50,090 $ 88,773 $ 138,863
================================================================================
See accompanying summary of accounting policies and notes to financial
statements.
6
New Age Staffing, Inc.
Statements of Cash Flows
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Years ending December 31, 2002 2001 2000
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Cash Flows from Operating Activities
Net income (loss) $ 284,829 $(171,309) $ (24,747)
Adjustments to reconcile net income
(loss) to net cash provided by
used in operating activities:
Bad debt expense 46,000 9,000 -
Depreciation 8,378 173 -
Stock based compensation to
founders and employees - 25,000 90
Stock based compensation to
consultants - 25,000 -
Changes in assets and liabilities:
Accounts receivable (410,236) (280,947) (42,955)
Unbilled accounts receivable (95,369) (49,696) -
Prepaids and other current assets (48,560) 2,189 (3,403)
Other assets (95,436)
Accounts payable and
accrued expenses 106,168 130,780 20,381
Income taxes payable 113,000 - -
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Net Cash Used In Operating Activities (91,226) (309,810) (50,634)
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Cash Flows From Investing Activities
Purchases of property and equipment (33,650) (3,742) -
Net advances from stockholders - 255,272 47,902
Net repayment of advances
from stockholders (165,594) - -
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Net Cash (Used In) Provided by
Investing Activities (199,244) 251,530 47,902
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Cash Flows From Financing Activities
Increase (decrease) in bank overdrafts (61,012) 58,280 2,732
Net advances from factor 388,912 - -
Payments on capital lease obligations (344) - -
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Net Cash Provided by Financing Activities 327,556 58,280 2,732
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Net Increase in Cash 37,086 - -
Cash, beginning of year - - -
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Cash, end of year $ 37,086 $ - $ -
================================================================================
See accompanying summary of accounting policies and notes to financial
statements.
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New Age Staffing, Inc.
Statements of Cash Flows
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Years ending December 31, 2002 2001 2000
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Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest $ 72,960 $ - $ -
Income taxes $ - $ - $ -
================================================================================
Supplemental Disclosure of Non-Cash Financing
Investing and Financing Activities
Property and equipment acquired under
capital lease obligations $ 6,650 $ - $ -
Stock issued for employee compensation $ - $ 25,000 $ 90
Stock issued to consultants for services $ - $ 25,000 $ -
================================================================================
See accompanying summary of accounting policies and notes to financial
statements.
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New Age Staffing, Inc.
Summary of Accounting Policies
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Nature of Business
- ------------------
New Age Staffing, Inc. (the "Company") was organized as a corporation under
the laws of the State of Texas on September 27, 2000. The Company is a
provider of healthcare staffing services to hospitals and healthcare providers
throughout the United States of America with its corporate offices in Metairie,
Louisiana.
The Company's staffing services consists of travel nurse staffing where
registered nurses temporarily relocate to the geographic area of their
assignment and per-diem staffing which involves placement of locally-based
healthcare professionals on very short-term assignments.
Cash Equivalents
- ----------------
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
- -------------------------------------------------------
The Company records its trade accounts receivable at the amount of the related
sales. The Company generally does not require collateral for its trade accounts
receivable nor does the Company charge interest on past due accounts. The
Company's general payment terms are 30 days. The Company provides an
allowance for doubtful accounts based upon a combination of factors: historical
experience, current economic conditions, customer specific conditions and the
age of specific overdue trade accounts receivable. The Company writes-off trade
accounts receivable against the allowance for doubtful accounts when pervasive
evidence exists that an account has become uncollectible. Recoveries of
previous write-off accounts are recorded in income in the period of recovery.
Property and Equipment
- ----------------------
Property and equipment are stated at cost less accumulated depreciation.
Depreciation on property and equipment is computed using the straight-line
method over the estimated useful lives of the assets of thirty-six months.
Ordinary repairs and maintenance are charged to expense as incurred.
Long-lived Assets
- -----------------
Long-lived assets, including property and equipment, are assessed for possible
impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable, or whenever management has
committed to a plan to dispose of the assets. Such assets are carried at the
lower of book value or fair value as estimated by management based on
appraisals, current market value, and comparable sales value, as appropriate.
Long-lived assets to be retained that are affected by such impairment loss are
depreciated or amortized at their new carrying amount over the remaining
estimated life; assets to be sold or otherwise disposed of are not subject to
further depreciation or amortization.
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New Age Staffing, Inc.
Summary of Accounting Policies
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Stock-Based Compensation
- ------------------------
SFAS No. 123, Accounting for Stock-Based Compensation, established a fair
value method of accounting for stock-based compensation plans and for
transactions in which an entity acquires goods or services from non-employees
in exchange for equity instruments. As permitted under SFAS No. 123, the
Company has chosen to continue to account for employee stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to
Employees. Accordingly, compensation expense for employee stock is measured
as the excess, if any, of the fair market price of the Company's stock at the
date of grant over the amount an employee must pay to acquire the stock. Stock
or options granted to non-employees are recorded over the service period at the
estimated fair value of the stock or option granted.
The Company does not have any stock option plans nor does it issue options
pursuant to non-qualified option agreements.
Income Taxes
- ------------
The Company uses the asset and liability method of accounting for income taxes
in accordance with SFAS No. 109, Accounting for Income Taxes. Deferred
income tax assets and liabilities are recognized based on the temporary
differences between the financial statement and income tax basis of assets,
liabilities and carryforwards using enacted tax rates. Valuation allowances are
established for deferred tax assets to the extent of the likelihood that the
deferred tax assets may not be realized.
Revenue Recognition Policy
- --------------------------
Revenue is recognized when the traveling nurses or per-diem professional
healthcare provider renders services. Accordingly, the Company accrues revenue
for employees' time worked but not yet invoiced. In the accompanying balance
sheet this accrual is included as unbilled accounts receivable. At the time of
service delivery, Company management believes that they have evidence of an
arrangement or a contract, the price of the services is fixed, the services have
been rendered, collectibility is reasonably assured and they have no continuing
obligations with respect to the services already rendered.
Use of Estimates
- ----------------
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 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.
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New Age Staffing, Inc.
Summary of Accounting Policies
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Recent Accounting Pronouncements
- --------------------------------
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 requires that a liability for
expenses associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146 also establishes that fair value is the
objective for initial measurement of the liability. Severance pay under SFAS
No. 146, in many cases, would be recognized over time rather than up front.
The provisions of SFAS No. 146 are effective for exit or disposal activities
that are initiated after December 31, 2002 with early application encouraged.
Management does not expect the adoption of SFAS No. 146 to have a material
impact on the Company's financial condition or results of operations.
In December 2002 the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, which provides alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation as prescribed in SFAS No. 123.
Additionally, SFAS No. 148 requires more prominent and more frequent
disclosures in financial statements about the effects of stock-based
compensation. The provisions of SFAS No. 148 are effective for fiscal years
ending after December 15, 2002. Management has evaluated the benefits of
changing to the fair value method of accounting for stock-based compensation
and has elected to continue to use the intrinsic value method while adopting
the more prominent disclosure provisions.
In November 2002 the FASB issued Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which is effective for financial
statements issued after December 15, 2002. Management does not expect the
adoption of FIN 45 to have a material impact on the Company's financial
condition or results of operations.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46), which requires the consolidation of certain
special purpose entities. FIN 46 is applicable to financial statements issued
after 2002, however, disclosures are required currently if the Company expects
to consolidate any variable interest entities. There are no entities that will
be consolidated with the Company's financial statements as a result of FIN 46.
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New Age Staffing, Inc.
Notes to Financial Statements
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1. Sales and Receivables
The following table details the Company's major customers, defined as those
customers representing more than ten percent of the Company's sales during a
reporting period:
Percent of Revenue
Reporting Period Ended 2002 2001 2000
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Customer A 33% - -
Customer B 16% - -
Customer C - 24% -
Customer D - 20% 69%
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2. Property and Equipment
Property and equipment consists of the following:
December 31, 2002 2001
- --------------------------------------------------------------------------------
Office and computer equipment 28,484 3,742
Furniture and fixtures 5,558 -
Computer software 10,000 -
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44,042 3,742
Accumulated depreciation (8,551) (173)
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$ 35,491 $ 3,569
================================================================================
Depreciation expense for 2002 and 2001 was $8,378 and $173, respectively.
There was no depreciation expense during 2000.
3. Other Assets
Included in other assets are lease deposits for the Company's corporate and
various sales offices. In addition, the Company leases a number of apartments
for its employees under short-term agreements (typically three to six months),
which generally coincide with each traveling nurses staffing assignment. As a
condition of these agreements, the Company places security deposits on the
leased apartments. Lease deposits included in other assets at December 31, 2002
totaled $44,881.
Also included in other assets is a $1,000 deposit towards the Company's
purchase of another nurse staffing business. In February 2003, the Company
entered into a binding letter of intent to purchase all of the outstanding stock
of this nurse staffing business. This transaction is discussed more fully in
Note 10.
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New Age Staffing, Inc.
Notes to Financial Statements
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The remainder of the balance of other assets is the factors reserve holdback of
$49,555 discussed more fully below in Note 4.
4. Advances Payable to Factor
In February 2002, the Company entered into a factoring agreement. The term of
the agreement is for a period of eighteen months provided no events of default
occur. The agreement provides that the factor will purchase, with recourse,
eligible accounts receivable up to $175,000 (additional accounts above this
limit may be purchased at the sole discretion of the factor). The Company can
take advances of up to 70% of the face amount of the purchased accounts. All
accounts greater than 90 days are subject to repurchase by the Company at the
sole discretion of the factor. Interest accrues at 2% per month on the average
aggregate amounts of advances outstanding and the factor reserves 1% of the
face amount of each purchased receivable as a bad debt reserve upon which the
factor may offset bad debts and or other charge backs. Upon termination of the
agreement any remaining amounts of reserve will be refunded to the Company
provided all obligations under the agreement have been fulfilled. At
December 31, 2002 included in other assets in the balance sheet is $49,555
representing amounts reserved by the factor. Advances under the agreement are
secured by the full face amount of the factored receivables. Advances
outstanding at December 31, 2002 totaled $388,912. The factor was granted
stock as partial consideration for services.
5. Income Taxes
Income tax expense as disclosed in the statement of operations for
December 31, 2002 consists of Federal and State current tax expense of $89,000
and $24,000, respectively. In 2001 and 2000, due to tax losses incurred, the
Company did have any significant tax liabilities. Federal and State tax loss
carryovers were used to reduce 2002 taxable income.
Temporary differences between the tax basis and financial statements amounts
which create deferred tax assets and liabilities, consist primarily of the
allowance for doubtful accounts and offsetting depreciation differences. These
amounts were not significant at December 31, 2002 and have been fully reserved
as of December 31, 2002 through a valuation allowance totaling approximately
$10,000.
Significant differences between the federal statutory rate of 34% applied to
pre-tax income (loss) as shown in the statement of operations and the actual
provision for income taxes is primarily due to state income taxes.
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New Age Staffing, Inc.
Notes to Financial Statements
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6. Advances Payable to Stockholders
Advances payable to stockholders consists of unsecured advances to the
Company from its primary stockholder and family. These advances are generally
short-term and non-interest bearing and have no stated repayment schedule. The
Company has used these advances to fund cash flow from operations in lieu of
third-party financing. The Company typically has repaid all or a portion of
these advances at the request of the stockholders and when cash is available.
7. Capital Lease Obligation
The Company has one capital lease for office equipment placed in service during
2002. The lease calls for monthly lease payments of $172 per month for 36
months. The capitalized cost of the office equipment is $5,155 with accumulated
depreciation at December 31, 2002 of $286.
8. Commitments
Operating Leases
The Company leases its corporate and sales offices under operating leases with
various terms ranging from month-to-month to four years. These lease generally
contain some or all of the following terms: base rent escalations, operating
expenses and/or renewal provisions. In addition, the Company rents various
apartments throughout the country for its traveling nurses. These leases
generally are very short-term ranging from month-to-month to six months or more
in length. Substantially all of the Company's leases require security deposits
and are included in other asset on the balance sheet.
Future minimum lease payments required under operating leases with remaining
terms in excess of one year from the balance sheet date are as follows:
Year ending December 31, Amount
- --------------------------------------------------------------------------------
2003 $ 70,200
2004 71,100
2005 52,900
2006 10,800
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Total $ 205,000
================================================================================
9. Stockholders' Equity
The Company has authorized 10,000 shares of no par value common stock.
During 2000, the Company's first year of operations, the Company did not
formally issue any stock to its founder, however all such shares were
authorized. For purposes of these financial statements the shares issued to the
founder and related family members are being reflected as having been issued
during 2000. The Company fully funded its first year of operating losses through
advances from stockholders.
14
New Age Staffing, Inc.
Notes to Financial Statements
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During 2001, the Company entered into binding agreements to actually issue
stock to founders, certain employees and one consultant. However, the actual
physical stock certificates were not issued. As a result of the binding
agreements these shares were deemed to have been issued during 2000 and 2001;
9,000 shares in 2000 to the founder and related family members, 500 shares to
employees and 500 shares to a consultant and have been reflected as issued and
outstanding in the financial statements. The shares issued to the founder and
related family members were recorded by the Company at a stated, and deemed
fair, value of $.01 per share for a total of $90. The shares issued to the
employees and the consultant were for services and were recorded at
management's deemed fair value of the shares at the date of issuance which was
$50 per share. Accordingly the Company recorded compensation expense of
$25,000 for the shares issued to employees and $25,000 of interest expense for
the shares issued to the consultant (this consultant shortly after receipt of
the shares entered into a factoring arrangement with the Company, see Note 4).
For calculation of earning or loss per share, the Company considered the 10,000
shares authorized to be issued at December 31, 2000. The Company had no
dilutive shares.
10. Estimated Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, and accounts payable and accrued expenses
approximate fair value because of their short maturity. The carrying amount of
the advances payable to factor approximates fair value because the interest rate
represents current market rates for similar instruments.
11. Segment Information
The Company operates under a single segment; healthcare staffing. All revenues
are earned in the United States of America.
12. Subsequent Events
On February 25th, 2003, the Company entered into a binding letter of intent to
purchase 100% of the issued and outstanding stock of another nurse staffing
agency. As consideration for the purchase the Company paid the seller $1,000
and will issue 152.5 shares of the Company's stock. The seller's sole
stockholder would then become an employee of the Company.
On March 18, 2003, the Company entered into a binding letter of intent to merge
with a public company through the exchange of 100% of the issued and
outstanding stock of the Company.
15