EXHIBIT 99.1
TRAVMED USA, INC. AND SELECTED ACCOUNTS OF AFFILIATE
COMBINED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
YEAR ENDED DECEMBER 31, 2004
F1
EXHIBIT 99.1
TRAVMED USA, INC. AND SELECTED ACCOUNTS OF AFFILIATE
TABLE OF CONTENTS
YEAR ENDED DECEMBER 31, 2004
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F3
FINANCIAL STATEMENTS
COMBINED BALANCE SHEET F4
COMBINED STATEMENT OF INCOME F5
COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY F6
COMBINED STATEMENT OF CASH FLOWS F7
NOTES TO COMBINED FINANCIAL STATEMENTS F8
F2
EXHIBIT 99.1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the shareholders of
Travmed USA, Inc.
We have audited the accompanying combined balance sheet of Travmed USA, Inc. and
selected accounts of affiliate ("the Company") as of December 31, 2004, and the
related combined statements of income, shareholders' equity, and cash flows for
the year then ended. These combined financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 combined
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined 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
audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Travmed USA, Inc.
and selected accounts of affiliate as of December 31, 2004 and the results of
their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
KBA GROUP LLP
Dallas, Texas
May 6, 2005
F3
EXHIBIT 99.1
TRAVMED USA, INC. AND SELECTED ACCOUNTS OF AFFILIATE
COMBINED BALANCE SHEET
DECEMBER 31, 2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,110
Accounts receivable, net of allowance of $11,882 1,407,125
Receivables from related parties 454,479
Prepaid expenses and other current assets 257,608
-----------
Total current assets 2,129,322
PROPERTY AND EQUIPMENT
Computer and office equipment 158,815
Furniture and fixtures 119,212
-----------
278,027
Less: Accumulated depreciation and amortization 221,315
-----------
Property and equipment, net 56,712
-----------
Total Assets $ 2,186,034
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 937,145
Accounts payable - trade 71,871
Accrued expenses 321,930
Payables to shareholders 194,000
Current obligations under capital leases 16,251
Note payable 88,981
-----------
Total current liabilities 1,630,178
SHAREHOLDERS' EQUITY
Common stock; no par value, 100,000 shares authorized,
2,000 shares issued and outstanding 2,000
Retained earnings 1,621,611
Less notes receivable from shareholders (1,067,755)
-----------
Total shareholders' equity 555,856
-----------
Total Liabilities and Shareholders' Equity $ 2,186,034
===========
See accompanying Notes to Combined Financial Statements
F4
EXHIBIT 99.1
TRAVMED USA, INC. AND SELECTED ACCOUNTS OF AFFILIATE
COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2004
REVENUE $ 12,104,904
COST OF REVENUE
Payroll and related benefits 7,131,264
Housing and utilities 2,047,347
Travel 104,836
Other 142,275
------------
9,425,722
------------
GROSS PROFIT 2,679,182
OPERATING EXPENSES 2,016,316
------------
INCOME FROM OPERATIONS 662,866
OTHER INCOME (EXPENSE)
Interest Expense (85,357)
Interest Income 41,510
Miscellaneous Income 17,732
------------
Total Other Income (Expense) (26,115)
------------
NET INCOME $ 636,751
============
See accompanying Notes to Combined Financial Statements.
F5
EXHIBIT 99.1
TRAVMED USA, INC. AND SELECTED ACCOUNTS OF AFFILIATE
COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2004
COMMON STOCK NOTES
------------ RECEIVABLE
NUMBER RETAINED FROM SHAREHOLDERS'
OF SHARES AMOUNT EARNINGS SHAREHOLDERS EQUITY
----------- ----------- ----------- ------------ ------------
Balance at December 31, 2003 2,000 $ 2,000 $ 1,246,357 $(1,067,755) $ 178,602
Net Income -- -- 636,751 -- 636,751
Distributions -- -- (261,497) -- (261,497)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2004 2,000 $ 2,000 $ 1,621,611 $(1,067,755) $ 555,856
=========== =========== =========== =========== ===========
See accompanying Notes to Combined Financial Statements.
F6
EXHIBIT 99.1
TRAVMED USA, INC. AND SELECTED ACCOUNTS OF AFFILIATE
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 636,751
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 27,588
Bad Debt Expense 16,882
(Increase) Decrease in Current Assets:
Accounts Receivable (106,513)
Receivables from Related Parties (324,459)
Other assets (2,836)
Increase (Decrease) in Current Liabilities:
Accounts Payable (119,395)
Accrued Expenses (9,690)
---------
Net Cash Provided by Operating Activities 118,328
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (8,559)
---------
Net Cash Used by Investing Activities (8,559)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Borrowings on Line of Credit 173,957
Proceeds from Note Payable 266,942
Principal Payments on Note Payable (242,317)
Principal Payments on Capital Lease Obligations (19,025)
Payments made on Payables to Shareholders (37,635)
Distributions to Shareholders (261,497)
---------
Net Cash Used by Financing Activities (119,575)
---------
NET DECREASE IN CASH (9,806)
Cash and cash equivalents - Beginning of Year 19,916
---------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 10,110
=========
See accompanying Notes to Combined Financial Statements.
F7
EXHIBIT 99.1
TRAVMED USA, INC. AND SELECTED ACCOUNTS OF AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2004
NOTE 1 NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
TravMed USA, Inc. (the Company) is primarily engaged in providing
temporary nurse staffing on a contract basis for hospitals
throughout the United States. The 2004 combined financial statements
include the accounts of TravMed USA, Inc. and the results of the
revenue and expenses for the year ended December 31, 2004 of certain
nursing contracts that were transferred by Team Staffing
International, LLC (an affiliated company) to TravMed USA, Inc. in
March 2005 as part of an Agreement and Plan of Reorganization
entered into with Crdentia Corp. (see Note 8: Subsequent Events).
Credit Concentrations
Three customers accounted for approximately 32% of the Company's
revenues in 2004. One customer accounted for approximately 11% of
the Company's accounts receivable at December 31, 2004.
Financial instruments, which potentially subject the Company to a
concentration of credit risk, are primarily cash and cash
equivalents and accounts receivable. It is the Company's practice to
place its cash in high quality financial institutions. Concentration
of credit risk with respect to receivables is principally limited to
trade receivables with corporate customers that meet specific credit
criteria. Management considers the customer receivables to represent
normal business risk.
Revenue Recognition
Revenues are recognized as services are rendered and are based on
the reported hours worked by each nurse. The hourly rate charged to
a customer varies depending upon the nurse's area of expertise. On a
bi-weekly basis, timesheets are accumulated and billings are
submitted to customers.
Cash and Cash Equivalents
The company considers all highly liquid debt instruments with
original maturities of three months or less to be a cash equivalent.
Accounts Receivables
Accounts receivable are uncollateralized customer obligations due
under normal trade terms. The Company provides services to various
public and private medical facilities such as hospitals and nursing
care facilities. Management performs continuous credit evaluations
of the customers' financial condition.
Management reviews accounts receivable on a regular basis to
determine if any receivables will potentially be uncollectible. An
allowance for doubtful accounts is recorded based upon management's
evaluation of current industry conditions, historical collection
experience and other relevant factors which, in the opinion of
management, require recognition in estimating the allowance. After
all attempts to collect a receivable have failed, the receivable is
written off against the allowance.
Principles of Combination
The combined financial statements include the accounts of TravMed
USA, Inc. and selected accounts of Team Staffing Inernational, LLC
(an affiliate of TravMed USA, Inc.). All significant intercompany
transactions and balances have been eliminated in combination.
F8
EXHIBIT 99.1
TRAVMED USA, INC. AND SELECTED ACCOUNTS OF AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2004
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed
using the double declining and straight-line methods for financial
accounting purposes. Amortization of equipment acquired under
capital leases is included with depreciation expense. Estimated
useful lives for financial accounting purposes are 3 to 5 years for
computer and office equipment and 5 to 7 years for furniture and
fixtures. Equipment held under capital lease is amortized over the
lesser of the estimated useful life of the equipment or the lease
period.
Use of Estimates in Preparing Financial Statements
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.
Income Taxes
Effective January 1, 2001, the Company elected to be taxed under
Subchapter S of the Internal Revenue Code. As a result, the Company
does not pay federal or state corporate income taxes. The
shareholders are taxed individually on the Company's income, whether
or not distributed.
Advertising Costs
Advertising costs are expensed as incurred and charged to operating
expenses. Advertising expenses were $159,000 for the year ended
December 31, 2004.
NOTE 2 RELATED PARTY TRANSACTIONS
The receivables from related parties consist of amounts due from
commonly controlled entities and arose in the normal course of
business. The amounts due from commonly controlled entities are
non-interest bearing and have no fixed repayment terms.
The notes receivable due from shareholders consist of two notes
totaling $812,420 that bear interest at 4% due December 31, 2012 and
two notes totaling $255,335 that bear interest at 4% due December
31, 2013. The ultimate collectibility of these notes is uncertain
and therefore they have been included in the accompanying combined
balance sheet as a reduction to shareholder's equity.
The payables to shareholders consist of advances from the Company's
shareholders. The amounts are non-interest bearing and have no fixed
repayment terms.
The Company leases its corporate office building from an affiliated
entity with common ownership. The lease, which expires in 2007 and
has a five year renewal option, is treated as an operating lease.
Lease expense paid to the affiliated entity approximated $111,000
for the year ended December 31, 2004. The Company is the guarantor
on the mortgage payable on the office building, which has a balance
of approximately $1,300,000 at December 31, 2004.
F9
EXHIBIT 99.1
TRAVMED USA, INC. AND SELECTED ACCOUNTS OF AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2004
NOTE 3 LINE OF CREDIT
The shareholders have a Loan and Security Agreement with a finance
company that provides a line of credit in an amount equal to the
lesser of $2,000,000 or 85% of the Company's eligible receivables;
bears interest at prime +2% (7.25% at December 31, 2004); and
expires November, 2007. The Company has a Loan and Security
Agreement with the shareholders that provides a line of credit to
the Company equal to the line of credit that the shareholders have
with the finance company. This agreement contains covenants which
require the Company to maintain certain financial ratios and
tangible net worth balances. At December 31, 2004, the Company was
in compliance with the financial covenants as required by the
agreements.
The collateral for this line of credit consists of substantially all
of the Company's assets. The Company has guaranteed the
shareholders' agreement with the bank.
NOTE 4 NOTE PAYABLE
The note payable at December 31, 2004 consists of an $88,981 note
payable to a financing company with interest at 4.5%, payable in
monthly installments of $30,219 (including interest) through March
2005, secured by the underlying insurance policies.
NOTE 5 LEASES
The Company leases its offices and certain furniture and equipment
under agreements expiring through 2008 classified as operating
leases. Rent expense under such leases totaled $122,775 in 2004.
Future annual minimum lease commitments under such leases are as
follows:
Year ending
December 31, Amount
-------------------- --------
2005 $121,474
2006 136,308
2007 144,002
2008 3,008
--------
Total Lease Payments $404,792
========
F10
EXHIBIT 99.1
TRAVMED USA, INC. AND SELECTED ACCOUNTS OF AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2004
The Company also leases certain equipment and furniture under
agreements classified as capital leases. The cost and accumulated
amortization of such assets, included in property and equipment, as
of December 31, 2004, was $53,510 and $40,191, respectively.
NOTE 6 EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan for the benefit of all eligible
employees. The Company's contributions are discretionary. There were
no discretionary contributions for the year ended December 31, 2004.
NOTE 7 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year ended 2004 for interest expense totaled
$85,357.
NOTE 8 SUBSEQUENT EVENTS
On March 29, 2005, Crdentia Corp. purchased TravMed USA, Inc. and
selected accounts of its affiliate for consideration consisting of
$3,215,490 of cash and $3,215,490 of convertible subordinated
promissory notes.
F11