SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: (DATE OF EARLIEST EVENT REPORTED) : SEPTEMBER 26, 2003
COMMISSION FILE NO. 0-21914
HEALTHRENU MEDICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 84-1022287
- ----------------------------------- -----------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
307 South Friendswood Drive, Suite E-1, Friendswood, Texas 77546
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(888) 583-3356
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(ISSUER TELEPHONE NUMBER)
AGTSPORTS, INC.7255 E. QUINCY AVENUE, SUITE 550, DENVER, CO 80237
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FORMER NAME AND ADDRESS
This amended Form 8-K is being filed to provide audited financial statements
and pro forma information.
ITEM 1. CHANGES IN CONTROL OF THE REGISTRANT.
As a result of the acquisition of Health Renu Medical, Inc., a Delaware
corporation ("Health Renu" or the "Company"), the control of the Registrant
shifted to the former shareholders of Health Renu. The following individual
will exercise control of the Registrant.
Name No. of shares Percentage
---- ------------- ----------
Darrell Good 7,375,000(1) 46.8%
(1) Includes 795,000 shares issued to Cheryl Good, the wife of Darrell Good, and
1,080,000 shares issued to the six children of Mr. Good and his wife,
collectively.
ITEM 2. ACQUISITION OF DISPOSITION OF ASSETS.
In September and October 2003, the Registrant acquired 100% of the issued
and outstanding shares of Health Renu in exchange for 15,447,699 shares of the
Registrant's common stock. Upon 100% shareholder approval of Health Renu, there
were approximately 15,888,631 shares of the Registrant's common stock
outstanding, which includes the conversion of the Series 2000A Preferred
Stock into 1,767 shares of common stock and the conversion of $379,902 of notes
and accrued wages into 379,902 shares of common stock.
DESCRIPTION OF THE BUSINESS
For the last three (3) years since inception, Health Renu has been in the
medical research and developmental stage. The Company has focused on improving
its products and has had very little production or revenues. Most of Health
Renu's sales have been in the area of emergency, non-healing wounds of the human
body such as Staph infections, stage 1,2,3,4, diabetic ulcers, gangrene, and
amputations. The Company has satisfied the United States Federal Drug
Administration (the "FDA") requirements to sell it products to all medical
related companies including hospitals, walk-in clinics and nursing homes or
directly to consumers.
DESCRIPTION OF PRINCIPAL PRODUCTS & SERVICES
The Company developed a product line (the "Product Line" or "Finished
Products") consisting of the following eight (8) products:
DERM-ALL GEL 4 OZ.
Used for non-healing wounds, pressure ulcers, diabetic ulcers, and surgical
wounds.
SKIN RENU PLUS 2 OZ.
Used for diabetic neuropathy, circulation, skin prep for pre-opt surgery
patients, used in post-opt surgical wound care for preventive care against
possible staph infection and more rapid recovery and scar reduction of the
wound site.
SKIN RENU LOTION 6 OZ.
Diabetic preventive skin care, preventive skin care for pressure ulcers,
dermatitis, eczema, age spots, chronic bruising associated with thin skin, skin
condition for thin skin, chronic dry skin, cracked hands, and preventive care
against latex allergies.
SKIN RENU 1 OZ.
Used for age spots, bruising, and burns. Important for people with serious
allergic reactions to insect bites.
RENU CARE 6 OZ.
Used as a non-rinse cleanser for bed patients, provides skin protection and can
be used for stage 1 pressure ulcers ( bedsores).
DEEP RELIEF 4 OZ.
Has the transdermal ability to penetrate through skin layers, transferring
anti-inflammatory ingredients through muscle tissue to the inflamed joints. Made
with a heat action. Used for severe arthritis.
HEALTH RENU
SPORTS MEDICINE 4OZ.
Has the transdermal ability to penetrate through skin layers, transferring
anti-inflammatory ingredients through muscle tissue to the inflamed joints. Made
with peppermint oil which gives a peppermint fragrance as well as an
anti-inflammatory action. Made with more of a mild heat action.
FACIAL SOAP 3.5 OZ.
Used for facial skin disorders-contains omega 3,6 & 9 fatty acids as well as
vitamins.
Patent Pending Product with clinical studies.
The Company plans to begin marketing the Product Line directly to consumers
rather than strictly to hospitals, walk-in clinics and nursing homes.
COMPETITIVE BUSINESS CONDITIONS
The market for healthcare products is estimated at 150 billion dollars, of
which the Company has acquired less than one-percent (1%) market share with its
Product Line. The Company will depend on marketing efforts to increase its
market share. The Company believes that with an aggressive marketing campaign
it can quickly generate more revenue and establish its Product Line nationwide.
The Company's cost for research and development is fully paid. The Company
intends to spend approximately 40% of its resources to increase its market share
over the next twelve months.
The Company plans to compete based on price. The Company's products are
priced lower than similar products offered by competitors. The Company intends
to operate with minimal overhead costs by outsourcing its shipping, receiving,
purchasing, and production functions.
NO DEPENDENCE ON ONE OR A FEW CUSTOMERS
The Company does not currently depend on any one or a few customers.
PATENTS, TRADEMARKS & LICENSES
The Company owns the registered trademark, Healthrenu. The Company does
not hold any patents or licenses. The Company, however, has exclusive rights to
the marketing of a tapeless iv holder as well as latex surgical gloves. The
Company is uncertain whether or not it will purchase the patent rights from the
principal patent owners.
NEED FOR GOVERNMENT APPROVAL
The Company has satisfied all FDA requirements with respect to its Finished
Products for sales directly to consumers and medical related companies. The
Company is currently developing new products for which it will need to meet FDA
requirements in order to sale these products to consumers and medical related
companies. The Company does not expect that when finished developing these new
products it will be unable to also obtain FDA approval for sales of these
products to consumers and medical related companies.
The Company is currently seeking approval for reimbursement from Medicare
with respect to both finished and trial products. The Company expects that
obtaining such approval and reimbursement will increase future revenue in
relation to what it expects such revenue would be if approved.
RESEARCH & DEVELOPMENT OVER PAST TWO YEARS
The Company's activities have consisted primarily of research and
development activities. During the last two (2) years, the Company conducted
research on a daily basis. The Company has various products in the early stages
of development. The Company obtained the services of Dr. Sparks to conduct
research and development for the Company. The Company issued 200,000 common
shares, to Dr. Sparks in exchange for his services. The agreement between Dr.
Sparks and the Company provides that Dr. Sparks will use Healthrenu products on
his patients during their research and development stage. Dr. Sparks has paid
the Company approximately $61,000, of which $25,000 was for stock and $36,000
was for the Company's products.
EMPLOYEES
The Company has two (2) full-time employees and outsources a majority of
its operations. The Company intends to hire three (3) additional full-time
employees within the next ninety (90) days to provide shipping services,
operation services and accounting services. The Company estimates that it can
fully operate with as few as fifteen (15) full-time employees.
DESCRIPTION OF PROPERTY
The Company has two (2) business locations, one in Guntersville, Alabama,
and the other in Friendswood, Texas. The Company is in the process of
relocating its business operations in Guntersville. The Company does not have
any information on the new Guntersville location at this time.
The Friendswood office is located at 307 South Friendswood Drive,
Suite E-1, Friendswood, Texas 77546. Friendswood is a suburb located Southeast
of Houston, Texas. The Company has entered into a one (1) year lease for 1,300
square feet of office space for the Friendswood office. The lease provides
for monthly payments of $1,300. The Friendswood office handles the
workload of the Guntersville office during the relocation.
RELATED PARTY TRANSACTIONS
The Company has entered into an agreement with Dr. Sparks, a Director of
the Company who will likely be added as a Director of the Registrant in the near
future, whereby Dr. Sparks will conduct research and development for the Company
and use HealthRenu products on his patients during the products' development
stage. Dr. Sparks purchases products from the Company at wholesale prices for
use in his medical practice and paid the Company $36,000 over the last three
years. There are currently no other transactions between the Company and its
officers, directors or more than five-percent (5%) shareholders.
LEGAL PROCEEDINGS
There are currently no legal proceedings.
RISK FACTORS
Dependence Upon External Financing. It is imperative that we raise capital
to expand our operations and stay in business. We require capital of
approximately $500,000 to implement our business plan. If we are unable to
obtain debt and/or equity financing upon terms that our management deems
sufficiently favorable, or at all, it would have a materially adverse impact
upon our ability to pursue our business strategy and maintain our current
operations.
Even if Product is Successful, We May Be Unable to Sell Our Product. In the
event we are successful in completing our product, there can be no assurance
that we will be able to sell our products at all, or enough at prices needed to
maintain operations.
ITEM 5. OTHER EVENTS.
As a result of the acquisition of Healthrenu, Inc., a Delaware corporation,
Darrell Good has become the Registrant's President and a Director.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Financial Statements of Health Renu, Inc.
(a) Financial Statements of Businesses Acquired
(b) Pro Forma Financial Information
(c) Exhibits:
2.1(1) Exchange Agreement
(1) Filed with the Form 8-K filed with the SEC on September 29, 2003.
Signatures
Pursuant to the requirement 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.
HealthRenu Medical, Inc.
November 26, 2003
/s/ Randy Mullins
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Randy Mullins
Chief Executive Officer
Financial Statements
HEALTH RENU, INC.
__________
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
HEALTH RENU, INC.
TABLE OF CONTENTS
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PAGE(S)
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Report of Independent Accountants 1
Financial Statements:
Balance Sheet as of September 30, 2002 and 2001 2
Statement of Operations for the years ended
September 30, 2002 and 2001 3
Statement of Stockholders' Equity for the years
ended September 30, 2002 and 2001 4
Statement of Cash Flows for the years ended
September 30, 2002 and 2001 5
Notes to Financial Statements 6
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders of
Health Renu, Inc.
We have audited the accompanying balance sheet of Health Renu, Inc. (the
"Company") as of September 30, 2002 and 2001, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. 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 Health Renu, Inc. as of
September 30, 2002 and 2001, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ Ham, Langston & Brezina, L.L.P.
Houston, Texas
November 21, 2003
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HEALTH RENU, INC.
BALANCE SHEET
SEPTEMBER 30, 2002 AND 2001
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ASSETS 2002 2001
- ----------------------------------------------------- ---------- ----------
Current assets:
Cash and cash equivalents $ 13,128 $ -
Accounts receivable, net 16,276 1,604
Inventories 49,674 30,768
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Total current assets 79,078 32,372
Property and equipment, net 47,318 40,032
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Total assets $ 126,396 $ 72,404
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LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------
Current liabilities:
Book overdraft $ - $ 11,624
Accounts payable 37,156 19,680
Accounts payable-stockholder 955 2,332
Sales tax payable 123 690
Current portion of notes payable to stockholders 25,403 19,069
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Total current liabilities 63,637 53,395
Notes payable to stockholders, net of current portion - 8,000
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Total liabilities 63,637 61,395
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Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; 45,000,000 shares
authorized, 8,894,807 and 8,877,807 shares issued
and outstanding at September 30, 2002 and 2001,
respectively 8,895 8,878
Additional paid-in capital 240,822 220,839
Unissued common stock 127,600 -
Accumulated deficit (314,558) (218,708)
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Total stockholders' equity 62,759 11,009
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Total liabilities and stockholders' equity $ 126,396 $ 72,404
========== ==========
See accompanying notes to financial statements.
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HEALTH RENU, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
__________
YEAR ENDED SEPTEMBER 30,
------------------------
2002 2001
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Sales $ 78,502 $ 87,386
Cost of sales 60,629 60,124
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Gross profit 17,873 27,262
General and administrative expenses 110,258 66,406
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Loss from operations (92,385) (39,144)
Interest expense (3,465) (4,062)
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Net loss $ (95,850) $ (43,206)
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Weighted average shares outstanding 8,891,974 8,866,807
=========== ===========
Basic and diluted net loss per common share $ (0.01) $ (0.00)
=========== ===========
See accompanying notes to financial statements.
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HEALTH RENU, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
__________
ADDITIONAL UNISSUED
COMMON STOCK PAID-IN COMMON ACCUMULATED
SHARES AMOUNT CAPITAL STOCK DEFICIT TOTAL
--------- ------- -------- -------- ---------- ---------
Balance at September 30, 2000 8,865,807 $ 8,866 $206,451 $ - $(175,502) $ 39,815
Common stock issued for cash 12,000 12 11,988 - - 12,000
Rent contributed by a stockholder - - 2,400 - - 2,400
Net loss - - - - (43,206) (43,206)
--------- ------- -------- -------- ---------- ---------
Balance at September 30, 2001 8,877,807 8,878 220,839 - (218,708) 11,009
Common stock issued for cash 17,000 17 16,983 - - 17,000
Cash received for common stock not
yet issued - - - 127,600 - 127,600
Rent contributed by a stockholder - - 3,000 - - 3,000
Net loss - - - - (95,850) (95,850)
--------- ------- -------- -------- ---------- ---------
Balance at September 30, 2002 8,894,807 $ 8,895 $240,822 $127,600 $(314,558) $ 62,759
========= ======= ======== ======== ========== =========
See accompanying notes to financial statements.
-4-
HEALTH RENU, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001
__________
YEAR ENDED SEPTEMBER 30,
---------------------------
2002 2001
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Cash flows from operating activities:
Net loss $ (95,850) $(43,206)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 3,330 4,139
Rent expense contributed by stockholder 3,000 2,400
Changes in operating assets and liabilities:
Accounts receivable (14,672) (159)
Inventory (18,906) 9,816
Accounts payable 16,099 8,559
Sales tax payable (567) (736)
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Net cash used in operating activities (107,566) (19,187)
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Cash flows from investing activities:
Purchase of fixed assets (10,616) -
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Net cash used in investing activities (10,616) -
---------- ---------
Cash flows form financing activities:
(Decrease) increase in book overdraft (11,624) 11,624
Payments on notes payable (1,666) (4,490)
Proceeds from issuance of common stock 17,000 12,000
Proceeds from common stock not yet issued 127,600 -
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Net cash provided by financing activities 131,310 19,134
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Increase (decrease) in cash and cash equivalents 13,128 (53)
Cash and cash equivalents, beginning of year - 53
---------- ---------
Cash and cash equivalents, end of year $ 13,128 $ -
========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,465 $ 4,062
========== =========
Cash paid for income taxes $ - $ -
========== =========
See accompanying notes to financial statements
-5-
HEALTH RENU, INC.
NOTES TO FINANCIAL STATEMENTS
__________
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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BACKGROUND
- ----------
Health Renu, Inc. (the "Company"), a Delaware corporation, was founded in 1997
and is currently headquartered in Guntersville, Alabama. The Company produces
and distributes various skin care products primarily to the home health care and
other medical markets throughout the United States.
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
estimates and assumptions that affect reported amounts and related disclosures.
Actual results could differ from those estimates.
REVENUE RECOGNITION
- --------------------
Revenue is recognized when products are shipped.
CONCENTRATIONS OF CREDIT RISK
- --------------------------------
Financial instruments which subject the Company to concentrations of credit risk
include cash and cash equivalents and accounts receivable.
The Company maintains its cash in well-known banks selected based upon
management's assessment of the banks' financial stability. Balances may
periodically exceed the $100,000 federal depository insurance limit; however,
the Company has not experienced any losses on deposits.
Accounts receivable generally arise from sales of various skin care products to
the home health care and other medical markets throughout the United States.
Collateral is generally not required for credit granted.
CASH EQUIVALENTS
- -----------------
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalents.
PROPERTY AND EQUIPMENT
- ------------------------
Property and equipment are recorded at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets, which range
from three to twenty-five years. Expenditures for major renewals and
betterments that extend the original estimated economic useful lives of the
applicable assets are capitalized. Expenditures for normal repairs and
maintenance are charged to expense as incurred. The cost and related
accumulated depreciation of assets sold or otherwise disposed of are removed
from the accounts, and any gain or loss is included in operations.
INVENTORIES
- -----------
Inventories consist of raw materials, work-in-process and finished goods and are
stated at the lower of cost or market. Cost is computed using actual costs on a
first-in, first-out basis.
Continued
-6-
HEALTH RENU, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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SHIPPING AND DELIVERY COSTS
- ------------------------------
The cost of shipping and delivery are charged directly to cost of sales at the
time of shipment.
RESEARCH AND DEVELOPMENT
- --------------------------
Research and development activities are expensed as incurred, including costs
relating to patents or rights which may result from such expenditures.
INCOME TAXES
- -------------
The Company uses the liability method of accounting for income taxes. Under
this method, deferred income taxes are recorded to reflect the tax consequences
on future years of temporary differences between the tax basis of assets and
liabilities and their financial amounts at year-end. The Company provides a
valuation allowance to reduce deferred tax assets to their net realizable value.
LOSS PER SHARE
- ----------------
Basic and diluted loss per share is computed on the basis of the weighted
average number of shares of common stock outstanding during each period. Common
equivalent shares from common stock options and warrants are excluded from the
computation as their effect would dilute the loss per share for all periods
presented.
IMPAIRMENT OF LONG-LIVED ASSETS
- ----------------------------------
In the event that facts and circumstances indicate that the carrying value of a
long-lived asset, including associated intangibles, may be impaired, an
evaluation of recoverability is performed by comparing the estimated future
undiscounted cash flows associated with the asset or the asset's estimated fair
value to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow is required.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------
The Company includes fair value information in the notes to financial statements
when the fair value of its financial instruments is different from the book
value. When the book value approximates fair value, no additional disclosure is
made.
COMPREHENSIVE INCOME
- ---------------------
Comprehensive income includes such items as unrealized gains or losses on
certain investment securities and certain foreign currency translation
adjustments. The Company's financial statements include none of the additional
elements that affect comprehensive income. Accordingly, comprehensive income
(loss) and net income (loss) are identical.
STOCK-BASED COMPENSATION
- -------------------------
Stock-based compensation is accounted for using the intrinsic value method
prescribed in Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees", rather than applying the fair value method
prescribed in SFAS No. 123, "Accounting for Stock-Based Compensation".
Continued
-7-
HEALTH RENU, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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RECENT ACCOUNTING PRONOUNCEMENTS
- ----------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, which
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. In addition, SFAS No. 141 further clarifies the
criteria to recognize intangible assets separately from goodwill. The
implementation of SFAS No. 141 did not impact the Company's financial position
or results of operations because the Company did not complete any business
combinations or record any significant intangibles during the years ended
September 30, 2002 or 2001.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standard ("SFAS") No. 142, "Goodwill and Other Intangible Assets".
SFAS No. 142 eliminates the amortization of goodwill and requires that goodwill
be reviewed annually for impairment. SFAS No. 142 also requires that the useful
lives of previously recognized intangible assets be reassessed and the remaining
amortization periods be adjusted accordingly. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001 and affects all goodwill and
other intangible assets recorded on the Company's balance sheet at that date,
regardless of when the assets were initially recorded. The implementation of
SFAS No. 142 is not expected to have a material impact on the Company's results
of operations or financial position.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. The Company does not expect the implementation of SFAS No.
143 to have a material impact on the Company's results of operation or financial
position.
In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets", which is effective for fiscal years beginning after December
15, 2001. The provisions of this statement provide a single accounting model
for impairment of long-lived assets. The Company does not expect the
implementation of SFAS No. 144 to have a material impact on the Company's
results of operation or financial position.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 requires that gains and losses from extinguishment of debt be
classified as extraordinary items only if they meet the criteria in Accounting
Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of
Opinion No. 30 will distinguish transactions that are part of an entity's
recurring operations from those that are unusual and infrequent and meet the
criteria for classification as an extraordinary item. SFAS No. 145, which is to
be applied to all periods presented, is effective for the Company beginning
January 1, 2003. The implementation of SFAS No. 145 did not have a material
impact on the Company's results of operations or financial position.
Continued
-8-
HEALTH RENU, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-------------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED
- ----------------------------------------------
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 addresses accounting and reporting
for costs associated with exit or disposal activities, such as restructurings,
involuntarily terminating employees, and consolidating facilities initiated
after December 31, 2002. SFAS No. 146, which requires that costs related to
exiting an activity or to a restructuring not be recognized until the liability
is incurred, is effective for the Company beginning January 1, 2003 and is
applied on a prospective basis.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation, Transition and Disclosure. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and requires fair value method
proforma disclosures to be displayed more prominently and in a tabular format.
Additionally, SFAS No. 148 requires similar disclosures in interim financial
statements. The Company did not voluntarily change to the fair value based
method of accounting for stock-based employee compensation, but did adopt the
transition and disclosure requirements of SFAS No. 148 during the year ended
September 30, 2003.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 is intended to result
in more consistent reporting of contracts as either freestanding derivative
instruments subject to SFAS 133 in its entirety, or as hybrid instruments with
debt host contracts and embedded derivative features. In addition, SFAS 149
clarifies the definition of a derivative by providing guidance on the meaning of
initial net investments related to derivatives. SFAS 149 is effective for
contracts entered into or modified after June 30, 2003. The Company does not
expect the adoption of SFAS 149 to have any effect on the Company's financial
position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. SFAS 150 represents a
significant change in practice in the accounting for a number of financial
instruments, including mandatorily redeemable equity instruments and certain
equity derivatives that frequently are used in connection with share repurchase
programs. SFAS 150 is effective for all financial instruments created or
modified after May 31, 2003, and to other instruments as of September 1, 2003.
The Company adopted SFAS 150 on June 1, 2003 and does not expect the effect of
adopting this statement to have a material impact on the Company's financial
position or results of operations.
Continued
-9-
HEALTH RENU, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-------------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED
- ----------------------------------------------
In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires a guarantor to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. FIN 45 also expands the
disclosures required to be made by a guarantor about its obligations under
certain guarantees that it has issued. Initial recognition and measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified. The disclosure requirements are effective immediately. The
adoption of FIN 45 did not impact the Company's financial position or results of
operations.
In January 2003, the FASB issued Interpretation 46, Consolidation of Variable
Interest Entities ("FIN 46"). FIN 46 requires that companies that control
another entity through interests other than voting interests should consolidate
the controlled entity. FIN 46 applies to variable interest entities created
after January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest in after that date. The related disclosure requirements are
effective immediately. The implementation of FIN 46 did not have a material
effect on the Company's financial position or results of operations.
2. INVENTORIES
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Inventories consist of the following at September 30, 2002 and 2001:
2002 2001
---------- ----------
Work-in-process $ 29,841 $ 23,200
Finished goods 19,833 7,568
---------- ----------
$ 49,674 $ 30,768
========== ==========
3. PROPERTY AND EQUIPMENT
------------------------
Property and equipment consisted of the following at September 30, 2002 and
2001:
2002 2001
---------- ----------
Buildings and equipment $ 67,216 $ 56,600
Less: accumulated depreciation (19,898) (16,568)
---------- ----------
Property and equipment, net $ 47,318 $ 40,032
========== ==========
Depreciation expense for the year ended September 30, 2002 and 2001 was $3,330
and $4,139, respectively.
Continued
-10-
HEALTH RENU, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
4. NOTES PAYABLE-STOCKHOLDERS
---------------------------
Notes payable to stockholders consisted of the following at September 30, 2002
and 2001:
2002 2001
------- -------
Notes payable to a stockholder, accruing interest
at 10% to 27%, principal and interest due on
demand. These notes are not collateralized. $ 17,403 $ 19,069
Note payable to a stockholder, interest due monthly
at 10% per year, principal due on January 15, 2003.
This note is not collateralized. 8,000 8,000
---------- ----------
Total notes payable to stockholders $ 25,403 $ 27,069
========== ==========
5. INCOME TAXES
-------------
The Company has incurred losses since its inception and, therefore, has not been
subject to federal income taxes. As of September 30, 2002, the Company had net
operating loss ("NOL") carry-forwards for income tax purposes of approximately
$324,132 which expire in various tax years through 2022. Under the provisions
of Section 382 of the Internal Revenue Code an ownership change in the Company
could severely limit the Company's ability to utilize its NOL carry-forward to
reduce future taxable income and related tax liabilities. Additionally, because
United States tax laws limit the time during which NOL carry-forwards may be
applied against future taxable income, the Company may be unable to take full
advantage of its NOL for federal income tax purposes should the Company generate
taxable income.
The composition of deferred tax assets and liabilities and the related tax
effects at September 30, 2002 and 2001 are as follows:
2002 2001
---------- ----------
Deferred tax assets:
Net operating losses $ 110,205 $ 78,385
Valuation allowance (110,205) (78,385)
---------- ----------
Net deferred tax asset (liability) $ - $ -
=========== ==========
The difference between the income tax benefit in the accompanying statement of
operations and the amount that would result if the U.S. federal statutory rate
of 34% were applied to pre-tax loss for the year ended September 30, 2002 and
2001 is as follows:
2002 2001
------------------ -------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- -------- --------- --------
Benefit for income tax at
federal statutory rate $ 31,824 34.0% $ 14,690 34.0%
Non-deductible expense (4) - - -
Increase in valuation
allowance (31,820) (34.0) (14,690) (34.0)
--------- -------- --------- --------
$ - -% $ - -%
========= ======== ========= ========
Continued
-11-
HEALTH RENU, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
6. CONTINGENCIES
-------------
In August 2001 the Company entered into a consulting agreement with an
individual whereby he is to provide various marketing and other consulting
services to the Company for a fee of $3,500 per month and 653,664 shares of the
Company's common stock. The shares are to be earned and issued only upon the
successful completion of the Company becoming a publicly traded company.
Included in accounts payable at September 30, 2002 is $17,500 owed to this
individual.
7. CONVERTIBLE PREFERRED STOCK
-----------------------------
The Company is authorized to issue 5,000,000 shares of convertible preferred
stock, $.001 par value. The convertible preferred stockholders would have
priority rights to dividend distributions and liquidation distributions over the
common stockholders in the event of dissolution. As of September 30, 2001,
there were 500,000 shares issued and outstanding. On April 25, 2002, all of the
preferred stockholders converted their 500,000 shares of preferred stock to
1,352,307 shares of common stock. All references to the number of shares and
per share amounts have been restated to give retroactive effect to the preferred
stock conversion for all periods presented. As of September 30, 2002 there were
no shares of preferred stock issued and outstanding.
8. RELATED PARTY TRANSACTIONS
----------------------------
The Company's office is located in the home of a major stockholder of the
Company. The stockholder has not charged the Company rent for this space. The
fair market value of the rent has been estimated at approximately $250 per
month. Therefore, included in the accompanying statement of operations is
$3,000 and $2,400 of rent expense for the years ended September 30, 2002 and
2001, respectively.
Effective April 30, 2002 the Company entered into a lease agreement with the
father of the chief executive officer and major stockholder of the Company to
lease 33 acres of land in Texas to be used in the production of raw materials.
The lease payments are $250 per month for ten years. As of September 30, 2002
no lease payments were made and included in accounts payable is $2,250 related
to this lease.
9. SUBSEQUENT EVENTS
------------------
Effective September 26, 2003 the Company entered into an agreement whereby the
Company agreed to exchange 100% of the issued and outstanding shares of its
common stock and $50,000 for approximately 99% or 15,447,699 shares of the
issued and outstanding common stock of AGTSports, Inc. (a non-operating public
shell corporation). The agreement represented a recapitalization of the Company
with accounting treatment similar to that used in a reverse acquisition, except
that no goodwill or intangible asset is recorded. A recapitalization is
characterized by the merger of a private operating company into a non-operating
public shell corporation with nominal net assets and typically results in the
owners and managers of the private company having effective or operating control
after the transaction. The Company emerged as the surviving financial reporting
entity under the agreement, but AGTSports, Inc. (which changed its name to
HealthRenu Medical, Inc.) remained as the legal reporting entity.
Also, in September 2003 the Company issued 4,574,000 shares of its common stock
to officers and various consultants of the Company in connection with the
execution of employment agreements and consulting agreements.
-12-
Proforma Financial Statements
HEALTHRENU MEDICAL, INC.
__________
UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND JUNE 30, 2003
HEALTHRENU MEDICAL, INC.
UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS
The following unaudited proforma combined financial statements give effect to
the reverse merger of AGTSports, Inc. ("AGT") by HealthRenu, Inc. ("HRI"). The
transaction will be accounted for using the purchase method of accounting,
whereby the purchase price is allocated to the assets acquired and liabilities
assumed based on their estimated fair values. The fair values of the assets and
liabilities of AGT have been combined with the recorded values of the assets and
liabilities of HRI in the unaudited proforma combined financial statements. The
unaudited proforma combined balance sheet represents the combined financial
position of AGT and HRI as of June 30, 2003 and September 30, 2002, assuming
that the reverse merger had occurred as of those dates. The unaudited proforma
combined statements of operations give effect to the reverse merger of AGT and
HRI by combining their results of operations for the year ended September 30,
2002 and for the nine month period ended June 30, 2003 assuming that the reverse
merger had occurred at the beginning of the periods.
The unaudited proforma combined financial statements are based on the estimates
and assumptions set forth in the notes to these financial statements, which are
preliminary and have been made solely for purposes of developing this proforma
information. The unaudited proforma combined financial statements are presented
for illustrative purposes only. The proforma adjustments are based upon
available information and assumptions that management believes are reasonable.
The unaudited proforma combined financial statements are not necessarily an
indication of the results that would have been achieved had such transactions
been consummated as of the dates indicated or that may be achieved in the
future.
The unaudited proforma combined financial statements should be read in
conjunction with the historical financial statements and related notes of AGT
and HRI, appearing elsewhere in this document.
HEALTHRENU MEDICAL, INC.
UNAUDITED PROFORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 2002
__________
HEALTHRENU, AGTSPORTS, PRO-FORMA PRO-FORMA
ASSETS INC. INC. ADJUSTMENTS COMBINED
- ------------------------------- ---------- ------------- ------------------- ----------
Current assets:
Cash and cash equivalents $ 13,128 $ 38,854 $ 50,000(3) $101,982
Accounts receivable, net 16,276 37,500 - 53,776
Inventories 49,674 - - 49,674
---------- ------------- ------------------- ----------
Total current assets 79,078 76,354 50,000 205,432
Property and equipment, net 47,318 2,160 - 49,478
---------- ------------- ------------------- ----------
Total assets $ 126,396 $ 78,514 $ 50,000 $ 254,910
========== ============= =================== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------
Current liabilities:
Accounts payable $ 37,156 $ 32,731 $ - $ 69,887
Accrued expenses 1,078 228,628 (216,685)(3) 13,021
Notes payable 25,403 113,217 (113,217)(3) 25,403
---------- ------------- ------------------- ----------
Total current liabilities 63,637 374,576 (329,902) 108,311
---------- ------------- ------------------- ----------
Stockholders' deficit:
Convertible preferred stock - 1,498 (1,496)(1) 2
Common stock 8,895 49,845 (49,406)(1)(3) 9,334
Unissued common stock 127,600 - - 127,600
Additional paid-in capital 240,822 24,084,827 (24,001,428)(1)(3) 324,221
Accumulated deficit (314,558) (24,432,232) 24,432,232 (314,558)
---------- ------------- ------------------- ----------
Total stockholders'
deficit 62,759 (296,062) 379,902 146,599
---------- ------------- ------------------- ----------
Total liabilities and
stockholders' deficit $ 126,396 $ 78,514 $ 50,000 $ 254,910
========== ============= =================== ==========
HEALTHRENU MEDICAL, INC.
UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2002
__________
HEALTHRENU, AGTSPORTS, PRO-FORMA PRO-FORMA
INC. INC. ADJUSTMENTS COMBINED
----------- ------------ ---------------- -------------
Sales $ 78,502 $ - $ - $ 78,502
Cost of sales 60,629 - - 60,629
----------- ------------ ---------------- -------------
Gross profit 17,873 - - 17,873
General and administrative expenses 110,258 122,758 - 233,016
----------- ------------ ---------------- -------------
Loss from operations (92,385) (122,758) - (215,143)
Interest expense (3,465) (2,885) 2,885(3) (3,465)
----------- ------------ ---------------- -------------
Net income (loss) $ (95,850) $ (125,643) $ 2,885 $ (218,608)
=========== ============ ================ =============
Basic and diluted net loss per
common share $ (0.01) $ (0.00) $ (0.00)(2) $ (0.02)(2)
=========== ============ ================ =============
Weighted-average shares outstanding 8,891,974 49,848,919 (49,406,921)(2) 9,333,972(2)
=========== ============ ================ =============
HEALTHRENU MEDICAL, INC.
UNAUDITED PROFORMA COMBINED BALANCE SHEET
JUNE 30, 2003
__________
HEALTHRENU, AGTSPORTS, PRO-FORMA PRO-FORMA
ASSETS INC. INC. ADJUSTMENTS COMBINED
- ------------------------------- ---------- ------------- ------------------- ----------
Current assets:
Cash and cash equivalents $ 31,625 $ 9 $ 50,000(3) $ 81,634
Accounts receivable, net 7,372 - - 7,372
Inventories 45,649 - - 45,649
---------- ------------- ------------------- ----------
Total current assets 84,646 9 50,000 134,655
Property and equipment, net 44,208 1,527 - 45,735
---------- ------------- ------------------- ----------
Total assets $ 128,854 $ 1,536 $ 50,000 $ 180,390
========== ============= =================== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
Current liabilities:
Accounts payable $ 46,864 $ 26,991 $ - $ 73,855
Accrued expenses 960 252,670 (222,000)(3) 31,630
Notes payable 24,154 107,902 (107,902)(3) 24,154
---------- ------------- ------------------- ----------
Total current liabilities 71,978 387,563 (329,902) 129,639
---------- ------------- ------------------- ----------
Stockholders' deficit:
Convertible preferred stock - 1,498 (1,496)(1) 2
Common stock 9,134 49,849 (49,409)(1)(3) 9,574
Additional paid-in capital 410,733 24,084,823 (24,091,390)(1)(3) 404,166
Accumulated deficit (362,991) (24,522,197) 24,522,197 (362,991)
---------- ------------- ------------------- ----------
Total stockholders'
deficit 56,876 (386,027) 379,902 50,751
---------- ------------- ------------------- ----------
Total liabilities and
stockholders' deficit $ 128,854 $ 1,536 $ 50,000 $ 180,390
========== ============= =================== ==========
HEALTHRENU MEDICAL, INC.
UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 2003
__________
HEALTHRENU, AGTSPORTS, PRO-FORMA PRO-FORMA
INC. INC. ADJUSTMENTS COMBINED
----------- ------------ ---------------- -------------
Sales $ 22,305 $ - $ - $ 22,305
Cost of sales 19,724 - - 19,724
----------- ------------ ---------------- -------------
Gross profit 2,581 - - 2,581
General and administrative expenses 50,491 24,005 - 74,496
----------- ------------ ---------------- -------------
Loss from operations (47,910) (24,005) - (71,915)
Interest expense (523) (2,888) 2,888(3) (523)
----------- ------------ ---------------- -------------
Net income (loss) $ (48,433) $ (26,893) $ 2,888 $ (72,438)
=========== ============ ================ =============
Basic and diluted net loss per
common share $ (0.01) $ (0.00) $ (0.00)(2) $ (0.01)(2)
=========== ============ ================ =============
Weighted-average shares outstanding 8,996,807 49,848,919 (49,301,754)(2) 9,543,972(2)
=========== ============ ================ =============
HEALTHRENU MEDICAL, INC.
NOTES TO UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
- -----------------------
Effective September 26, 2003 HealthRenu, Inc. ("HRI") entered into an agreement
whereby HRI agreed to exchange 100% of the issued and outstanding shares of its
common stock and $50,000 for approximately 99% or 15,447,699 shares at September
26, 2003 of the issued and outstanding common stock of AGTSports, Inc. ("AGT"),
a non-operating public shell corporation). The agreement represented a
recapitalization of HRI with accounting treatment similar to that used in a
reverse acquisition, except that no goodwill or intangible asset is recorded. A
recapitalization is characterized by the merger of a private operating company
into a non-operating public shell corporation with nominal net assets and
typically results in the owners and managers of the private company having
effective or operating control after the transaction. HRI emerged as the
surviving financial reporting entity under the agreement, but AGT (which changed
its name to HealthRenu Medical, Inc.) remained as the legal reporting entity.
The fair values of the assets and liabilities of AGT have been combined with the
recorded values of the assets and liabilities of HRI in the unaudited proforma
combined financial statements.
PROFORMA ADJUSTMENTS
- ---------------------
1. The historical financial statements of AGT, included in these proforma
financial statements, as of and for the year ended September 30, 2002 and as of
and for the nine months ended June 30, 2003 exclude the effects of a 1 to 850
reverse stock split and the issuance of the AGT shares to the HRI shareholders.
Instead, these transactions were recorded as proforma adjustments in the
accompanying unaudited proforma combined financial statements.
2. The proforma combined per share amounts are based on the combined
weighted average of AGT common shares and HRI common shares (adjusted for the 1
to 850 reverse stock split) for all periods presented based on HRI stockholders
receiving a one for one exchange of 100% of its HRI common stock outstanding for
AGT common stock.
3. The historical financial statements of AGT, included in these proforma
financial statements as of and for the year ended September 30, 2002 and as of
and for the nine months ended June 30, 2003, exclude the effects of the issuance
of a $50,000 note in August 2003 to the new Chief Executive Officer of AGT and
an agreement by the note holders and Chief Executive Officer of AGT to convert
the note payable and accrued compensation balances of $379,902 to 379,902 shares
of AGT common stock. It also excludes the effect of the decrease in interest
expense related to the conversion of the notes payable. Instead, these
transactions were recorded as proforma adjustments in the accompanying unaudited
proforma combined financial statements.
4. The historical financial statements of HRI, included in these proforma
financial statements as of and for the year ended September 30, 2002 and as of
and for the nine months ended June 30, 2003, exclude the effects of the cost of
this recapitalization, which is estimated to be $70,000. Since the estimated
cost of recapitalization is a non-recurring expense, it was not recorded as a
proforma adjustment in the accompanying unaudited proforma combined financial
statements.