-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hk79XDVoKxhtDHrEP6O2+d8WX3yOmXgnh5o3tGaRdmqnRqZlGdF+M23Jnjuf8DA1 jhDbG5/nEx3+SVUhd8BoLQ== 0000950134-02-003826.txt : 20020416 0000950134-02-003826.hdr.sgml : 20020416 ACCESSION NUMBER: 0000950134-02-003826 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020131 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATC HEALTHCARE INC /DE/ CENTRAL INDEX KEY: 0000720480 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 112650500 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-31271 FILM NUMBER: 02611832 BUSINESS ADDRESS: STREET 1: 1983 MARCUS AVE STREET 2: STE E122 CITY: LAKE SUCCESS STATE: NY ZIP: 11042 BUSINESS PHONE: 5167501600 MAIL ADDRESS: STREET 1: 425 NORTH AVE EAST STREET 2: STE C115 CITY: WESTFIELD STATE: NJ ZIP: 07090 FORMER COMPANY: FORMER CONFORMED NAME: STAFF BUILDERS INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: TENDER LOVING CARE HEALTH CARE SERVICES INC DATE OF NAME CHANGE: 19880404 8-K/A 1 d96028a1e8-ka.txt AMENDMENT NO. 1 TO FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) January 31, 2002 ATC HEALTHCARE, INC. --------------------- (Exact name of registrant as specified in its charter) Delaware 0-11380 11-2650500 - ------------------------------- ---------- -------------------- (State or other jurisdiction of (Commission (I.R.S. Employer incorporation or organization) file number) Identification No.) 1983 Marcus Avenue, Lake Success, New York 11042 - ------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (516) 750-1600 -------------- (Registrant's telephone number, including area code) INTRODUCTORY NOTE This amendment on Form 8-K/A amends the registrant's Form 8-K filed by ATC Healthcare, Inc. (the "Company") on February 19, 2002 to include certain exhibits. ITEM 7. FINANCIAL STATEMENTS and EXHIBITS c) Exhibits 99.1. Press release of Registrant dated February 4, 2001. (a) 99.3. Asset Purchase Agreement dated January 1, 2002 between ATC Staffing Services, Inc., DSS Staffing Corp., and Direct Staffing, Inc. (a) 99.4. Audited financial statements of Direct Staffing, Inc. for the years ended December 31, 2001, 2000 and 1999.* 99.5. Audited financial statements of DSS Staffing Corp. for the years ended December 31, 2001, 2000 and 1999.* (a) Incorporated by reference to the Company's Form 8-K filed with the Commission on February 19, 2002. * Included herein. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ATC Healthcare, Inc. Dated: April 16, 2002 By: /s/ ALAN LEVY ---------------------------------- Alan Levy Senior Vice President Chief Financial Officer EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 99.3 Audited financial statements of Direct Staffing, Inc. for the years ended December 31, 2001, 2000 and 1999. 99.4 Audited financial statements of DSS Staffing Corp. for the years ended December 31, 2001, 2000 and 1999.
EX-99.3 3 d96028a1ex99-3.txt AUDITED FINANCIAL STATEMENTS EXHIBIT 99.3 DIRECT STAFFING, INC. (AN "S" CORPORATION) AN AFFILIATE AND FRANCHISEE OF ATC HEALTHCARE SERVICES, INC. ------------------------------------------------------------- FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 AND INDEPENDENT AUDITORS' REPORT INDEPENDENT AUDITORS' REPORT To the stockholders and Board of Directors of Direct Staffing, Inc.: We have audited the accompanying balance sheets of Direct Staffing, Inc. (the "Company"), an "S" Corporation, as of December 31, 2001 and 2000, and the related statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2001. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Eichen & DiMeglio P.C. Plainview, New York April 2, 2002 DIRECT STAFFING, INC. (AN "S" CORPORATION) AN AFFILIATE AND FRANCHISEE OF ATC HEALTHCARE SERVICES, INC. - -------------------------------------------------------------------------------- BALANCE SHEETS DECEMBER 31, 2001 AND 2000 - --------------------------------------------------------------------------------
2001 2000 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 101 $ 199 Due from franchisor (net of allowance for refundable franchise fees of $220,000 at December 31, 2000) 0 122,220 ---------- ---------- Total current assets 101 122,419 ---------- ---------- OTHER ASSETS - net: Intangible assets - net 36,237 28,458 Security deposit 3,638 0 ---------- ---------- Other assets - net 39,875 28,458 ---------- ---------- TOTAL $ 39,976 $ 150,877 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accrued expenses $ 6,000 $ 5,000 State income taxes payable 11,241 6,007 Allowance for refundable franchise fees (net of due from franchisor of $348,083 at December 31, 2001) 21,917 0 ---------- ---------- Total current liabilities 39,158 11,007 ---------- ---------- COMMITMENT Common stock, no par value, 200 shares authorized, issued and outstanding 200 200 Retained earnings 618 139,670 ---------- ---------- Total stockholders' equity 818 139,870 ---------- ---------- TOTAL $ 39,976 $ 150,877 ========== ==========
See notes to financial statements DIRECT STAFFING, INC. (AN "S" CORPORATION) AN AFFILIATE AND FRANCHISEE OF ATC HEALTHCARE SERVICES, INC. - -------------------------------------------------------------------------------- STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 - --------------------------------------------------------------------------------
2001 2000 1999 ------------ ------------ ------------ NET FRANCHISE FEE INCOME $ 3,144,339 $ 1,259,883 $ 625,229 OPERATING EXPENSES 1,289,480 674,525 293,207 ------------ ------------ ------------ INCOME FROM OPERATIONS 1,854,859 585,358 332,022 ------------ ------------ ------------ OTHER (EXPENSE) INCOME - net Interest expense (39,032) (5,390) 0 Interest income 0 1,606 262 Other income 19,964 31,200 17,000 ------------ ------------ ------------ Other (expense) income - net (19,068) 27,416 17,262 ------------ ------------ ------------ INCOME BEFORE PROVISION FOR STATE INCOME TAXES 1,835,791 612,774 349,284 PROVISION FOR STATE INCOME TAXES 17,500 6,007 553 ------------ ------------ ------------ NET INCOME 1,818,291 606,767 348,731 RETAINED EARNINGS, BEGINNING OF YEAR 139,670 148,377 48,096 DISTRIBUTIONS TO STOCKHOLDERS (1,957,343) (615,474) (248,450) ------------ ------------ ------------ RETAINED EARNINGS, END OF YEAR $ 618 $ 139,670 $ 148,377 ============ ============ ============
- -------------------------------------------------------------------------------- See notes to financial statements. DIRECT STAFFING, INC. (AN "S" CORPORATION) AN AFFILIATE AND FRANCHISEE OF ATC HEALTHCARE SERVICES, INC. - -------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 - --------------------------------------------------------------------------------
2001 2000 1999 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,818,291 $ 606,767 $ 348,731 ------------ ------------ ------------ Adjustments to reconcile net income to net cash from operating activities: Refundable franchise fee expense 167,000 200,000 17,000 Amortization of intangible assets 2,221 1,820 1,333 Changes in operating assets and liabilities: Due from franchisor (22,863) (186,961) (141,868) Security deposit (3,638) 0 0 Accrued expenses and other current liabilities 6,234 6,455 1,308 ------------ ------------ ------------ Net adjustments 148,954 21,314 (122,227) ------------ ------------ ------------ Net cash from operating activities 1,967,245 628,081 226,504 ------------ ------------ ------------ CASH FLOWS USED IN INVESTING ACTIVITY - PURCHASE OF INTANGIBLE ASSETS (10,000) (12,500) 0 ------------ ------------ ------------ CASH FLOWS USED IN FINANCING ACTIVITY - DISTRIBUTIONS TO STOCKHOLDERS (1,957,343) (615,474) (248,450) ------------ ------------ ------------ NET (DECREASE) INCREASE IN CASH (98) 107 (21,946) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 199 92 22,038 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 101 $ 199 $ 92 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 39,032 $ 5,390 $ 0 ============ ============ ============ Cash paid during the year for income taxes $ 13,768 $ 553 $ 244 ============ ============ ============
- -------------------------------------------------------------------------------- See notes to financial statements. DIRECT STAFFING, INC. (AN "S" CORPORATION) AN AFFILIATE AND FRANCHISEE OF ATC HEALTHCARE SERVICES, INC. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Direct Staffing, Inc. (the "Company") was incorporated in the state of New York in May 1998 and is engaged in the business of providing temporary medical personnel to hospitals and other healthcare facilities in certain New York counties north and west of New York City and areas of New Jersey. The Company operated this business as a franchisee of ATC Healthcare Services, Inc. (the "Franchisor" or "ATC") through December 31, 2001 and during January 2002 it was acquired by ATC (see Note 5). Certain stockholders/officers of the Company are related to stockholders/officers of ATC. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements have been prepared on the accrual basis of accounting. REVENUE RECOGNITION Revenues are recognized at the time the related services are performed. In accordance with the terms of the franchise agreement, the temporary medical service personnel provided to hospitals and other healthcare facilities by the Company are employees of the Franchisor and the related sales and accounts receivable they generate belong to ATC. In consideration for the provision of these services, the Company earns a franchise fee equal to 60 percent of the "Gross Margin" (sales generated by the Company less direct costs of sales). This gross margin represents the Company's source of revenue and is recorded as "net franchise fee income" in the accompanying statements of income. ALLOWANCE FOR REFUNDABLE FRANCHISE FEES In accordance with the terms of the franchise agreement, the Company may be charged back up to 50 percent of any uncollectible accounts receivable owned by ATC from sales generated by the Company. The allowance for refundable franchise fees represents an estimate of such potential chargebacks and the corresponding expense is included in operating expenses in the accompanying statements of income. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. INTANGIBLE ASSETS Intangible assets consist of license fees paid to the Franchisor to operate the Company's business within its designated territory. These license fees are recorded at cost and amortized on the straight-line basis over a period of 15 years. Accumulated amortization aggregated $6,263 and $4,042 at December 31, 2001 and 2000, respectively. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The most significant estimate included in the accompanying financial statements is the allowance for refundable franchise fees. NEW ACCOUNTING PRONOUNCEMENTS The Company does not expect the adoption of recently issued accounting pronouncements to have a material effect, if any, on its financial condition or its results of operations. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of temporary cash investments. The Company restricts investment of temporary cash to a financial institution with a high credit standing. At times balances may exceed insurable amounts. INCOME TAXES The Company has elected to be treated as an S Corporation for income tax purposes and, accordingly, income or loss passes through to the stockholders' individual income tax returns and no Federal income tax is imposed on the Company. The provision for state taxes consists of New York state taxes applicable to S Corporation income over certain amounts. 3. TRANSACTIONS WITH RELATED PARTIES The Company is owned by certain stockholders/officers who are related to stockholders/officers of the Franchisor. As an accommodation to the Company, the Franchisor often pays expenses on behalf of the Company and the Company records the expense and corresponding amount due to the Franchisor at the time the expense is incurred. The Company also shares its administrative personnel, office space and principally all other overhead items with DSS Staffing Corp. ("DSS"), another franchisee of ATC that is owned by three stockholders, one of whom is also a stockholder of the Company. Substantially all of the Company's operating expenses included in the accompanying statements of income consist of allocated amounts between the Company and DSS for these shared expenses. 4. COMMITMENT OPERATING LEASE The Company is obligated under a noncancelable operating lease for the rental of office space which expires in January 2004. Such lease contains customary escalation clauses relating to building maintenance and real estate taxes. Future minimum lease payments at December 31, 2001 under such operating lease are as follows: 2002 $ 22,703 2003 23,611 2004 2,046 -------- Total $ 48,360 ========
Rent expense (including shared rent for common office space with DSS - see Note 3) for the years ended December 31, 2001, 2000 and 1999 aggregated approximately $91,700, $39,400 and $25,800, respectively. 5. SUBSEQUENT EVENT During January 2002, the Company and DSS sold substantially all of their assets and businesses to ATC for approximately $20,000,000 plus contingent consideration based on future performance. In connection therewith, management intends to liquidate the Company during 2002 and ATC will assume all of the Company's obligations for leases and similar contracts. SCHEDULE 1 DIRECT STAFFING, INC. (AN "S" CORPORATION) AN AFFILIATE AND FRANCHISEE OF ATC HEALTHCARE SERVICES, INC. VALUATION AND QUALIFYING ACCOUNTS
Years Ended ------------------------------------- December December December 31, 2001 31, 2000 31, 1999 -------- -------- -------- ALLOWANCE FOR REFUNDABLE FRANCHISE FEES: Balance, beginning of period $ 220,000 $ 20,000 $ 3,000 Charged to costs and expenses 167,000 200,000 17,000 Deductions (17,000) 0 0 --------- --------- --------- Balance, end of period $ 370,000 $ 220,000 $ 20,000 ========= ========= =========
EX-99.4 4 d96028a1ex99-4.txt AUDITED FINANCIAL STATEMENTS EXHIBIT 99.4 DSS STAFFING CORP. (AN "S" CORPORATION) AN AFFILIATE AND FRANCHISEE OF ATC HEALTHCARE SERVICES, INC. - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 AND INDEPENDENT AUDITORS' REPORT INDEPENDENT AUDITORS' REPORT To the stockholders and Board of Directors of DSS Staffing Corp.: We have audited the accompanying balance sheets of DSS Staffing Corp. (the "Company"), an "S" Corporation, as of December 31, 2001 and 2000, and the related statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2001. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Eichen & DiMeglio P.C. Plainview, New York April 2, 2002 DSS STAFFING CORP. (AN "S" CORPORATION) AN AFFILIATE AND FRANCHISEE OF ATC HEALTHCARE SERVICES, INC. - -------------------------------------------------------------------------------- BALANCE SHEETS DECEMBER 31, 2001 AND 2000 - --------------------------------------------------------------------------------
2001 2000 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 49,826 $ 10,710 Due from franchisor (net of allowance for refundable franchise fees of $330,000 and $290,000 at December 31, 2001 and 2000, respectively) 94,072 331,556 Prepaid expenses and other current assets 5,860 1,988 ---------- ---------- Total current assets 149,758 344,254 ---------- ---------- OTHER ASSETS - net: Intangible assets - net 48,873 54,273 Security deposit 30,069 0 ---------- ---------- Other assets - net 78,942 54,273 ---------- ---------- TOTAL $ 228,700 $ 398,527 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITY - accrued expenses $ 11,000 $ 9,000 ---------- ---------- COMMITMENTS Common stock, no par value, authorized 200 shares; issued and outstanding, 60 shares 75,000 75,000 Retained earnings 142,700 314,527 ---------- ---------- Total stockholders' equity 217,700 389,527 ---------- ---------- TOTAL $ 228,700 $ 398,527 ========== ==========
- -------------------------------------------------------------------------------- See notes to financial statements. DSS STAFFING CORP. (AN "S" CORPORATION) AN AFFILIATE AND FRANCHISEE OF ATC HEALTHCARE SERVICES, INC. - -------------------------------------------------------------------------------- STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 - --------------------------------------------------------------------------------
2001 2000 1999 ------------ ------------ ------------ NET FRANCHISE FEE INCOME $ 4,592,155 $ 3,721,034 $ 3,551,712 OPERATING EXPENSES 2,204,850 2,154,108 1,852,192 ------------ ------------ ------------ INCOME FROM OPERATIONS 2,387,305 1,566,926 1,699,520 ------------ ------------ ------------ OTHER INCOME (EXPENSE) - net Interest expense (967) (26,912) 0 Interest income 818 1,404 1,698 Other income 61,317 15,241 29,452 ------------ ------------ ------------ Other income (expense) - net 61,168 (10,267) 31,150 ------------ ------------ ------------ INCOME BEFORE PROVISION FOR STATE INCOME TAXES 2,448,473 1,556,659 1,730,670 PROVISION FOR STATE INCOME TAXES 25,300 19,870 13,198 ------------ ------------ ------------ NET INCOME 2,423,173 1,536,789 1,717,472 RETAINED EARNINGS, BEGINNING OF YEAR 314,527 804,238 257,726 DISTRIBUTIONS TO STOCKHOLDERS (2,595,000) (2,026,500) (1,170,960) ------------ ------------ ------------ RETAINED EARNINGS, END OF YEAR $ 142,700 $ 314,527 $ 804,238 ============ ============ ============
- -------------------------------------------------------------------------------- See notes to financial statements. DSS STAFFING CORP. (AN "S" CORPORATION) AN AFFILIATE AND FRANCHISEE OF ATC HEALTHCARE SERVICES, INC. - -------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 - --------------------------------------------------------------------------------
2001 2000 1999 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,423,173 $ 1,536,789 $ 1,717,472 ------------ ------------ ------------ Adjustments to reconcile net income to net cash from operating activities: Allowance for refundable franchise fees 40,000 165,000 59,000 Amortization of intangible assets 5,400 5,420 5,420 Changes in operating assets and liabilities: Due from franchisor 197,484 319,818 (621,074) Prepaid expenses and other assets (3,872) (1,450) (538) Security deposit (30,069) 0 0 Accrued expenses 2,000 2,000 (1,846) ------------ ------------ ------------ Net adjustments 210,943 490,788 (559,038) ------------ ------------ ------------ Net cash from operating activities 2,634,116 2,027,577 1,158,434 ------------ ------------ ------------ CASH FLOWS USED IN FINANCING ACTIVITY - DISTRIBUTIONS TO STOCKHOLDERS (2,595,000) (2,026,500) (1,170,960) ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH 39,116 1,077 (12,526) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,710 9,633 22,159 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 49,826 $ 10,710 $ 9,633 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 967 $ 26,912 $ 0 ============ ============ ============ Cash paid during the year for income taxes $ 30,983 $ 21,892 $ 13,361 ============ ============ ============
- -------------------------------------------------------------------------------- See notes to financial statements. DSS STAFFING CORP. (AN "S" CORPORATION) AN AFFILIATE AND FRANCHISEE OF - -------------------------------------------------------------------------------- ATC HEALTHCARE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION AND DESCRIPTION OF BUSINESS DSS Staffing Corp. (the "Company") was incorporated in the state of New York in August 1996 and is engaged in the business of providing temporary medical personnel to hospitals and other healthcare facilities in New York City and on Long Island. The Company operated this business as a franchisee of ATC Healthcare Services, Inc. (the "Franchisor" or "ATC") through December 31, 2001 and during January 2002 it was acquired by ATC (see Note 5). Certain stockholders/officers of the Company are related to stockholders/officers of ATC. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements have been prepared on the accrual basis of accounting. REVENUE RECOGNITION Revenues are recognized at the time the related services are performed. In accordance with the terms of the franchise agreement, the temporary medical service personnel provided to hospitals and other healthcare facilities by the Company are employees of the Franchisor and the related sales and accounts receivable they generate belong to ATC. In consideration for the provision of these services, the Company earns a franchise fee equal to 60 percent of the "Gross Margin" (sales generated by the Company less direct costs of sales). This gross margin represents the Company's source of revenue and is recorded as "net franchise fee income" in the accompanying statements of income. ALLOWANCE FOR REFUNDABLE FRANCHISE FEES In accordance with the terms of the franchise agreement, the Company may be charged back up to 50 percent of any uncollectible accounts receivable owned by ATC from sales generated by the Company. The allowance for refundable franchise fees represents an estimate of such potential chargebacks and the corresponding expense is included in operating expenses in the accompanying statements of income. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. INTANGIBLE ASSETS Intangible assets consist of license fees paid to the Franchisor to operate the Company's business within its designated territory. These license fees are recorded at cost and amortized on the straight-line basis over a period of 15 years. Accumulated amortization aggregated $26,967 and $21,927 at December 31, 2001 and 2000, respectively. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The most significant estimate included in the accompanying financial statements is the allowance for refundable franchise fees. NEW ACCOUNTING PRONOUNCEMENTS The Company does not expect the adoption of recently issued accounting pronouncements to have a material effect, if any, on its financial condition or its results of operations. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of temporary cash investments. The Company restricts investment of temporary cash to a financial institution with a high credit standing. At times balances may exceed insurable amounts. INCOME TAXES The Company has elected to be treated as an S Corporation for income tax purposes and, accordingly, income or loss passes through to the stockholders' individual income tax return and no Federal income tax is imposed on the Company. The provision for state taxes consists of New York state taxes applicable to S Corporation income over certain amounts. 3. TRANSACTIONS WITH RELATED PARTIES The Company is owned by certain stockholders/officers who are related to stockholders/officers of the Franchisor. As an accommodation to the Company, the Franchisor often pays expenses on behalf of the Company and the Company records the expense and corresponding amount due to the Franchisor at the time the expense is incurred. The Company also shares its administrative personnel, office space and principally all other overhead items with Direct Staffing, Inc. ("DS"), another franchisee of ATC that is owned by two stockholders, one of whom is also a stockholder of the Company. Substantially all of the Company's operating expenses included in the accompanying statements of income consist of allocated amounts between the Company and DS for these shared expenses. 4. COMMITMENTS OPERATING LEASES The Company is obligated under several noncancelable operating leases for the rental of its office space and certain furniture and equipment, which expire at various dates through May 2008. The lease for office space contains customary escalation clauses relating to building maintenance and real estate taxes. Future minimum lease payments at December 31, 2001 under such operating leases are as follows: 2002 $ 210,517 2003 217,205 2004 224,161 2005 230,169 2006 225,772 Thereafter 313,684 ----------- Total $ 1,421,508 ===========
Rent expense for the years ended December 31, 2001, 2000 and 1999 aggregated approximately $207,100, $144,800 and $76,600, respectively. 5. SUBSEQUENT EVENT During January 2002, the Company and DS sold substantially all of their assets and businesses to ATC for approximately $20,000,000 plus contingent consideration based on future performance. In connection therewith, management intends to liquidate the Company during 2002 and ATC will assume all of the Company's obligations for leases and similar contracts. SCHEDULE 1 DSS STAFFING CORP. (AN "S" CORPORATION) AN AFFILIATE AND FRANCHISEE OF ATC HEALTHCARE SERVICES, INC. VALUATION AND QUALIFYING ACCOUNTS
Years Ended --------------------------------------- December December December 31, 2001 31, 2000 31, 1999 -------- -------- -------- ALLOWANCE FOR REFUNDABLE FRANCHISE FEES: Balance, beginning of period $ 290,000 $ 125,000 $ 66,000 Charged to costs and expenses 40,000 165,000 59,000 --------- --------- --------- Balance, end of period $ 330,000 $ 290,000 $ 125,000 ========= ========= =========
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