EX-99.3 13 v81078ex99-3.txt EXHIBIT 99.3 EXHIBIT 99.3 HEALTH PERSONNEL OPTIONS CORPORATION FINANCIAL STATEMENTS JUNE 30, 2000 HEALTH PERSONNEL OPTIONS CORPORATION CONTENTS -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS 1 BALANCE SHEET 2 STATEMENTS OF OPERATIONS 3 STATEMENT OF STOCKHOLDERS' EQUITY 4 STATEMENTS OF CASH FLOWS 5/6 NOTES TO FINANCIAL STATEMENTS 7/13
[JOSEPH DECOSIMO AND COMPANY LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Stockholders Health Personnel Options Corporation Cincinnati, Ohio We have audited the accompanying balance sheet of Health Personnel Options Corporation as of June 30, 2000, and the related statements of operations and cash flows for each of the two years ended June 30, 2000. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Health Personnel Options Corporation as of June 30, 2000, and the results of its operations and its cash flows for each of the two years ended June 30, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ JOSEPH DECOSIMO AND COMPANY, PLL Cincinnati, Ohio November 29, 2000 1 HEALTH PERSONNEL OPTIONS CORPORATION BALANCE SHEET JUNE 30, 2000 --------------------------------------------------------------------------------
2000 ASSETS CURRENT ASSETS Cash $ 4,849 Accounts Receivable, net of allowance of $80,000 1,914,068 Prepayments 50,477 ----------- Total Current Assets 1,969,394 ----------- EQUIPMENT, net 668,245 ----------- OTHER ASSETS Goodwill, net of accumulated amortization of $677,808 6,548,553 Agreements Not to Compete, net of accumulated amortization of $294,333 15,000 Deposits 62,463 ----------- Total Other Assets 6,626,016 ----------- TOTAL ASSETS $ 9,263,655 =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank Overdraft $ 358,832 Line of Credit 1,800,000 Current Portion of Long-Term Debt 380,763 Accounts Payable and Accrued Expenses 964,228 ----------- Total Current Liabilities 3,503,823 ----------- LONG-TERM DEBT 2,881,908 ----------- STOCKHOLDERS' EQUITY Preferred Stock - $1,000 par value - 4,257 shares authorized, 2,829 shares issued 2,828,570 Additional Paid-In Capital 1,571,430 Common Stock - no par value - 1,000,000 shares authorized; 194,200 issued and outstanding 2,425,400 Accumulated Deficit (3,947,476) ----------- Total Stockholders' Equity 2,877,924 ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,263,655 ===========
The accompanying notes are an integral part of the financial statements. 2 HEALTH PERSONNEL OPTIONS CORPORATION STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 2000 AND 1999 --------------------------------------------------------------------------------
2000 1999 SERVICE REVENUES $ 15,940,638 $ 9,521,465 COST OF SERVICES 11,977,556 7,515,150 ------------ ------------ Gross Profit 3,963,082 2,006,315 ------------ ------------ EXPENSES Salaries and Benefits 2,578,870 1,353,666 Administrative Expenses 2,211,557 725,002 Rent 314,411 149,628 Depreciation and Amortization 735,585 344,578 ------------ ------------ 5,840,423 2,572,874 ------------ ------------ LOSS FROM OPERATIONS (1,877,341) (566,559) ------------ ------------ OTHER INCOME (EXPENSE) Interest Income 6,127 3,895 Interest Expense (410,218) (149,648) ------------ ------------ (404,091) (145,753) ------------ ------------ NET LOSS $ (2,281,432) $ (712,312) ============ ============
The accompanying notes are an integral part of the financial statements. 3 HEALTH PERSONNEL OPTIONS CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 2000 AND 1999 --------------------------------------------------------------------------------
SERIES A SERIES B ADDITIONAL PREFERRED STOCK PREFERRED STOCK PAID-IN COMMON STOCK ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT BALANCE - June 30, 1998 1,400 $ 1,400,000 -- $ -- $ -- 114,400 $ 750,000 $ (953,732) Issuance of Stock 1,429 1,428,570 1,571,430 79,800 1,675,400 Net Loss (712,312) ------ ----------- ------ ----------- ----------- ------- ----------- ----------- BALANCE - June 30, 1999 1,400 1,400,000 1,429 1,428,570 1,571,430 194,200 2,425,400 (1,666,044) Net Loss (2,281,432) ------ ----------- ------ ----------- ----------- ------- ----------- ----------- BALANCE - June 30, 2000 1,400 $ 1,400,000 1,429 $ 1,428,570 $ 1,571,430 194,200 $ 2,425,400 $(3,947,476) ====== =========== ====== =========== =========== ======= =========== ===========
The accompanying notes are an integral part of the financial statements. 4 HEALTH PERSONNEL OPTIONS CORPORATION STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2000 AND 1999 --------------------------------------------------------------------------------
2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Clients $ 15,685,500 $ 9,828,093 Cash Paid to Suppliers and Employees (17,053,780) (9,690,694) Interest Received 6,127 3,895 Interest Paid (372,169) (118,930) ------------ ------------ NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,734,322) 22,364 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (274,364) (5,196) Acquisition of Businesses (178,000) (4,474,098) ------------ ------------ NET CASH USED BY INVESTING ACTIVITIES (452,364) (4,479,294) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Increase in Bank Overdraft 358,832 -- Borrowings (Repayments) on Line of Credit 1,800,000 (100,842) Issuance of Long-Term Debt 517,830 1,750,000 Payments of Long-Term Debt (576,594) (154,805) Issuance of Common Stock -- 3,050,000 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 2,100,068 4,544,353 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (86,618) 87,423 CASH - beginning of year 91,467 4,044 ------------ ------------ CASH - end of year $ 4,849 $ 91,467 ============ ============
The accompanying notes are an integral part of the financial statements. 5 HEALTH PERSONNEL OPTIONS CORPORATION STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2000 AND 1999 --------------------------------------------------------------------------------
2000 1999 RECONCILIATION OF NET LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Net Loss $(2,281,432) $ (712,312) Depreciation 175,534 74,387 Amortization 560,050 270,191 Bad Debts 241,941 21,655 Changes in Operating Assets and Liabilities - (Increase) Decrease in - Receivables (915,561) 306,628 Prepayments 62,480 (25,550) Deposits (17,660) (39,381) Increase in Accounts Payable and Accrued Expenses 440,326 126,746 ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $(1,734,322) $ 22,364 =========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Capital Lease Obligation Incurred for Equipment $ 351,483 $ -- Debt Issued for Acquisition of Business $ -- $ 538,593 Common Stock Issued for Acquisition of Business $ -- $ 1,625,400 Accounts Payable Assumed in Acquisition of Business $ -- $ 202,624
The accompanying notes are an integral part of the financial statements. 6 HEALTH PERSONNEL OPTIONS CORPORATION NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies and practices followed by the company are as follows: DESCRIPTION OF BUSINESS - Health Personnel Options Corporation is engaged in the business of temporary staffing of nurses, physical therapists, occupational therapists, speech therapists, and other healthcare professionals and assistants in the United States. CASH AND CASH EQUIVALENTS - The company considers all money market accounts and highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The company maintains at a single financial institution cash and cash equivalent accounts which may exceed federally insured amounts at times and which may at times significantly exceed balance sheet amounts due to outstanding checks. EQUIPMENT - Equipment is stated at cost. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of assets are capitalized. Upon the sale or other retirement of depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected in operations. Depreciation is provided on the straight-line method based on the estimated useful lives of depreciable assets. INTANGIBLE ASSETS - The costs of intangible assets are amortized on the straight-line method over the following estimated useful lives:
YEARS Goodwill 15 Agreements Not to Compete 3
INCOME TAXES - Deferred income taxes are recognized for estimated future tax effects attributed to temporary differences between book and tax bases of assets and liabilities and for carryforward items. Deferred tax assets are reduced, if necessary, by a valuation allowance for the amount of tax benefits that may not be realized. ADVERTISING - The company expenses the costs of advertising as incurred. Advertising expense totaled $173,527 for 2000 and $61,308 for 1999. ESTIMATES AND UNCERTAINTIES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. STOCK-SPLIT - On September 28, 1999 the Company's Board of Directors authorized a 100-to-1 split of its common stock effective September 28, 1999, for stockholders of record at the close of business on September 28, 1999. All share amounts in the accompanying financial statements have been restated to give effect to the stock split. 7 HEALTH PERSONNEL OPTIONS CORPORATION NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- OPERATIONS The company's business strategy is to grow both internally and through the acquisition of healthcare staffing companies throughout the United States. The company will require additional equity and debt financings in order to consummate these acquisitions. The company has incurred losses of $2,281,432 and $712,312 for the years ended June 30, 2000 and 1999, respectively, due, in part, to its strategy of having the management and operations resources in place to manage current and projected revenue growth through acquisitions. Based on planned revenue growth and financing plans, management believes that the company has adequate financial resources to allow sufficient time to achieve profitable business operations. ACQUISITION OF DENTAL IMPRESSIONS, INC. On January 5, 2000, the company purchased substantially all of the assets of Dental Impressions, Inc. for $120,000 cash; $37,829 in a 5.74% promissory note payable due January 5, 2001 and $30,000 due March 31, 2000. The company executed a three-year noncompete/nonsolicitation agreement with Dental Impressions, Inc. shareholders. The acquisition was accounted for as a purchase in which the purchase price is allocated to tangible and identifiable intangible assets based on their fair market values. The excess of the purchase price over the fair market value of assets purchased of $160,000 is being amortized to operations over its fifteen year estimated useful life. ACQUISITION OF HEALTH PERSONNEL OPTIONS CORPORATION On April 8, 1999, the company purchased the assets (excluding cash) and operations of Health Personnel Options Corporation and HPO Med Source, Inc. d/b/a Preston Manthey & Assoc. for $4,474,098 cash; 774 shares of common stock valued at $1,625,400; $459,280 in a 5.75% promissory note payable; $180,380 in a 5.75% promissory note payable and assumption of $202,624 in accounts payable and accrued expenses. The company executed three-year noncompete/nonsolicitation and twelve month employment agreements with Health Personnel Options Corporation's sole shareholder. On May 26, 1999, NationStaff, Inc. changed its name to Health Personnel Options Corporation. The acquisition was accounted for as a purchase in which the purchase price is allocated to tangible and identifiable intangible assets based on their fair market values. The excess of the purchase price over the fair market value of assets purchased of $5,461,359 is being amortized to operations over its fifteen year estimated useful life. 8 HEALTH PERSONNEL OPTIONS CORPORATION NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- EQUIPMENT Equipment consists of the following:
2000 Furniture and Fixtures $ 132,992 Equipment Under Capital Leases 533,997 Computer Software 173,597 Computer Equipment 131,645 --------- 972,231 Accumulated Depreciation (303,986) --------- $ 668,245 =========
Accumulated depreciation includes $139,515 for 2000 for equipment under capital leases. NOTES PAYABLE Long-term debt consists of the following:
2000 Prime Plus 1% Term Note - payable $16,028 monthly including interest through March, 2004 $ 871,583 12% Stockholder Promissory Note - interest payable quarterly and semiannually; principal payable July, 2001 1,000,000 Prime Plus 1% Term Note - payable $9,031 monthly including interest through March, 2003 418,521 5.75% Stockholder Promissory Note - interest payable quarterly; principal payable April, 2004 459,280 8% Promissory Note - payable $4,700 monthly including interest through May, 2000 787 5.74% Promissory Note - interest payable monthly; principal payable January, 2001 $ 37,829 12% Stockholder Promissory Note - interest payable monthly 50,000 Equipment Leases - payable $11,386 monthly including interest implicitly at 7.75% to 9.8% 424,671 ---------- 3,262,671 Less Current Portion 380,763 ---------- $2,881,908 ==========
The company's prime plus 1% term notes are secured by substantially all of the company's assets. In connection with the company's issuance of its 12% stockholder promissory note, it issued to the noteholder a warrant providing for the purchase of up to 5,100 shares of the company's common stock at $21 per share through April 7, 2006. 9 HEALTH PERSONNEL OPTIONS CORPORATION NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTES PAYABLE - continued Aggregate maturities of long-term debt, excluding capital leases, for the years subsequent to June 30, 2000, are as follows: YEAR ENDING June 30, 2001 $ 280,993 June 30, 2002 $ 1,210,670 June 30, 2003 $ 414,878 June 30, 2004 $ 931,459
The company has a prime plus 1% line of credit with a maximum of $1,800,000 available, expiring November, 2000. This line was fully utilized at June 30, 2000. PREFERRED STOCK The company's preferred stock consists of 1,400 shares of Series A Preferred Stock and 1,429 shares of Series B Preferred Stock. The company's preferred stock is convertible into common stock at any time at the option of the preferred stockholder. The conversion rate is 81.43 shares of common stock for each share of Series A Preferred Stock and 99.96 shares of common stock for each share of Series B Preferred Stock and is adjusted based on company performance or issuance of additional common shares. The preferred stock is automatically converted into common stock at the closing of an underwritten public offering of common stock which results in net proceeds to the corporation of at least $10 million and a market capitalization of at least $40 million. The holder of any preferred shares converted is immediately entitled to receive all accrued and unpaid dividends. Each holder of preferred stock has voting rights equivalent to the number of common shares into which the preferred shares held by such holder could be converted on the record date fixed for the vote of stockholders. The holders of record of the preferred shares shall be entitled to receive, when and if declared by the board of directors out of the retained earnings of the corporation, cash dividends at the rate of 9% per annum. These dividends are payable quarterly and are cumulative. The holders of preferred stock are also entitled to receive any dividend paid to the holders of common stock in the amount to which they would have been entitled to receive had the preferred shares been converted to common shares immediately prior to the record date for the dividends. As of June 30, 2000, dividends in arrears on preferred stock totaled $715,000. In the event of liquidation or dissolution of the company, the holders of preferred stock are entitled to be paid $1,000 per share together with all accrued and unpaid dividends prior to any payments to common stockholders. After this payment to preferred stockholders, the common stockholders are entitled to payment of $1,000 per common share. After these payments are made, the preferred and common stockholders are entitled to share pro rata in the distribution of the remaining assets of the corporation. 10 HEALTH PERSONNEL OPTIONS CORPORATION NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- LEASES The company leases equipment under capital leases, office space under operating leases and leases short-term housing for its traveling nurses and therapists. Future minimum lease payments under the capital leases and noncancelable operating leases with initial terms of more than twelve months as of June 30, 2000 are as follows:
CAPITAL OPERATING LEASES LEASES YEAR ENDING June 30, 2001 $131,612 $152,458 June 30, 2002 119,794 122,506 June 30, 2003 94,070 68,936 June 30, 2004 85,678 37,783 June 30, 2005 50,208 -- -------- -------- Total Minimum Lease Payments 481,362 $381,683 ======== Less Amount Representing Interest 56,691 -------- Present Value of Minimum Lease Payments $424,671 ========
Rent expense totaled $1,166,593 for 2000 and $667,316 for 1999. INCOME TAXES The provision for income taxes consists of the following:
2000 1999 DEFERRED PROVISION Federal Income Tax $ 69,000 $ 30,000 State Income Tax 10,000 3,000 Benefit of Net Operating Loss Carryforward 811,000 247,000 --------- --------- 890,000 280,000 Change in Valuation Allowance (890,000) (280,000) --------- --------- $ -- $ -- ========= =========
The provision for income taxes differs from the amount computed by applying statutory rates to income before taxes because of state taxes, nondeductible expenses and changes in the valuation allowance. 11 HEALTH PERSONNEL OPTIONS CORPORATION NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- INCOME TAXES - continued The tax effect of components of net deferred tax assets and liabilities is as follows:
2000 DEFERRED TAX ASSETS Net Operating Loss Carryforwards $ 1,376,000 Allowance for Doubtful Accounts 31,000 Intangible Assets 90,000 Accrued Expenses 57,000 ----------- 1,554,000 DEFERRED TAX LIABILITIES Equipment 26,000 ----------- 1,528,000 VALUATION ALLOWANCE (1,528,000) ----------- NET DEFERRED TAX ASSETS $ -- ===========
The company has net operating losses available to offset future taxable income totaling $3,528,000 expiring in 2012, 2013 and 2019. RELATED PARTY TRANSACTIONS Transactions and balances with related parties are as follows:
2000 1999 PREFERRED STOCKHOLDERS Notes Payable $1,050,000 $ 750,000 Interest Expense $ 97,943 $ 20,959 Interest Payable $ 33,694 $ 20,959 COMMON STOCKHOLDERS Notes Payable $ 459,280 $ 639,660 Interest Expense $ 28,956 $ 8,564 Interest Payable $ 6,602 $ 3,995
EMPLOYEE BENEFIT PLAN The company offers a 401(k) Plan for all employees meeting certain eligibility requirements. Employees may contribute up to 15% of their eligible compensation to the plan, subject to the limits of Section 401(k) of the Internal Revenue Code. The company makes contributions at the discretion of the Board of Directors. There were no contributions during the years ending June 30, 2000 and 1999. 12 HEALTH PERSONNEL OPTIONS CORPORATION NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- STOCK OPTIONS During 1999, the company adopted an incentive stock option plan for certain senior management employees. This plan provides for the issuance of up to 60,400 shares of common stock with an exercise price equal to the stock's current fair market value with an option term of up to ten years. As of June 30, 2000, no options were issued or outstanding. SUBSEQUENT EVENT During August, 2000, a customer with an outstanding account receivable of $125,000 filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. No amounts are considered recoverable from this customer. This receivable arose subsequent to June 30, 2000; accordingly, the bankruptcy filing has no impact of accounts receivable as of June 30, 2000 or bad debt expense for the year ended June 30, 2000. 13