SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2002
Commission File Number 0-32195
AMERICAN HOSPITAL RESOURCES, INC.
(Name of small business issuer in its charter)
UTAH 87-0319410
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1912 WEST BAY CREST, SANTA ANA, CA 92704
(Address and Zip Code of principal executive offices)
Issuer's telephone number, including area code:
714-444-0223
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
No par value, common voting shares
Check whether the Issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenue for its most recent fiscal year was: $52,700.
The aggregate market value of the issuer's voting stock held as of December 31,
2002 by non-affiliates of the issuers was $1,094,940 based on the average bid
and asked price of the registrant's common stock as reported by the National
Quotations Bureau. At December 31, 2002, there were 7,614,000 shares of no par
value common stock issued and outstanding and 2,600,000 of no par value
preferred stock issued and outstanding.
Transitional Small Business Format: Yes [ ] No [ X ]
Documents incorporated by reference: none
1
FORM 10-KSB
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
INDEX
Page
PART I . Item 1. Description of Business 3
Item 2. Description of Property 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II. Item 5. Market for Common Equity and Related Stockholder Matters 6
Item 6. Management's Discussion and Analysis or Plan of Operation 8
Item 7. Financial Statements 9
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure 9
PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act 9
Item 10. Executive Compensation 10
Item 11. Security Ownership of Certain Beneficial Owners and Management 12
Item 12. Certain Relationships and Related Transactions 13
Item 13. Exhibits and Reports on Form 8-K 14
Item 14. Controls and Procedures 15
Signatures 16
(Inapplicable items have been omitted)
2
PART I
FORWARD-LOOKING STATEMENT NOTICE
When used in this report, the words "may," "will," "expect," "anticipate,"
"continue," "estimate," "project," "intend," and similar expressions are
intended to identify forward-looking statements within the meaning of Section
27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act
of 1934 regarding events, conditions, and financial trends that may affect the
Company's future plans of operations, business strategy, operating results, and
financial position. Persons reviewing this report are cautioned that any
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties and that actual results may differ materially
from those included within the forward-looking statements as a result of various
factors. Such factors are discussed under the "Item 2. Management's Discussion
and Analysis of Financial Condition or Plan of Operations," and also include
general economic factors and conditions that may directly or indirectly impact
the Company's financial condition or results of operations.
DESCRIPTION OF BUSINESS
GENERAL
American Hospital Resources, Inc. or AMHR, originally incorporated in the State
of Utah on May 9, 1972, under the name High-Line Investment & Development
Company. In 1977, we changed our name to Gayle Industries, Inc. In 1978 we
merged into our subsidiary, Swing Bike, and retained the Swing Bike name. In
1979 we changed our name from Swing Bike to Horizon Energy Corp., and in 1992 we
changed our name to Millennium Entertainment Corp.
In 1993 we changed our name to New Horizon Education, Inc. and implemented a
business plan focusing on marketing computer education programs. Later that
year, we formed a new subsidiary, Sunset Horizon, Inc. for the purpose of
merging with Ruff Network Marketing, Inc. The subsidiary owned the marketing
rights to the computer education programs and Ruff Network Marketing, Inc.
provided the marketing network. We were not successful in our marketing
activities and in 1995 we sold our assets and suspended operations. In 1997 we
sold our subsidiary and remained essentially dormant from 1998 through 2000.
In 2001, we brought our SEC filings current and began seeking business
opportunities. In June of 2002, we finalized an Agreement and Plan of
Reorganization with American Hospital Resources, Inc. Under the Agreement,
American Hospital Resources Inc. became our wholly owned subsidiary and we
changed our name to American Hospital Resources, Inc. We also authorized a
class of 10,000,000 shares of Preferred Stock at no par value and changed our
business strategy to focus on providing health care services and management.
Our common stock is quoted on the OTCBB under the symbol AMHR.
NATURE OF BUSINESS
American Hospital Resources is a healthcare services company that provides
pharmacy services to long-term care providers and hospitals as well as other
acute care consulting and management services. We are currently focusing on the
acquisition and consolidation of profitable pharmacy outsourcing businesses.
These consolidated pharmacy outsourcing and materials management companies
provide pharmacy management services and pharmaceutical supplies to acute care
hospitals and long-term care facilities such as nursing homes and hospices. As
3
part of our business strategy, we have structured a program designed to merge
profitable regional pharmacy outsourcers into a national team. We believe these
regional providers will benefit from the enhanced buying power and market
presence of a consolidated healthcare entity.
Since acquiring our subsidiary and implementing our business plan in the summer
of 2002, we have been actively engaged in identifying pharmaceutical and
healthcare companies to join our healthcare network. During the past year we
identified three companies that we thought would be suitable for potential
acquisition and/or management. In December of 2002 we reported on Form 8-K an
Asset Purchase Agreement to acquire the assets of NIPSI Healthcare of Houston LP
and its general partner. For a brief time in late 2002 and early 2003, we
operated the assets of NIPSI pursuant to this Agreement. However, the assets
were returned in early 2003 after NIPSI failed to honor certain conditions to
closing. Subsequent to the date of this report, in April of 2003, a Texas State
court voided the agreement entirely. We are currently negotiating to acquire
the assets of Rx Solutions, Inc., Coastalmed Inc. and Coastalmed of Panama City,
Inc. Although we have been engaged in negotiations, no transactions have been
consummated at the date of this report. We intend to continue seeking suitable
healthcare and pharmaceutical companies for potential acquisition, consulting or
management opportunities.
EMPLOYEES
Christopher Wheeler is currently our only full time employee. Mr. Wheeler has
served as our Chief Executive Officer, Chief Financial Officer and president
since March of 2002. We are in the process of negotiating a formal employment
agreement with Mr. Wheeler, however, the terms have not been finalized at the
date of this report. We have also contracted with outside consultants and
subcontractors on a part time, as-needed basis.
ITEM 2. DESCRIPTION OF PROPERTY.
From January 2002 through July of 2002, we rented office space in Springville,
Utah from our former president for $100 per month. In October of 2002 we
relocated our corporate headquarters to Santa Ana, California and began renting
office space from our current president for $500 per month. Our office is
located at 1912 West Bay Crest in Santa Ana, California. We did not maintain an
office in August or September of 2002 during our transition from Utah to
California. Total rents paid in 2002 were $2,100.
ITEM 3. LEGAL PROCEEDINGS.
AMHR Subsequent to the date of this report, AMHR learned of three legal
proceedings that could potentially affect our business:
Management is aware of a potential suit in the Circuit Court of the County of
St. Louis, State of Missouri, Cause No. 03AC-002539TCV, dated March 25, 2003.
The suit is being brought by Pre-Employment Screening, Inc., Lawrence J. Altman,
Gateway Legal Services, Inc. and Fun Services of Kansas City, Inc. against
American Hospital Resources, Inc. f/k/a New Horizon Resources, Inc. The suit is
a petition for damages arising from an alleged violation of the Telephone
Consumer Protection Act. The petition alleges that the company breached the Act
by sending unsolicited advertising faxes to plaintiffs and requests damages of
$12,000 and such other relief as the court deems proper. Management denies
transmitting any faxes to the plaintiffs and regards the lawsuit as frivolous
and opportunistic. Should AMHR be formally served with this suit, it intends to
deny all charges and defend itself appropriately.
Management was notified via facsimile dated March 18, 2003, that they were to be
joined as defendants in a suit brought by AmeriSource Bergen Corporation against
NIPSI Healthcare of Houston, LP, Case No. 03-1972-A, filed in the county court
at law, Court Number One, Dallas County, Texas. In the original complaint dated
4
February 19, 2003, AmeriSource sought to recover $480,335.28 from defendant
NIPSI Healthcare of Houston for failing to honor a prior contract. In a
supplemental petition dated March 18, 2003, AmeriSource alleged that AMHR was
conducting business in Texas under the name NIPSI Pharmacy of Texas and sought
to enjoin any transfer of assets from NIPSI to AMHR. On April 16, 2003, the
court entered an interlocutory default judgment against NIPSI. The court found
that NIPSI had fraudulently transferred assets to AMHR to avoid the claims of
AmeriSource. The court voided the transfer of assets from NIPSI to AMHR and
ordered NIPSI to pay AmeriSource $551,264.48 in actual damages, interest and
attorney's fees with interest accruing at 10% per annum. As a result of these
proceedings, the December 2002 Asset Purchase Agreement between NIPSI and AMHR
was nullified by act of law and the Company was released as a defendant. The
possibility exists that other creditors may attempt to join AMHR as co-defendant
in claims against NIPSI based on the voided agreement. However, AMHR is not
aware of any other suits or claims against NIPSI and management believes AMHR
would be successful in defending themselves should any such claims arise.
AMHR received by facsimile a demand letter from National Institutional Pharmacy
Services, LP, the general partner of NIPSI Healthcare of Houston, LP, dated
March 18, 2003. The letter sought to rescind the December 2002 Asset Purchase
Agreement between NIPSI and the Company by alleging fraud and demanding
$120,000. AMHR denies it has any obligation to NIPSI and regards the Asset
Purchase Agreement as being voided by the April 16, 2003 default judgment
entered against NIPSI. At this date, AMHR has not responded to the demand
letter and neither party has initiated formal legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
On June 17, 2002, our shareholders approved an Agreement and Plan of
Reorganization between New Horizon Education, Inc., a Utah corporation and
American Hospital Resources Inc., a Delaware corporation. The Agreement and
Plan of Reorganization was approved by written majority consent pursuant to
Section 16-10a-704 of the Utah Revised Business Corporation Act and Article V of
our bylaws. Under the agreement, 3,196,873 common shares of New Horizon stock
were exchanged for 1,500 common shares of American Hospital's common stock
representing all the issued and outstanding stock of American Hospital
Resources, Inc. As a result of this transaction, New Horizon acquired American
Hospital and the company's name was changed to American Hospital Resources, Inc.
The transaction was reported on form 8-K as filed with the Securities and
Exchange Commission on July 8, 2002 and a copy of the Agreement and an amendment
to the Agreement was attached as an exhibit to the form 8-K. Total shares
eligible to vote were 16,633,127. The number of votes cast and the matters
approved are as follows:
ITEM: VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES
Approve Agreement and. . . 13,000,000 -0- -0- -0-
Plan of Reorganization
Amend the Articles of. . . 13,000,000 -0- -0- -0-
Incorporation to authorize
a class of 10,000,000
shares of preferred stock
Amend the Articles of. . . 13,000,000 -0- -0- -0-
Incorporation changing
the company's name to
American Hospital
Resources, Inc.
5
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is listed on the Over the Counter Bulletin Board under the
symbol AMHR. At December 31, 2002 we had approximately 579 shareholders holding
7,614,000 shares of common stock and 2,600,000 shares of preferred stock. The
following table shows the highs and lows of the closing bid and ask prices on
our common stock for 2002 and 2001.
YEAR CLOSING BID CLOSING ASK
2002 HIGH LOW HIGH LOW
----------------------- ----------- ----------- ---- -----
First Quarter . . . . . .45 .04 .75 .40
Second Quarter. . . . . 1.07 .45 1.10 .55
July 3 to July 28 . . . .01 .005 .03 .01
July 31 to September 30 .77 .30 .85 .43
Fourth Quarter. . . . . .68 .22 .72 .30
2001
-----------------------
First Quarter . . . . . .03 .03 1 .9375
Second Quarter. . . . . .03 .03 1 .93
Third Quarter . . . . . .03 .03 1 1
Fourth Quarter. . . . . .04 .03 1 .75
The above quotations, as provided by the National Quotation Bureau, LLC,
represent prices between dealers and do not include retail markup, markdown or
commission. In addition, these quotations do not represent actual transactions.
We have not paid or declared any dividends since inception and do not intend to
declare any such dividends in the foreseeable future. Our ability to pay
dividends is subject to limitations imposed by Utah law. Under Section
16-10a-640 of the Utah Revised Business Corporation Act, dividends maybe paid to
the extent that a corporation's assets exceed its liabilities and it is able to
pay its debts as they become due in the usual course of business and does not
affect preferential shareholders rights upon dissolution.
RECENT SALES OF UNREGISTERED SECURITIES.
On December 31, 2002, AMHR issued 2,600,000 shares of its previously authorized
but unissued preferred stock in exchange for 13,000,000 shares of common stock
held by Phase One LLC. The 13,000,000 shares of common stock were then
cancelled. The preferred shares have 5 to 1 voting rights and may be converted
6
into five shares of common stock. The securities were offered in a private
transaction without registration in reliance on the exemption provided by
Section 4(2) of the Securities Act. No broker was involved and no commissions
were paid in the transaction.
On December 31, 2002 the Board of Directors adopted an Incentive Stock Bonus
Plan. The plan allows the company to grant 5-year warrants to purchase shares
of common stock to directors, senior management and certain key employees. The
2003 stock bonus pool consists of 1,000,000 warrants to purchase common stock at
$.25 per share. The warrants are issued at the discretion of the Board of
Directors. On December 31, 2002, AMHR granted 300,000 warrants to purchase
common stock to directors and consultants as payment for prior services
collectively valued at $19,577 or approximately $.065 per warrant. At the date
of this report, no warrants have been exercised.
On October 31, 2002, the Company signed an Offer to Purchase with Coastalmed
Inc. and Coastalmed of Panama City, Inc. The offer called for AMHR to purchase
all of the assets of Coastalmed Inc. and Coastalmed of Panama City, Inc. for
$7,000,000 payable as $4,000,000 cash, $1,375,000 as a five-year, 6.5% note
payable with interest-only payment for the first 18 months and $1,625,000 as 6%
convertible preferred stock with dividends payable quarterly. The original
offer expired in November of 2002. Subsequent to the date of this report, in
January of 2003, AMHR signed a revised offer to purchase 100% of the stock of
Coastalmed Inc. and Coastalmed of Panama City, Inc. for $8,400,000 payable as
$4,900,000 cash, $1,625,000 as a five-year, 6.5% note payable with interest-only
payment for the first 18 months and $1,875,000 as series B preferred stock. In
January of 2003, AMHR issued 1,000,000 shares of common stock as an enticement
on the offer to purchase the Coastalmed stock. The securities were issued
without registration in reliance on the exemption provided by Section 4(2) of
the Securities Act. No broker was involved and no commissions were paid in the
transaction.
On November 1, 2002, the Company granted a stock option to Spice Island Products
Corp. The option allows Spice Island to purchase up to 2,000,000 shares of the
Company's common stock at $0.50 per share at any time between November 1, 2002
and November 1, 2005. The securities were offered in a private transaction
without registration in reliance on the exemption provided by Section 4(2) of
the Securities Act. No broker was involved and no commissions were paid in the
transaction. No shares have been purchased under the option as of the filing
date of this report.
On October 31, 2002, the Company issued 200,000 shares of previously authorized
but unissued restricted common stock for cash of $50,000, or $.25 per share to
two accredited investors. The securities were sold in a private transaction
without registration in reliance on the exemption provided by Section 4(2) of
the Securities Act. The investors had pre-existing relationships with American
Hospital Resources and had access to all material information pertaining to the
Company's financial condition. No broker was involved and no commissions were
paid in the transaction.
In May of 2002 we issued 500,000 common shares to an accredited investor to
convert $40,000 in notes and accrued interest of $789. The securities were sold
in a private transaction without registration in reliance on the exemption
provided by Section 4(2) of the Securities Act. The investor had a pre-existing
relationship with American Hospital Resources and had access to all material
information pertaining to the Company's financial condition. No broker was
involved and no commissions were paid in the transaction.
Subsequent to the date of this report, in February of 2003, AMHR issued 40,000
shares of previously authorized but unissued common stock to an accredited
investor for $10,000 or $.25 per share. The securities were sold in a private
transaction without registration in reliance on the exemption provided by
Section 4(2) of the Securities Act. The investor had a pre-existing
7
relationship with American Hospital Resources and had access to all material
information pertaining to the Company's financial condition. No broker was
involved and no commissions were paid in the transaction.
Subsequent to the date of this report, in February 2003, the Board of Directors
authorized the issuance of 720,000 shares of common stock to four individuals
for legal and consulting services. As of April 18, 2003, none of these shares
have been issued. The Company intends to register the transaction on Form S-8
when the shares are issued.
Subsequent to the date of this report, in April of 2003, AMHR issued 47,000
shares of previously authorized but unissued preferred stock to an accredited
investor for cash of $23,500 or $.50 per share. The securities were sold in a
private transaction without registration in reliance on the exemption provided
by Section 4(2) of the Securities Act. The investor had a pre-existing
relationship with American Hospital Resources and had access to all material
information pertaining to the Company's financial condition. No broker was
involved and no commissions were paid in the transaction.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The Management's discussion and analysis should be read in conjunction with the
audited consolidated financial statements appearing at the end of this report.
Consolidated financial data from 2002 reflects the status of the company after
the merger between New Horizon Education, Inc. and American Hospital Resources,
Inc. The financial data from 2001 is derived from the audited financial
statement of the predecessor company, New Horizon Education, Inc.
RESULTS OF OPERATIONS FOR THE PERIODS ENDED DECEMBER 31, 2002 AND DECEMBER 31,
2001
Revenues for the year ended December 31, 2002 were $52,700 compared to no
revenue during the year ended December 31, 2001. All revenue in 2002 derived
from one source. General and administrative expenses were $1,292,931 during the
year ended December 31, 2002. We also recorded expenses of $5,957 relating to
our attempt to acquire NIPSI and interest expense of $1,122. General and
administrative expenses were $57,727 for the period ended December 31, 2001 with
interest expense of $948. Higher general and administrative expenses in 2002
were the result of several factors. In 2001, general and administrative
expenses consisted mainly of salaries, accounting and legal costs associated
with preparing and filing our public reports. By comparison, in 2002 we had
additional legal and auditing costs relating to the acquisition of our
subsidiary in June of 2002 and our attempted acquisition of NIPSI in December of
2002. The bulk of general and administrative expenses in 2002 consisted of
services rendered by consultants, subcontractors, officers and directors.
Services totaling $1,070,477 were paid by issuing stock, options and warrants
representing approximately 83% of general and administrative expenses. We also
recorded $102,300 in bad debt expense. All bad debts consisted of payment due
on commissions and consulting agreements with Parkview Hospital. Although we
anticipate recovering these accounts, Parkview is currently undergoing
bankruptcy reorganization and collection of the receivables is uncertain at this
point. In addition, we advanced $15,000 to NIPSI before the rescission of the
December 2002 Agreement. We collected the advance from NIPSI in January of
2003.
As a result of these factors, we realized a net loss of $1,247,310 for the year
ended December 31, 2002 compared to a net loss of $58,675 for the year ended
December 31, 2001.
Net cash provided by operations was $48,774 during the year ended December 31,
2002 compared to net cash used by operations of $42,829 for the year ended
December 31, 2001. Net cash used by investing activities was $152,575 during
the year ended December 31, 2002 with no comparable investing activities during
the year ending December 31, 2001. Net cash provided by financing activities
was $110,500 for the year ended December 31, 2002 compared to $35,000 for the
year ended December 31, 2001.
8
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002 we had total assets of $1,173,342. Current assets were
$51,854 consisting of $6,779 in cash, $15,000 in an advance and prepaid expenses
of $30,075. We also had property and equipment of $1,743. Other assets at
December 31, 2002 consisted of $60,321 in goodwill and $1,059,424 in deferred
stock offering costs. Assets at December 31, 2001 consisted of $80 in cash.
Current liabilities at December 31, 2002 totaled $1,198,090 consisting of
$1,088,150 in accounts payable, and $109,940 in accrued expenses. Accounts
payable consist mainly of commitment fees and finders' fees relating to securing
a $10,000,000 equity line of credit with Cornell Capital LP. Liabilities at
December 31, 2001 totaled $54,534 consisting of $11,086 in accounts payable,
$948 in accrued expenses, $22,500 payable to a related party and $20,000 in
notes payable. Our auditors have expressed substantial doubt about our ability
to continue as a going concern due in part to the fact that our current
liabilities exceed our current assets.
We anticipate that our operating expenses for the next twelve months will be
approximately $120,000 consisting mainly of salaries and consulting fees. We
will also have legal and auditing expenses relating to our public reports as
well as office rental and other expenses. Management believes that our cash
needs can be met with cash on hand, continuing operations, anticipated cash
collections from accounts receivable and short and long-term investments.
However, we have a number of commitments and contingencies that could impact our
liquidity needs. In addition, we are currently negotiating to acquire the
assets of two health care related companies. Our capital requirements may
increase dramatically if these proposed transactions are consummated. Should it
become necessary to raise additional capital, we may consider securing loans
from officers and directors, selling additional stock or entering into debt
financing.
Our operating plan is to maintain current operations and to continue seeking
other healthcare companies for potential acquisition, management or consulting
opportunities. We also hope to reduce liabilities and bring current our
outstanding debts. Other than as discussed in this report, we have no material
commitments for capital expenditures for the next twelve months.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements appear at the end of this report beginning with the
Index to Financial Statements on page 17.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth as of December 31, 2002, the name, age, and
position of each executive officer and director and the term of office for each
director.
9
NAME AGE POSITION SINCE
-------------------
Christopher Wheeler 55 Director, President, Chief Executive Office March 2002
r and Chief Financial Officer
Antione Gedeon. . . 57 Director and Treasurer March 2002
Mark Buck . . . . . 58 Director and Secretary March 2002
All officers hold their positions at the will of the Board of Directors. All
directors hold their positions for one year or until their successors are duly
elected and qualified.
The following is a brief biography of the officers and directors.
CHRISTOPHER A. WHEELER, CEO, CFO, PRESIDENT AND DIRECTOR. Mr. Wheeler has many
years of ownership and operating experience in the acute care hospital and
health care finance fields. He has been the previous owner and operator of
three acute care hospitals in California. Since 1998, Mr. Wheeler has been the
Founder and Managing Partner of two investment banking firms, Sandpiper Capital
and Gaelic Capital Group. These sister companies provide diverse management and
financial consulting services to a variety of industry segments including the
healthcare and food service industries. In particular, these services include
crisis management, hospital management, and strategic planning services for
pharmacy outsourcing and materials management firms
ANTIONE GEDEON, TREASURER AND DIRECTOR. Mr. Gedeon speaks four languages and
has many years of experience in the travel industry. He is currently an
instructor with Travel University International in Honolulu, Hawaii where he
teaches advanced courses in travel industry management, international trade, and
hotel management. He has also worked as a consultant for Private Investment
Group since 1999. From 1995 to 1998 Mr. Gedeon was the President and Chief
Operating Officer of Mayan Resorts Development Corp. in Belize where he presided
over the master plan for Salt Creek Estate, a 31,000 acre beachfront property.
MARK BUCK, SECRETARY AND DIRECTOR. Mr. Buck is a commercial real estate broker
specializing in sales and leasing. He has worked for Commercial Real Estate
Services in Honolulu, Hawaii since 1986 as Vice President of Marketing and
Sales. Mr. Buck is also the controlling partner of Phase One, LLC. Mr. Buck
has been an owner and partner in three small businesses that he later sold.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3, 4 and 5 furnished, we are not aware of
any person who at any time during the fiscal year ended December 31, 2002 was a
director, officer, or beneficial owner of more than ten percent of the Common
Stock of the Company, and who failed to file, on a timely basis, reports
required by Section 16(a) of the Securities Exchange Act of 1934 during such
fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
We have no formal arrangements for the remuneration of our officers and
directors, except that they will receive reimbursement for actual, demonstrable
out-of-pocket expenses, including travel expenses, if any, made on our behalf.
We are currently negotiating an employment agreement with our president and
executive officer, Mr. Christopher Wheeler, however, the terms have not been
finalized at the date of this report.
10
SUMMARY COMPENSATION TABLE
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION
Christopher Wheeler. . . . . . . . 2002 67,500 (1) -0- (2)
Current Chief Executive Officer, 2001 -0- -0- -0-
Chief Financial Officer and. . . 2000 -0- -0- -0-
Director
Antione Gedeon . . . . . . . . . . 2002 -0- -0- (3)
Current Director and Treasurer . 2001 -0- -0- -0-
2000 -0- -0- -0-
Mark S. Buck . . . . . . . . . . . 2002 -0- -0- (4)
Current Director and Secretary . 2001 -0- -0- -0-
2000 -0- -0- -0-
Steven L. White. . . . . . . . . . 2002 500 (5) -0- (6)
Former Chief Executive Officer . 2001 -0- -0- -0-
And Director . . . . . . . . . . 2000 55,775 -0- -0-
Angela White . . . . . . . . . . . 2002 500 (5) -0- -0-
Former Director. . . . . . . . . 2001 -0- -0- -0-
2000 -0- -0- -0-
Laura Jean Hullinger . . . . . . . 2002 500 (5) -0- -0-
Former Director. . . . . . . . . 2001 -0- -0- -0-
2000 -0- -0- -0-
(1) Mr. Wheeler has also accrued approximately $120,000 in salary payable. This
includes amounts accrued prior to the Agreement between New Horizon and
AMHR.
(2) In December of 2002, Mr. Wheeler received warrants to purchase up to 75,000
shares of common stock for $.25 per share under the company's Incentive
Stock Bonus Plan as additional compensation for his services as Chief
Executive Officer.
(3) In December of 2002, Mr. Gedeon received warrants to purchase up to 75,000
shares of common stock for $.25 per share under the company's Incentive
Stock Bonus Plan as compensation for his services as chief financial
officer. Mr. Gedeon also received an option to purchase up to 10,000 shares
for $.05 per share in March of 2002. The option expires in March of 2004.
At the date of this report, Mr. Gedeon has not exercised the option.
(4) In December of 2002, Mr. Buck received warrants to purchase up to 125,000
shares of common stock for $.25 per share under the company's Incentive
Stock Bonus Plan as compensation for his services as officer and director.
Mr. Buck also received an option to purchase up to 10,000 shares for $.05
per share in March of 2002. The option expires in March of 2004. At the
date of this report, Mr. Buck has not exercised the option.
(5) In 2002 our former Directors received a one-time payment of $500 for their
prior services as board members.
11
(6) In March of 2002 we issued 1,100,000 shares of common stock to our former
president, Steven White, as compensation for accrued salary of $22,000.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
There are no compensatory plans or arrangements, including payments to be
received, with respect to any person which would in any way result in payments
to any person because of employment with our company or its subsidiaries, or any
change in control of our company, or a change in the person's responsibilities
following a change in control of our company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
At December 31, 2002, there were 7,614,000 shares of common stock issued and
outstanding and 2,600,000 shares of series A preferred stock issued and
outstanding. Each share of preferred stock has the voting rights of five shares
of common stock and may be converted to common stock on a 1 to 5 basis. As a
result, there were 20,614,000 voting shares at December 31, 2002. The following
table sets equivalent voting shares based on the number and percentage of
outstanding common and preferred stock and which, according to the information
supplied to us, were beneficially owned by (i) each person who is currently a
director of AMHR, (ii) each executive officer, (iii) all current directors and
executive officers of AMHR as a group and (iv) each person who, to our knowledge
is the beneficial owner of more than 5% of the outstanding common stock and
preferred stock. Unless otherwise indicated, the persons named in the table
have sole voting and dispositive power with respect to all shares beneficially
owned, subject to community property laws where applicable.
NAME AND ADDRESS OF TITLE OF CLASS AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP CLASS
Christopher Wheeler (2) . . Common 13,975,000 (3) 67.42%
1912 West Bay Crest
Santa Ana, CA 92704
Mark S. Buck (2). . . . . . Common 535,000 (4) 2.60%
1912 West Bay Crest
Santa Ana, CA 92704
Antione Gedeon (2). . . . . Common 85,000 (5) 0.04%
8 East Broadway,
609 Judge Building
Salt Lake City, UT 84111
Steven L. White . . . . . . Common 1,100,000 5.33%
386 North 210 East
Mapleton, UT 84664
Officers, Directors and . . Common 14,595,000 70.80%
Nominees as a Group:
Three People
12
(1) For purposes of this table, a beneficial owner is one who, directly or
indirectly, has or shares with others (a) the power to vote or direct the
voting of the Voting Stock (b) investment power with respect to the Voting
Stock which includes the power to dispose or direct the disposition of the
Voting Stock.
(2) Officer and/or director.
(3) Mr. Wheeler holds 900,000 shares of common stock and 2,600,000 shares of
preferred stock with 5 to 1 voting rights. The preferred shares have been
accounted for as 13,000,000 common shares in the beneficial ownership
table. Mr. Wheeler also holds a warrant to purchase up to 75,000 additional
common shares.
(4) Phase One LLC owns 400,000 shares. Mr. Buck is the controlling partner of
Phase One LLC and is thus considered the beneficial owner of the 400,000
shares held by Phase One, LLC. Mr. Buck also holds a warrant for 125,000
shares of common stock and an option to purchase 10,000 shares of common
stock.
(5) Mr. Gedeon does not own any AMHR common stock but holds a warrant for up to
75,000 shares of common stock and an option to purchase 10,000 shares of
common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On January 25, 2002, AMHR signed a $30,000 convertible note payable to Phase One
LLC. The note was due on January 25, 2003 and accrued interest at 10% per
annum. On February 27, 2002, the note was converted into 3,000,000 shares of
common stock and no interest was recognized on the note. Also on February 27,
2002, the Company issued 8,000,0000 shares of common stock to Phase One LLC to
convert $50,000 of notes payable and for a $30,000 note receivable. As a result
of these transactions, Phase One LLC gained control of the company. Total
consideration amounted to $110,000 or $.01 per share. One of our directors, Mr.
Mark Buck, is the controlling member of Phase One LLC.
In March of 2002 we issued 1,100,000 shares to Steven White, our former
president as compensation for accrued salary of $20,000.
In April of 2002 we issued 2,000,000 shares of common stock to Phase One LLC for
$20,000 in cash. One of our directors, Mr. Mark Buck, is the controlling member
of Phase One LLC.
On September 15, 2002, AMHR signed a Purchase and Sale Agreement with Gaelic
Capital Group, an entity controlled by our Chief Executive Officer and director,
Christopher Wheeler. Under the Agreement, AMHR paid Gaelic $94,500 for the
rights to receive 6% of the sale price of the peripheral assets of Parkview
Community Hospital Medical Center. During the year ended December 31, 2002,
AMHR received revenues of $123,600 under the Agreement.
In December of 2002, Phase One LLC exchanged 13,000,000 shares of common stock
for 2,600,000 shares of preferred stock. The 13,000,000 shares of common stock
were then cancelled. Phase One LLC then sold the 2,600,000 shares of preferred
stock to our president, Christopher Wheeler for cash and other consideration
totaling $1,340,000 or approximately $.52 per share. As a result of this
transaction Mr. Wheeler gained control of 67% of our voting stock.
On December 31, 2002 the Board of Directors adopted an Incentive Stock Bonus
Plan. The plan allows the company to grant 5-year warrants to purchase shares
of common stock for $.25 per share. On December 31, 2002, AMHR granted 300,000
warrants to purchase common stock to directors and consultants as payment for
prior services collectively valued at $19,577 and for future services to be
rendered. At the date of this report, no warrants have been exercised.
13
From January 2002 through July of 2002, we rented office space in Springville,
Utah from our former president for $100 per month. In October of 2002 we
relocated our corporate headquarters to Santa Ana, California and began renting
office space from our current president for $500 per month. Our office is
located at 1912 West Bay Crest in Santa Ana, California. Total rents paid in
2002 were $2,100.
SUBSEQUENT EVENT
In February 2003, we retained Douglas A. Jackson to negotiate a line of credit.
Mr. Jackson will receive $5,000 plus 5% of any proceeds we receive. In March
2003 we retained Mr. Jackson to negotiate a $6,000,000 loan. We have agreed to
pay Mr. Jackson a fee of $12,500 plus 5% of loan proceeds.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
REPORTS ON FORM 8-K
The following reports were filed on Form 8-K during the last ninety days of the
period covered by this report:
DATE OF REPORT ITEM EVENT REPORTED
December 30, 2002 Item 2. Acquisition of Assets Acquisition of NIPSI Healthcare of Houston LP
and NIPSI of Houston, Inc. by American
Hospital Resources, Inc. (1)
Item 7. Financial Statements
(1) In December of 2002 we finalized an Asset Purchase Agreement with NIPSI
Healthcare of Houston, LP and its general partner as reported on Form 8-K
dated December 30, 2002. The agreement was subsequently voided in April of
2003 after a Texas State court found that NIPSI had fraudulently
transferred the assets to AMHR.
EXHIBITS:
EXHIBIT NUMBER TITLE LOCATION
99.1 Certification of Chief Executive Officer and Chief . . . . Attached
Financial Officer Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
99.2 Certification of Chief Executive Officer and Chief . . . . Attached
Financial Officer Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
99.3 American Hospital Resources Corporate Code of Ethics . . . Attached
14
ITEM 14. CONTROLS AND PROCEDURES
Within the 90-day period prior to the date of this report, we evaluated the
effectiveness and operation of our disclosure controls and procedures pursuant
to Rule 13a-14 of the Securities Exchange Act of 1934. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective. There have
been no significant changes in internal controls or other factors that could
significantly affect internal controls subsequent to the date we carried out our
evaluation. To demonstrate our commitment to maintaining effective disclosure
controls and procedures, we have recently adopted a Code of Ethics and Business
Conduct. In pertinent part, the Code authorizes the establishment of an audit
committee to oversee the effectiveness of our disclosure controls and
procedures. A copy of our Code is attached as an exhibit to this report.
15
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN HOSPITAL RESOURCES, INC.
Date: April 24, 2003 /s/Christopher Wheeler,
-------------------------
Christopher Wheeler
Chief Executive Officer
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: April 24, 2003 /s/Christopher Wheeler
-----------------------
Christopher Wheeler
Director
Date: April 24, 2003 /s/Mark Buck
-------------
Mark Buck
Director
Date: April 24, 2003 /s/Antione Gedeon
------------------
Antione Gedeon
Director
16
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
CONTENTS
PAGE
-------
- Independent Auditors' Report . . . . . . . . . . . . . . . 18
- Consolidated Balance Sheet, December 31, 2002. . . . . . . 19-20
- Consolidated Statements of Operations, for the years ended
December 31, 2002 and 2001 . . . . . . . . . . . . . . . . 21
- Consolidated Statement of Stockholders' Equity (Deficit),
for the years ended December 31, 2002 and 2001 . . . . . . . 22-24
- Consolidated Statements of Cash Flows, for the years ended
December 31, 2002 and 2001 . . . . . . . . . . . . . . . 25-27
- Notes to Consolidated Financial Statements . . . . . . . . 28-45
17
INDEPENDENT AUDITORS' REPORT
Board of Directors
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
Santa Ana, California
We have audited the accompanying consolidated balance sheet of American Hospital
Resources, Inc. and Subsidiary as of December 31, 2002, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended December 31, 2002 and 2001. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the consolidated financial position of
American Hospital Resources, Inc. and Subsidiary as of December 31, 2002, and
the results of their operations and their cash flows for the years ended
December 31, 2002 and 2001, in conformity with generally accepted accounting
principles in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 12 to the financial
statements, the Company has just recently commenced operations and all of their
revenues have been from one customer. Further, the Company has current
liabilities in excess of current assets. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. Management's
plans in regards to these matters are also described in Note 12. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
PRITCHETT, SILER & HARDY, P.C.
-----------------------------------
March 5, 2003
(except for Notes 2, 5, 15 and 17, as to which the date is April 17, 2003)
Salt Lake City, Utah
18
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
2002
-------------
CURRENT ASSETS:
Cash. . . . . . . . . . . . . . . . . $ 6,779
Accounts receivable, net of allowance
for doubtful accounts of $102,300 . -
Advance to NIPSI. . . . . . . . . . . 15,000
Prepaid expense . . . . . . . . . . . 30,075
-------------
Total Current Assets. . . . . . . . 51,854
-------------
PROPERTY AND EQUIPMENT, net . . . . . . 1,743
-------------
OTHER ASSETS:
Goodwill. . . . . . . . . . . . . . . 60,321
Deferred stock offering costs . . . . 1,059,424
-------------
Total Other Assets. . . . . . . . . 1,119,745
-------------
$ 1,173,342
=============
[Continued]
19
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
[CONTINUED]
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
2002
--------------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . $ 1,088,150
Accrued expenses . . . . . . . . . . . . . . 109,940
--------------
Total Current Liabilities. . . . . . . . 1,198,090
COMMITMENTS AND CONTINGENCIES [See Note 15]. . -
--------------
Total Liabilities. . . . . . . . . . . . 1,198,090
--------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, no par value,
10,000,000 shares authorized:
Series A convertible preferred stock,
2,600,000 shares issued and outstanding. 3,900,000
Series B convertible preferred stock,
no shares issued and outstanding . . . . -
Common stock, no par value,
100,000,000 shares authorized,
7,614,000 shares issued and outstanding. . 3,759,522
Additional paid-in capital . . . . . . . . . 955,496
Retained earnings (deficit). . . . . . . . . (8,639,766)
--------------
Total Stockholders' Equity (Deficit) . . . (24,748)
--------------
$ 1,173,342
==============
The accompanying notes are an integral part of this consolidated financial
statement.
20
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended
December 31,
------------------------
2002 2001
------------- ---------
REVENUES. . . . . . . . . . . . . . . . . $ 52,700 $ -
------------- ---------
EXPENSES:
General and administrative. . . . . . . 1,292,931 57,727
Costs of unsuccessful NIPSI acquisition 5,957 -
------------- ---------
Total Expenses. . . . . . . . . . . . 1,298,888 57,727
------------- ---------
LOSS BEFORE OTHER EXPENSE . . . . . . . . (1,246,188) (57,727)
------------- ---------
OTHER EXPENSE:
Interest expense. . . . . . . . . . . (1,122) (948)
------------- ---------
Total Other Expense . . . . . . . . . (1,122) (948)
------------- ---------
LOSS BEFORE INCOME TAXES. . . . . . . . . (1,247,310) (58,675)
CURRENT TAX EXPENSE . . . . . . . . . . . - -
DEFERRED TAX EXPENSE. . . . . . . . . . . - -
------------- ---------
NET LOSS. . . . . . . . . . . . . . . . . $ (1,247,310) $(58,675)
============= =========
LOSS PER COMMON SHARE . . . . . . . . . . $ (.08) $ (.02)
============= =========
The accompanying notes are an integral part of this consolidated financial
statement.
21
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Series A Series B Additional Retained
Preferred Stock Preferred Stock Common Stock Paid-in Earnings
--------------------- --------------------- ------------------------
Shares Amount Shares Amount Shares Amount Capital (Deficit)
--------- ---------- --------- ---------- ----------- ----------- ---------- ------------
BALANCE, December 31, 2000 . . . - $ - - $ - 2,906,863 $7,269,483 $ 53,519 $(7,333,781)
Issued 750,000 shares of
common stock for cash of
15,000, or $.02 per share,
February 2001. . . . . . . . . - - - - 750,000 15,000 - -
Net loss for year ended
December 31, 2001. . . . . . . - - - - - - - (58,675)
--------- ---------- --------- ---------- ----------- ----------- ---------- ------------
BALANCE, December 31, 2001 . . . - - - - 3,656,863 7,284,483 53,519 (7,392,456)
Issued 500,000 shares of
common stock to convert debt
of $21,281, or $.04256 per
share, February 2002 . . . . . - - - - 500,000 21,281 - -
Issued 450,000 shares of
common stock for services
related to the acquisition of
AHR Subsidiary valued at
5,000, or $.0111 per share,
February 2002. . . . . . . . . - - - - 450,000 5,000 - -
Issued 125,000 shares of
common stock for services
related to the acquisition of
AHR Subsidiary valued at
2,500, or $.02 per share,
February 2002. . . . . . . . . - - - - 125,000 2,500 - -
Issued 11,000,000 shares of
common stock to convert debt
of $110,000, or $.01 per share,
February 2002. . . . . . . . . - - - - 11,000,000 110,000 - -
Repurchased and cancelled
3,198,736 shares of common
stock for cash of $79,500, or
$.02485 per share, February
and March 2002 . . . . . . . . - - - - (3,198,736) (79,500) - -
[Continued]
22
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
[CONTINUED]
Series A Series B Additional Retained
Preferred Stock Preferred Stock Common Stock Paid-in Earnings
--------------------- --------------------- ------------------------
Shares Amount Shares Amount Shares Amount Capital (Deficit)
--------- ---------- --------- ---------- ----------- ----------- ---------- ------------
Granted 20,000 options to
purchase common stock,
March 2002. . . . . . . . . . . - - - - - - - -
Issued 1,600,000 shares of
common stock for services of
32,000, or $.02 per share,
March 2002. . . . . . . . . . . - - - - 1,600,000 32,000 - -
Issued 2,000,000 shares of
common stock for cash of
20,000, or $.01 per share,
April 2002. . . . . . . . . . . - - - - 2,000,000 20,000 - -
Issued 500,000 shares of
common stock to convert debt
of $40,789, or $.081578 per
share, May 2002 . . . . . . . . - - - - 500,000 40,789 - -
Issued 3,196,873 shares of
common stock to acquire
AHR Subsidiary, June 2002 . . . - - - - 3,196,873 31,969 - -
Issued 584,000 shares of
common stock for services of
146,000, or $.25 per share,
August 2002 . . . . . . . . . . - - - - 584,000 146,000 - -
Issued 200,000 shares of
common stock for cash of
50,000, or $.25 per share,
net of offering costs of $5,000,
October 2002. . . . . . . . . . - - - - 200,000 45,000 - -
Granted 2,000,000 options to
purchase common stock,
November 2002 . . . . . . . . . - - - - - - 882,400 -
[Continued]
23
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
[CONTINUED]
Series A Series B Additional Retained
Preferred Stock Preferred Stock Common Stock Paid-in Earnings
--------------------- -------------------- --------------------------
Shares Amount Shares Amount Shares Amount Capital (Deficit)
--------- ---------- --------- --------- ------------ ------------ ---------- ------------
Granted 300,000 warrants to
purchase common stock,
December 2002 . . . . . . . - - - - - - 19,577 -
Issued 2,600,000 shares of
Series A preferred stock in
exchange for 13,000,000
shares of common stock,
December 2002 . . . . . . . 2,600,000 3,900,000 - - (13,000,000) (3,900,000) - -
Net loss for year ended
December 31, 2002 . . . . . - - - - - - - (1,247,310)
--------- ---------- --------- --------- ------------ ------------ ---------- ------------
BALANCE, December 31, 2002. . 2,600,000 $3,900,000 - - 7,614,000 $ 3,759,522 $ 955,496 $(8,639,766)
========= ========== ========= ========= ============ ============ ========== ============
The accompanying notes are an integral part of this consolidated financial
statement.
24
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
------------------------
2002 2001
------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . $ (1,247,310) $(58,675)
Adjustments to reconcile net loss to net cash used
by operating activities:
Bad debt expense . . . . . . . . . . . . . . . . . . 102,300 -
Depreciation . . . . . . . . . . . . . . . . . . . . 205 -
Non-cash services for common stock . . . . . . . . . 116,000 -
Non-cash services for common stock options . . . . . 882,400 -
Non-cash services for common stock warrants. . . . . 19,577 -
Changes in assets and liabilities:
Decrease in accounts receivable. . . . . . . . . . 109,440 -
(Increase) in prepaid expense. . . . . . . . . . . (75) -
Increase (decrease) in accounts payable. . . . . . 18,856 (3,198)
Increase (decrease) in accrued expenses. . . . . . 54,546 (3,456)
Increase (decrease) in related party payable . . . (7,165) 22,500
------------- ---------
Net Cash Provided (Used) by Operating Activities 48,774 (42,829)
------------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for accounts receivable . . . . . . . . . . . (94,500) -
Payments for advance to NIPSI. . . . . . . . . . . . . (50,000) -
Payments received on advance to NIPSI. . . . . . . . . 35,000 -
Payments received on note receivable . . . . . . . . . 30,000 -
Payments for property and equipment. . . . . . . . . . (772) -
Payments for goodwill. . . . . . . . . . . . . . . . . (55,020) -
Cash (used) by acquisition of AHR Subsidiary . . . . . (17,283) -
------------- ---------
Net Cash (Used) by Investing Activities. . . . . (152,575) -
------------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable. . . . . . . . . . . . . . 120,000 20,000
Proceeds from sale of common stock . . . . . . . . . . 70,000 15,000
Payments to repurchase common stock. . . . . . . . . . (79,500) -
------------- ---------
Net Cash Provided by Financing Activities. . . . 110,500 35,000
------------- ---------
[Continued]
25
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CONTINUED]
For the Year Ended
December 31,
----------------------
2002 2001
------------ --------
NET INCREASE (DECREASE) IN CASH. . . . . . . . . . 6,699 (7,829)
CASH AT BEGINNING OF THE YEAR. . . . . . . . . . . 80 7,909
------------ --------
CASH AT END OF THE YEAR. . . . . . . . . . . . . . $ 6,779 $ 80
============ ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . $ - $ -
Income taxes . . . . . . . . . . . . . . . . . $ - $ -
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the year December 31, 2002:
In February 2002, the Company issued 675,000 shares of common stock as
payment of $7,500 of services related to the acquisition of AHR
Subsidiary.
In February and May 2002, the Company issued 11,500,000 shares of
common stock for a $30,000 note receivable and to convert $100,000 of
notes payable and $1,281 of accrued interest.
In March 2002, the Company issued 1,600,000 shares of common stock as
payment of $10,000 of accounts payable and $22,000 of related party
payable.
In March 2002, the Company granted 20,000 options to purchase common
stock to attract new directors.
In May 2002, the Company issued 500,000 shares of common stock to
convert $40,000 of notes payable and $789 of accrued interest.
[Continued]
26
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CONTINUED]
In June 2002, the Company issued 3,196,873 shares of common stock to
acquire AHR Subsidiary.
In August 2002, the Company issued 584,000 shares of common stock as
payment and prepayment of $146,000 of services.
In October 2002, the Company sold shares of common stock and recorded
the stock offering costs of $5,000 in accounts payable.
In November 2002, the Company granted 2,000,000 options to purchase
common stock as payment of $882,400 of services.
In December 2002, the Company entered into an Equity Line of Credit
Agreement to sell shares of common stock and recorded the stock
offering costs of $1,059,424 in accounts payable.
In December 2002, the Company granted 300,000 warrants to purchase
common stock as payment of $19,577 of services.
In December 2002, the Company issued 2,600,000 shares of Series A
preferred stock in exchange for 13,000,000 shares of common stock
which were then cancelled.
For the year December 31, 2001:
None
The accompanying notes are an integral part of these consolidated financial
statements.
27
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - American Hospital Resources, Inc. ("Parent") was organized
under the laws of the State of Utah on May 9, 1972 as High-Line Investment
& Development Company. In 1977, Parent changed its name to Gayle
Industries, Inc. In 1978, Parent merged into Swing Bike. In 1979, Parent
changed its name to Horizon Energy Corporation. In 1992, Parent changed its
name to Millennium Entertainment Corp. In 1993, Parent changed its name to
New Horizon Education, Inc. In 1993, Parent also organized a wholly owned
subsidiary with the sole purpose of merging with Ruff Network Marketing,
Inc. In 1997, Parent sold its wholly owned subsidiary to Phoenix Ink, LLC.
On June 17, 2002, Parent changed its name to American Hospital Resources,
Inc. Prior to 2002, Parent was considered a development stage company as
defined in Statement of Financial Accounting Standards No. 7.
American Hospital Resources, Inc. ("AHR Subsidiary") was organized under
the laws of the State of Delaware on August 27, 1999 as Frozen Enterprises,
Inc. On February 16, 2002, AHR Subsidiary changed its name to American
Hospital Resources, Inc. On December 31, 2002, the Board of Directors
determined to dissolve AHR Subsidiary. AHR Subsidiary is not in good
standing with the State of Delaware [See Note 17].
NIPSI Pharmacy of Texas ("NPT Subsidiary") was organized as a wholly owned
subsidiary under the laws of the State of Nevada on December 19, 2002 to
provide pharmacy services.
American Hospital Resources, Inc., AHR Subsidiary and NPT Subsidiary ("the
Company") provides hospital consulting and management. The Company has, at
the present time, not paid any dividends and any dividends that may be paid
in the future will depend upon the financial requirements of the Company
and other relevant factors.
CONSOLIDATION - The consolidated financial statements include the accounts
of Parent, its wholly owned AHR Subsidiary and its wholly owned NPT
Subsidiary. All significant intercompany transactions have been eliminated
in consolidation.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
investments purchased with a maturity of three months or less to be cash
equivalents.
ACCOUNTS AND LOANS RECEIVABLE - The Company records accounts and loans
receivable at the lower of cost or fair value. The Company determines the
lower of cost or fair value of nonmortgage loans on an individual asset
basis. The Company recognizes interest income on an account receivable
based on the stated interest rate for past-due accounts over the period
that the account is past due. The Company recognizes interest income on a
loan receivable based on the stated interest rate over the term of the
loan. The Company accumulates and defers fees and costs associated with
establishing a receivable to be amortized over the estimated life of the
related receivable. The Company estimates allowances for doubtful accounts
and loan losses based on the aged receivable balance and historical losses.
The Company records interest income on delinquent accounts and loans
receivable only when payment is received. The Company first applies
payments received on delinquent accounts and loans receivable to eliminate
the outstanding principal. The Company charges off uncollectible accounts
and loans receivable when management estimates no possibility of collecting
the related receivable. The Company considers accounts and loans receivable
to be past due or delinquent based on contractual terms.
28
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Expenditures for repairs and maintenance are charged to operating expense
as incurred. Expenditures for additions and betterments that extend the
useful lives of property and equipment are capitalized, upon being placed
in service. When assets are sold or otherwise disposed of, the cost and
related accumulated depreciation or amortization is removed from the
accounts and any resulting gain or loss is included in operations.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets of five years [See Note 6].
WEBSITE COSTS - The Company has adopted the provisions of Emerging Issues
Task Force 00-2, "Accounting for Web Site Development Costs." Costs
incurred in the planning stage of a website are expensed as research and
development while costs incurred in the development stage are capitalized
and amortized over the life of the asset, estimated to be five years. As of
December 31, 2002 the Company has capitalized a total of $1,541 of website
costs which are included in property and equipment. The Company did not
incur any planning costs and did not record any research and development
costs for the years ended December 31, 2002 and 2001.
INTANGIBLE ASSETS - The Company accounts for their intangible assets in
accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" [See Note 7].
STOCK OFFERING COSTS - Costs related to proposed stock offerings are
deferred and will be offset against the proceeds of the offering. In the
event a stock offering is unsuccessful, the costs related to the offering
will be written off to expense.
REVENUE RECOGNITION - The Company's revenue comes from the management of
hospitals and from the sale of hospital property. Revenue from the
management of hospitals is recognized over the term of the managing
agreement. A portion of the managing services is subcontracted out by the
Company to third party vendors. These direct costs are recorded by the
Company as general and administrative expenses. Revenue from the sale of
hospital property is recorded when property is sold. The Company has
purchased the right to receive a portion of the revenues from a consulting
and asset sale agreement. Revenue derived from the purchased contract
rights is recorded as received on a net basis. On a net basis, only the
share of revenue belonging to the Company is recorded as revenue.
STOCK BASED COMPENSATION - The Company accounts for their stock based
compensation in accordance with Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation." This statement
establishes an accounting method based on the fair value of equity
instruments awarded to employees as compensation. However, companies are
permitted to continue applying previous accounting standards in the
determination of net income with disclosure in the notes to the financial
statements of the differences between previous accounting measurements and
those formulated by the new accounting standard. The Company has adopted
the disclosure only provisions of SFAS No. 123. Accordingly, the Company
has elected to determine net income using previous accounting standards.
29
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
LOSS PER SHARE - The computation of loss per share of common stock is based
on the weighted average number of shares outstanding during the periods
presented, in accordance with Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" [See Note 14].
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities, the disclosures
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 estimated by
management.
RECENTLY ENACTED ACCOUNTING STANDARDS - Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations", SFAS No. 142,
"Goodwill and Other Intangible Assets", SFAS No. 143, "Accounting for Asset
Retirement Obligations", SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections", SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities", SFAS No. 147, "Acquisitions of Certain
Financial Institutions - an Amendment of FASB Statements No. 72 and 144 and
FASB Interpretation No. 9", and SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of FASB Statement
No. 123", were recently issued. SFAS No. 141, 142, 143, 144, 145, 146, 147
and 148 have no current applicability to the Company or their effect on the
financial statements would not have been significant.
RECLASSIFICATION - The financial statements for periods prior to December
31, 2002 have been reclassified to conform to the headings and
classifications used in the December 31, 2002 financial statements.
NOTE 2 - ACQUISITION AND VOIDING OF ACQUISITION
On December 13, 2002, Parent signed an asset purchase agreement with NIPSI
Healthcare of Houston Limited Partnership ("NIPSI") and NIPSI of Houston,
Inc. ("NIPSI General Partner"). The agreement provided for Parent to assume
certain liabilities of NIPSI and to sign an unsecured 18-month $150,000
note payable to NIPSI for most of the operating assets of NIPSI. The
agreement also included a non-compete covenant from NIPSI and NIPSI General
Partner. The acquisition closed December 16, 2002; however, subsequently,
in a default judgement against NIPSI in favor of a creditor, the court
voided and nullified the transfer of NIPSI assets to the Company [See Note
17]. Also, NIPSI General Partner sent a demand letter to the Company to
rescind the asset purchase agreement and claiming damages of $120,000
against the Company [See Note 17]. The financial statements reflect the
acquisition as having been voided or rescinded and any expenses associated
with the voided acquisition have been classified as a cost of the
unsuccessful NIPSI acquisition.
30
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITION
On April 3, 2002, Parent signed an agreement and plan of reorganization
with Phase One, LLC and AHR Subsidiary. The agreement provided for Parent
to issue 3,196,873 shares of its common stock for all 1,500 shares of AHR
Subsidiary's common stock. In connection with the proposed reorganization,
Parent previously issued a total of 13,000,000 shares of its common stock
to Phase One, LLC for $130,000 in financing. The agreement called for
former shareholders of AHR Subsidiary to receive up to 12,870,000 shares of
the common stock issued to Phase One, LLC based on the performance of the
Company. In connection with the agreement, Parent amended its articles of
incorporation to authorize 10,000,000 shares of preferred stock and to
change its name to American Hospital Resources, Inc. Also in connection
with the agreement, Parent and AHR Subsidiary entered into three-year
consulting agreements with both Synergistic Connections, Inc. and Corporate
Dynamics, Inc. [See Note 15]. As a result of the agreement, the former
officers and directors of the Company resigned and new officers and
directors were appointed. The acquisition closed June 17, 2002 and has been
accounted for as a purchase of AHR Subsidiary. The Company recorded
goodwill of $60,321 as a result of the acquisition. On December 31, 2002,
the agreement and plan of reorganization was amended to exchange the
13,000,000 shares of the Company's common stock that had been issued to
Phase One, LLC for 2,600,000 shares of the Company's Series A preferred
stock. The agreement was further amended to issue the 2,600,000 shares of
Series A preferred stock to the Company's Chief Executive Officer for value
received by Phase One, LLC, which effected a change in control of the
Company. The amended agreement also grants the Company's Chief Executive
Officer the right to convert, at any time, any or all of the common stock
that he received under the agreement into Series A preferred stock at a
rate of five shares of common stock into one share of Series A preferred
stock.
The following is the unaudited condensed balance sheet of AHR Subsidiary at
June 17, 2002, the date the acquisition closed.
June 17,
2002
---------
ASSETS:
Accounts receivable . . . . . . . . . . . . . $ 64,740
Related party receivable. . . . . . . . . . . 52,500
Property and equipment, net . . . . . . . . . 1,176
---------
$ 118,416
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Bank overdraft. . . . . . . . . . . . . . . . $ 17,283
Accounts payable. . . . . . . . . . . . . . . 3,784
Accrued expenses. . . . . . . . . . . . . . . 56,516
Related party payable . . . . . . . . . . . . 6,666
Common stock. . . . . . . . . . . . . . . . . 1,500
Retained earnings . . . . . . . . . . . . . . 32,667
---------
$ 118,416
=========
31
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITION [CONTINUED]
The following is an unaudited proforma condensed consolidated statement of
operations as if the acquisition had occurred on December 31, 2001:
For the
Year Ended
December 31,
2002
--------------
Revenues. . . . . . . $ 289,620
Expenses. . . . . . . (1,498,861)
Other expenses. . . . (1,122)
--------------
Loss from operations. (1,210,363)
Tax expense . . . . . -
--------------
Net loss. . . . . . . $ (1,210,363)
==============
Loss per common share $ (.07)
==============
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at:
December 31,
2002
--------------
Parkview management consulting services . . . . $ 7,800
Parkview purchased commission on sale of assets 94,500
--------------
102,300
Less: allowance for doubtful accounts . . . . . (102,300)
--------------
Net accounts receivable . . . . . . . . . . . . $ -
==============
At December 31, 2002, the Company had receivables from two agreements with
Parkview. Parkview is undergoing bankruptcy reorganization and the
receivables were generated as part of the reorganization. While management
expects to collect on both Parkview receivables, collection is not certain
and an allowance has been recorded.
32
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - ADVANCE TO NIPSI
Advance to NIPSI consisted of the following at:
December 31,
2002
-------------
Advance to NIPSI. . . $ 15,000
-------------
Net advance to NIPSI. $ -
=============
At December 31, 2002, the Company had made advances to NIPSI which had not
been repaid. Subsequently, the Company received $15,000 from NIPSI;
however, NIPSI General Partner subsequently rescinded an asset purchase
agreement and, in a default judgement against NIPSI in favor of a creditor,
the court voided and nullified the transfer of NIPSI assets to the Company
[See Notes 2 and 17].
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
December 31,
2002
--------------
Office equipment . . . . . . . $ 431
Website. . . . . . . . . . . . 1,541
--------------
1,972
Less: accumulated depreciation (229)
--------------
Net property and equipment . . $ 1,743
==============
Depreciation expense for the years ended December 31, 2002 and 2001 was
$205 and $0, respectively.
NOTE 7 - GOODWILL
The Company has no indefinite-life or definite-life intangible assets. The
following is a summary of the Company's goodwill.
Goodwill at December 31, 2001 $ -
Goodwill from acquisition of AHR Subsidiary 60,321
---------
Goodwill at December 31, 2002 $ 60,321
==========
33
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - ACCRUED EXPENSES
Accrued expenses consist of the following at:
December 31,
2002
-------------
Accrued payroll and related expenses $ 109,940
-------------
Total accrued expenses . . . . . . . $ 109,940
=============
NOTE 9 - NOTES PAYABLE
On February 27, 2002, the Company signed a $40,000 convertible note payable
to McKinley Enterprises, Inc. Profit Sharing Plan. The note accrued
interest at 8% per annum, was due February 27, 2003 and was convertible
after 90 days to 500,000 shares of common stock. On May 30, 2002, the
$40,000 note payable and its accrued interest of $789 were converted to
500,000 shares of common stock [See Note 10].
On July 11, 2001, the Company signed a $20,000 note payable to Growth
Ventures Inc., Pension Plan and Trust. The note accrued interest at 10% per
annum and was due October 9, 2001 but was extended through February 11,
2002. On February 27, 2002, the Company issued 500,000 shares of common
stock as full payment of the $20,000 note payable and its accrued interest
of $1,281 [See Note 10].
NOTE 10 - CAPITAL STOCK
PREFERRED STOCK - The Company has authorized 10,000,000 shares of preferred
stock, no par value, with such rights, preferences and designations and to
be issued in such series as determined by the Board of Directors. On
December 30, 2002, the Company's Board of Directors designated 5,000,000
shares as Series A and 5,000,000 shares as Series B.
SERIES A PREFERRED STOCK - Each share of Series A preferred stock has the
voting rights of 5 shares of common stock, is convertible into 5 shares of
common stock and is entitled to receive a $.0575 annual dividend payable
monthly. The total annual dividend for all shares of Series A preferred
stock is limited to 50% of the Company's earnings before interest, taxes,
depreciation and amortization for the year and the monthly payments are
adjusted accordingly. In addition, if shares of the Series A preferred
stock are required to be converted as part of a sale or merger of the
Company, then each share of Series A preferred stock is convertible into
5.5 shares of common stock.
In December 2002, the Company issued 2,600,000 shares of their previously
authorized but unissued Series A preferred stock in exchange for 13,000,000
shares of the Company's common stock.
SERIES B PREFERRED STOCK - Each share of Series B preferred stock is
convertible into 1 share of common stock and is entitled to receive a 6.5%
annual dividend payable quarterly. The 6.5% annual dividend is based on the
purchase price paid to or the consideration received by the Company.
34
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - CAPITAL STOCK [CONTINUED]
COMMON STOCK - The Company has authorized 100,000,000 shares of common
stock with no par value. In December 2002, the Company repurchased and
cancelled 13,000,000 shares of the Company's issued and outstanding common
stock for 2,600,000 shares of Series A preferred stock.
In October 2002, the Company issued 200,000 shares of their previously
authorized but unissued common stock for cash of $50,000, or $.25 per
share. Stock offering costs of $5,000 were netted against the proceeds.
In August 2002, the Company issued 584,000 shares of their previously
authorized but unissued common stock for services valued at $146,000, or
$.25 per share. At December 31, 2002, services valued at $30,000 have not
yet been rendered and have been recorded as prepaid expense [See Note 15].
In June 2002, in connection with an agreement and plan of reorganization,
the Company issued 3,196,873 shares of their previously authorized but
unissued common stock to acquire AHR Subsidiary [See Note 3].
In May 2002, the Company issued 500,000 shares of their previously
authorized but unissued common stock to convert a $40,000 note payable and
their accrued interest of $789, or $.081578 per share.
In April 2002, the Company issued 2,000,000 shares of their previously
authorized but unissued common stock to Phase One, LLC for cash of $20,000,
or $.01 per share.
In March 2002, the Company issued 1,600,000 shares of their previously
authorized but unissued common stock as payment of $10,000 of accounts
payable and $22,000 of related party payable, or $.02 per share.
In February and March 2002, the Company repurchased and cancelled 3,198,736
shares of the Company's issued and outstanding common stock for cash in the
amount of $79,500, or $.024854. The Company had offered to repurchase the
shares for an amount up to the original sales price because the National
Association of Securities Dealers had imposed a special restriction on the
trading of these shares.
In February 2002, the Company issued 11,000,000 shares of their previously
authorized but unissued common stock to Phase One, LLC for a $30,000 note
receivable and to convert $80,000 of notes payable. Total consideration
amounted to $110,000, or $.01 per share. This issuance resulted in a change
in control of the Company.
In February 2002, the Company issued 125,000 shares of their previously
authorized but unissued common stock for services rendered related to the
acquisition of AHR Subsidiary valued at $2,500, or $.02 per share.
In February 2002, the Company issued 450,000 shares of their previously
authorized but unissued common stock for services rendered related to the
acquisition of AHR Subsidiary valued at $5,000, or $.01 per share.
35
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - CAPITAL STOCK [CONTINUED]
In February 2002, the Company issued 500,000 shares of their previously
authorized but unissued common stock to convert a $20,000 note payable and
its accrued interest of $1,281, or $.04256 per share.
In January 2001, the Company entered into a stock subscription agreement
with a former director of the Company. The agreement was originally for the
sale of 7,500,000 shares of the Company's previously authorized but
unissued common stock for $15,000, or $.002 per share. However, on August
3, 2001, the Company renegotiated the stock transaction and both parties
agree that only 750,000 shares should have been issued for $15,000, or $.02
per share. Accordingly, the additional 6,750,000 shares have been
cancelled. The financial statements have been restated to reflect the
issuance of 750,000 shares as of February 2001.
STOCK OPTIONS - In November 2002, the Company granted 2,000,000 options to
purchase common stock at $.50 per share for services rendered valued at
$882,400. The options vested immediately and are exercisable for three
years. At December 31, 2002, none of these options had been exercised,
forfeited or cancelled.
In March 2002, the Company granted 20,000 options to purchase common stock
at $.05 per share to attract new directors to Company. The options vested
immediately and are exercisable for two years. At December 31, 2002, none
of these options had been exercised, forfeited or cancelled.
STOCK WARRANTS - In December 2002, the Company granted 300,000 warrants to
purchase common stock to directors and NIPSI personnel for services
rendered valued at $19,577. The warrants were granted from the 2003 Stock
Bonus Pool, vested immediately and are exercisable at $.25 per share for
five years. At December 31, 2002, none of these warrants had been
exercised, forfeited or cancelled.
STOCK OPTION AND WARRANT COMPENSATION COST - The Company has adopted the
disclosure only provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation." Had compensation cost
for the Company's stock options and warrants been determined based on the
fair value at the grant date consistent with the provisions of SFAS No.
123, the Company's net loss and loss per share would have been reduced to
the pro forma amounts indicated below:
For the Year Ended
December 31,
-----------------------
2002 2001
------------ ---------
Net Loss. . . . . . . As reported $(1,247,310) $(58,675)
Pro forma . . . . . $ (1,298,050) $ (58,675)
Loss Per Common Share As reported $ (.08) $ (.02)
Pro forma . . . . . $ (.08) $ (.02)
36
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - CAPITAL STOCK [CONTINUED]
The fair value of each option and warrant granted is estimated on the date
granted using the Black-Scholes option pricing model, with the following
assumptions used for the grants on December 31, 2002: risk-free interest
rate of 2.78%, expected dividend yield of zero, expected lives of 5 years
and expected volatility of 100%. The following assumptions were used for
grants on November 1, 2002: risk-free rate of 2.92%, expected dividend
yield of zero, expected lives of 3 years and expected volatility of 100%.
The following assumptions were used for grants on March 14, 2002: risk-free
rate of 3.63%, expected dividend yield of zero, expected lives of 2 years
and expected volatility of 100%. The following assumptions were used for
grants on March 4, 2002: risk-free rate of 3.24%, expected dividend yield
of zero, expected lives of 2 years and expected volatility of 100%.
INCENTIVE STOCK BONUS PLAN - On December 31, 2002, the Board of Directors
of the Company adopted the Incentive Stock Bonus Plan ("the Plan"). The
Plan provides for the granting of 5-year warrants to purchase shares of
common stock to directors, senior management and certain key employees.
Awards under the Plan will be granted as determined by the Board of
Directors. The Board of Directors further authorized the 2003 Stock Bonus
Pool which consists of 1,000,000 warrants to purchase common stock at $.25
per share. At December 31, 2002, total warrants available to be granted
from the 2003 Stock Bonus Pool amounted to 700,000.
A summary of the status of the warrants granted under the Company's
Incentive Stock Bonus Plan at December 31, 2002 is presented below:
December 31, 2002
-------------------------------
Weighted Average
Shares Exercise Price
-------------- ----------------
Outstanding at beginning of year. . . . - $ -
Granted . . . . . . . . . . . . . . . . 300,000 $ .25
Exercised . . . . . . . . . . . . . . . - $ -
Forfeited . . . . . . . . . . . . . . . - $ -
Expired . . . . . . . . . . . . . . . . - $ -
-------------- ----------------
Outstanding at end of year. . . . . . . 300,000 $ .25
-------------- ----------------
Weighted average fair value of warrants
granted during the year . . . . . . . 300,000 $ .25
============== ================
A summary of the status of the warrants outstanding under the Company's
Incentive Stock Bonus Plan at December 31, 2002 is presented below:
Warrants Outstanding Warrants Exercisable
------------------------------------------- -------------------------------
Range of Weighted-Average Weighted-Average Weighted-Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
--------- ----------- ---------------- --------------- ------------ -----------------
.25 300,000 5.0 years $ .25 300,000 $ .25
--------- ----------- ---------------- --------------- ------------ -----------------
37
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". SFAS
No. 109 requires the Company to provide a net deferred tax asset or
liability equal to the expected future tax benefit or expense of temporary
reporting differences between book and tax accounting methods and any
available operating loss or tax credit carryforwards. At December 31, 2002,
the Company has available unused operating loss carryforwards of
approximately $270,000, which may be applied against future taxable income
and which expire in various years through 2022. If certain substantial
changes in the Company's ownership should occur, there will be an annual
limitation on the amount of net operating loss carryforwards which can be
utilized.
At December 31, 2002, the total of all deferred tax assets was
approximately $205,000 and the total of all deferred tax liabilities was
$0. The amount of and ultimate realization of the benefits from the
deferred tax assets for income tax purposes is dependent, in part, upon the
tax laws in effect, the future earnings of the Company, and other future
events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards, the
Company has established a valuation allowance of approximately $205,000.
The net change in the valuation allowance was approximately $168,000 during
the year ended December 31, 2002.
The temporary differences gave rise to the following deferred tax asset
(liability):
December 31,
2002
-------------
Excess of tax over financial
accounting depreciation. . $ 126
Accrued compensation . . . . 43,794
Capital loss carryover . . . 12,945
Allowance for bad debt . . . 40,751
Net operating loss carryover 107,399
The components of federal income tax expense from continuing operations
consisted of the following for the year ended:
December 31,
2002
-------------
Current income tax expense:
Federal . . . . . . . . . $ -
State . . . . . . . . . . -
-------------
Net current tax expense . . $ -
-------------
38
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES [CONTINUED]
Deferred tax expense (benefit) resulted from:
Excess of tax over financial
accounting depreciation $ (126)
Accrued compensation (43,794)
Capital loss carryover (12,945)
Allowance for bad debts (40,751)
Net operating loss carryover (70,672)
Valuation allowance 168,288
-----------
Net deferred tax expense $ -
===========
Deferred income tax expense results primarily from the reversal of
temporary timing differences between tax and financial statement income.
The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the Company's effective rate is as
follows for the year ended:
December 31,
2002
-------------
Computed tax at the expected
federal statutory rate . . . . . . . . . 34.00%
State income taxes, net of federal benefit 5.83
Compensation due to issue of options . . . (28.81)
Other. . . . . . . . . . . . . . . . . . . 2.47
Valuation allowance. . . . . . . . . . . . (13.49)
-------------
Effective income tax rates . . . . . . . . 0.00%
=============
NOTE 12 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America,
which contemplate continuation of the Company as a going concern. However,
the Company has just recently commenced operations and all of their
revenues have been from one customer. Further, the Company has current
liabilities in excess of current assets. These factors raise substantial
doubt about the ability of the Company to continue as a going concern. In
this regard, management is proposing to raise any necessary additional
funds not provided by operations through loans or through sales of their
common stock or through a possible business combination with another
company. There is no assurance that the Company will be successful in
raising this additional capital or achieving profitable operations. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
39
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE - On February 27, 2002, the Company received a $30,000 note
receivable from Phase One, LLC for the issuance of common stock [See Note
10]. The note was due May 28, 2002 and accrued interest at 10% per annum.
The note was paid on March 31, 2002 with no interest being recognized on
the note.
PAYABLES - The Chief Executive Officer of the Company has paid expenses on
behalf of the Company. At December 31, 2002, the Company had fully
reimbursed the officer/shareholder.
NOTES PAYABLE - On January 25, 2002, the Company signed a $30,000
convertible note payable to Phase One, LLC. The note was due January 25,
2003, accrued interest at 10% per annum and was convertible to 3,000,000
shares of common stock. On February 27, 2002, the note was converted to
common stock and no interest was recognized on the note [See Note 10].
On February 11, 2002, the Company signed a $50,000 convertible note payable
to Phase One, LLC. The note was due February 11, 2003, accrued interest at
10% per annum and was convertible to 5,000,000 shares of common stock. On
February 27, 2002, the note was converted to common stock and no interest
was recognized on the note [See Note 10].
SERIES A PREFERRED STOCK FOR COMMON STOCK - In December 2002, the Company
issued 2,600,000 shares of Series A preferred stock to Phase One, LLC in
exchange for 13,000,000 shares of common stock [See Note 10].
COMMON STOCK ISSUANCES - In April 2002, the Company issued 2,000,000 shares
of common stock to Phase One, LLC for cash of $20,000 [See Note 10].
In March 2002, the Company issued 1,100,000 shares of common stock to their
former President as payment of $22,000 for services previously rendered
[See Note 10].
In February 2002, the Company issued 11,000,000 shares of common stock to
Phase One, LLC for a $30,000 note receivable and to convert $80,000 of
notes payable [See Note 10].
In February 2001, the Company issued 750,000 shares of common stock to a
former director for cash of $15,000 [See Note 10].
OPTIONS - In March 2002, the Company granted 20,000 options to purchase
common stock to attract new directors to the Company [See Note 10].
WARRANTS - In December 2002, the Company granted 275,000 warrants to
purchase common stock to directors of the Company for services rendered
valued at $13,750 [See Note 10].
40
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - RELATED PARTY TRANSACTIONS [CONTINUED]
MANAGEMENT COMPENSATION - During the years ended December 31, 2002 and
2001, respectively, the Company expensed $67,500 and $0 as salary to the
Chief Executive Officer. During the years ended December 31, 2002 and 2001,
respectively, the Company expensed $0 and $22,500 as salary to the former
President. At December 31, 2002, the Company owed $108,342 in accrued
salary. The accrued salary is all payable to the Chief Executive Officer
and includes amounts accrued prior to the acquisition of AHR Subsidiary.
In February 2002, the Company paid $1,500 to their former directors.
In March 2002, the Company granted 20,000 options to purchase common stock
to attract new directors to the Company [See Note 10].
In December 2002, the Company granted 275,000 warrants to purchase common
stock to directors of the Company for services rendered valued at $13,750
[See Note 10].
OFFICE SPACE - Beginning October 1, 2002, the Company pays their Chief
Executive Officer $500 per month on a month-to-month basis for use of his
office space. The Company previously paid their former President $100 per
month on an as-needed, month-to-month basis. Total rents to the Chief
Executive Officer and President amounted to $2,100 and $400, respectively,
for the years ended December 31, 2002 and 2001.
PURCHASE AND SALE AGREEMENT - On September 15, 2002, the Company signed a
Purchase and Sale Agreement with Gaelic Capital Group ("Gaelic"), an entity
controlled by the Company's Chief Executive Officer. The agreement calls
for the Company to pay $94,500 to Gaelic for the right to receive all of
the receipts that were then owed to Gaelic as part of a February 11, 2002
agreement ("February Agreement") between Gaelic and Parkview Community
Hospital Medical Center ("Parkview"). The Company had made advances
totaling $94,500 in anticipation of the agreement. Under the February
Agreement, the Company will receive 6% of the sales price for the sale of
the peripheral assets of Parkview. During the year ended December 31, 2002,
the Company collected none of this receivable and recognized no revenues as
part of this agreement. At December 31, 2002, the Company was owed a total
of $218,100 from this agreement.
41
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - LOSS PER SHARE
The following data show the amounts used in computing loss per share for
the periods:
For the Year Ended
December 31,
--------------------------
2002 2001
------------- -----------
Net loss available to common
stockholders (numerator) . . . . . $ (1,247,310) $ (58,675)
------------- -----------
Weighted average number of
common shares outstanding
used in loss per common
share for the period (denominator) 16,227,105 3,535,630
------------- -----------
At December 31, 2002, the Company had 2,020,000 outstanding options,
300,000 outstanding warrants and preferred stock convertible into
13,000,000 shares of common stock which were not used in the computation of
loss per share because their effect would be anti-dilutive. Dilutive loss
per share was not presented, as the Company had no common stock equivalent
shares for all periods presented that would effect the computation of
diluted loss per share.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
COMMON STOCK CONVERSION RIGHT - On December 31, 2002, the Company's Chief
Executive Officer was granted the right to convert shares of common stock
that he had received under an agreement and plan of reorganization into
Series A preferred stock at a rate of five shares of common stock into one
share of Series A preferred stock [See Note 3].
CONSULTING AGREEMENTS - On January 15, 2002, the Company entered into a
six-month consulting agreement with Synergistic Connections, Inc. to assist
the Company in selecting and negotiating the acquisition of potential
merger candidates. The Company paid $60,000 and issued stock valued at
$12,500 to Synergistic Connections, Inc. as part of this agreement.
On April 1, 2002, the Company signed three-year consulting agreements with
both Synergistic Connections, Inc. and Corporate Dynamics, Inc.
(collectively "Consultants"). The agreements call for the Company to pay
$10,000 per month for consulting services. In August 2002, the Company
issued 480,000 shares of common stock to Consultants for services valued at
$120,000 [See Note 10]. During the year ended December 31, 2002, the
Company paid $90,000 for services rendered by Consultants under these
agreements. At December 31, 2002, the Company has paid for $30,000 of
consulting services which have not yet been rendered and are classified as
prepaid expense.
42
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - COMMITMENTS AND CONTINGENCIES [CONTINUED]
EQUITY LINE OF CREDIT AGREEMENT - On November 4, 2002, the Company signed
an Equity Line of Credit Agreement with Cornell Capital Partners, LP
("Cornell"). The agreement calls for the Company to sell up to $10,000,000
of common stock to Cornell at 95% of the closing bid price for the five
preceding trading days. The agreement requires that the shares of common
stock be registered with the Securities and Exchange Commission and that
the shares be sold in intervals over a two-year period commencing after
such registration is effective. The agreement calls for the Company to
issue common stock as payment of a commitment fee of $290,000 and
associated legal fees of $10,000 which are classified as deferred stock
offering costs. The agreement also states that, at the time of stock sale
transaction, the Company will pay $500 in legal fees and pay Cornell 7% of
the proceeds received. The agreement was negotiated by consultants of the
Company under finder agreements [See below]. At December 31, 2002, the
commitment fee of $290,000 and associated legal fees of $10,000 were still
unpaid and are classified as accounts payable.
FINDER AGREEMENTS - On April 1, 2002, the Company signed three-year finder
agreements with both Synergistic Connections, Inc. and Corporate Dynamics,
Inc. (collectively "Consultants"). The agreements call for the Company to
pay finders' fees of 10% of the first $3,000,000, 8% of the next
$3,000,000, 6% of the next $3,000,000, and 4% of any additional funding
provided through the efforts of Consultants. In October 2002, the Company
sold 200,000 shares of common stock for cash of $50,000 which was
negotiated by Consultants and the Company recorded stock offering costs of
$5,000 which were offset against the proceeds [See Note 10]. In December
2002, the Company signed a $10,000,000 Equity Line of Credit Agreement
which was negotiated by Consultants and the Company recorded stock offering
costs of $757,000 which are classified as deferred stock offering costs
[See above]. At December 31, 2002, finders' fees of $762,000 were still
unpaid and are classified as accounts payable.
POSSIBLE NIPSI CLAIMS - For approximately three months, the Company
operated the assets of NIPSI pursuant to an asset purchase agreement [See
Notes 2 and 17]. Company management believes that the Company is not
responsible for any liabilities of NIPSI, but the possibility exists that
creditors and others seeking relief from NIPSI may also include the Company
in claims and suits based on the previous relationship. The Company is not
currently named in, nor is it aware of, any such claims or suits against
NIPSI. Company management believes that the Company would be successful in
defending against any such claims. No accrual for possible losses or
settlements has been recorded in the accompanying financial statements. As
further disclosed in Note 17, NIPSI General Partner is claiming damages of
$120,000 against the Company.
OFFERS TO PURCHASE - On September 17, 2002, the Company signed an Offer to
Purchase to acquire all of the assets of Quantum Pharmacy Alliance, Ltd.
("Quantum"). The offer calls for the Company to purchase all of the assets
of Quantum for one of two financing alternatives at Quantum's option. The
first alternative is $250,000 cash, $500,000 as a five-year, 6% note
payable and $400,000 as Series B preferred stock. The second alternative is
$650,000 as a five-year, 6% note payable and $850,000 as Series B preferred
stock.
43
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - COMMITMENTS AND CONTINGENCIES [CONTINUED]
On October 31, 2002, the Company signed an Offer to Purchase with
Coastalmed Inc. and Coastalmed of Panama City, Inc. The offer called for
the Company to purchase all of the assets of Coastalmed Inc. and Coastalmed
of Panama City, Inc. for $7,000,000 payable as $4,000,000 cash, $1,375,000
as a five-year, 6.5% note payable with interest-only payments for the first
18 months and $1,625,000 as Series B preferred stock. This offer expired
and was subsequently replaced by a new Offer to Purchase [See Note 17].
NOTE 16 - CONCENTRATIONS OF CREDIT RISK
ACCOUNTS RECEIVABLE - At December 31, 2002, the Company has accounts
receivable of $102,300 which is owed by only one customer.
GEOGRAPHIC REGION - During the year ended December 31, 2002, all of the
Company's sales and operations were located in and around Riverside,
California.
SIGNIFICANT CUSTOMER - During the year ended December 31, 2002, the Company
had one customer that accounted for all of the Company's revenues. The loss
of this significant customer could adversely affect the Company's business
and financial position.
NOTE 17 - SUBSEQUENT EVENTS
COMMON STOCK AUTHORIZED - Although none of the shares have been issued, in
February 2003 the Board of Directors authorized the future issuance of
720,000 shares of common stock to consultants and an attorney.
COMMON STOCK ISSUANCES - In January 2003, the Company issued 1,000,000
shares of common stock as an enticement on an Offer to Purchase [See
below].
In February 2003, the Company issued 40,000 shares of common stock for cash
of $10,000, or $.25 per share.
DISSOLUTION AND STANDING OF AHR SUBSIDIARY - The Company is currently
working with the State of Delaware to resolve the taxes due in order for
AHR Subsidiary to be in good standing and the Company is preparing articles
of dissolution for AHR Subsidiary.
FINANCING AGREEMENTS - In February 2003, the Company retained Douglas A.
Jackson to negotiate a line of credit for the Company. The Company agreed
to pay $5,000 plus 5% of the proceeds received by the Company.
In March 2003, the Company retained Douglas A. Jackson to negotiate a
5-year $6,000,000 loan for the Company. The Company agreed to pay $12,500
plus 5% of the proceeds received by the Company.
44
AMERICAN HOSPITAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS [CONTINUED]
JUDGEMENT AND VOIDING OF ACQUISITION - In March 2003, the Company was
notified that they were to be joined as defendants in a suit brought by
AmeriSource Bergen Corporation ("AmeriSource") against NIPSI. The original
suit by AmeriSource sought to recover $480,335 from NIPSI for failing to
honor a contract. In March 2003, AmeriSource filed a supplemental petition
to enjoin any transfer of assets from NIPSI to the Company. In April 2003,
the court entered a default judgement against NIPSI. The court found that
NIPSI had fraudulently transferred assets to the Company to avoid the
claims of AmeriSource. The court voided and nullified the transfer of
assets from NIPSI to the Company and ordered NIPSI to pay $551,264 to
AmeriSource. As a result of these proceedings, the asset purchase agreement
between the Company, NIPSI and NIPSI General Partner was voided and the
Company was released as a defendant. The financial statements reflect the
acquisition as having been voided or rescinded and any expenses associated
with the voided acquisition have been classified as a cost of the
unsuccessful NIPSI acquisition.
NIPSI DEMAND LETTER - In March 2003, NIPSI and NIPSI General Partner sent a
demand letter to the Company to rescind the asset purchase agreement with
the Company because certain conditions of the agreement were not satisfied.
NIPSI General Partner is claiming damages of $120,000 against the Company.
The financial statements reflect the acquisition as having been voided or
rescinded and the expenses associated with the voided acquisition have been
classified as a cost of the unsuccessful NIPSI acquisition. No accrual for
possible losses or settlements, including the $120,000 in damages claimed
by NIPSI General Partner, has been recorded in the accompanying financial
statements.
OFFERS TO PURCHASE - In January 2003, the Company signed an Offer to
Purchase with Coastalmed Inc. and Coastalmed of Panama City, Inc. to
replace the offer signed October 31, 2002. The new offer calls for the
Company to purchase 100% of the stock of Coastalmed Inc. and Coastalmed of
Panama City, Inc. for $8,400,000 payable as $4,900,000 cash, $1,625,000 as
a five-year, 6.5% note payable with interest-only payments for the first 18
months and $1,875,000 as Series B preferred stock. The Company also issued
1,000,000 shares of common stock as partial consideration [See above].
In January 2003, the Company signed an Offer to Purchase Rx Solutions, Inc.
The offer calls for the Company to purchase 100% of the stock of Rx
Solutions, Inc. for $2,250,000 payable as $1,100,000 cash, $750,000 as a
five-year, 6% note payable with interest-only payment for the first 18
months and $400,000 as Series B preferred stock.
POSSIBLE LEGAL ACTION - In March 2003, the Company was notified that
Pre-Employment Screening, Inc., Lawrence J. Altman, Gateway Legal Services,
Inc. and Fun Services of Kansas City plan to file suit to seek $12,000 for
alleged violations of the Telephone Consumer Protection Act. The Company
denies the allegations and intends to vigorously defend themselves in this
matter. No accrual for possible losses or settlements has been recorded in
the accompanying financial statements.
SERIES A PREFERRED STOCK ISSUANCE - In April 2003, the Company issued
47,000 shares of Series A preferred stock for cash of $23,500, or $.50 per
share.
45