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HAPS USA, INC.

[Formerly American Hospital Resources, Inc.]

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 9 - LOSS PER SHARE [Continued]

At June 30, 2005, the Company had a note payable convertible into 979 shares, 1,000 shares issuable as collateral on notes payable and preferred stock convertible into 15,925,300 shares of common stock which were not used in the computation of dilutive loss per share because their effect would be anti-dilutive.  At June 30, 2004, the Company had 2,000,000 outstanding options, 425,000 outstanding warrants, notes payable convertible into 610,689 shares, 2,213,345 shares issuable as collateral on notes payable and preferred stock convertible into 11,382,575 shares of common stock which were not used in the computation of dilutive 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 10 - COMMITMENTS AND CONTINGENCIES

Potential Stock Issuances - The Company had signed notes payable totaling $212,945 which called for the Company to issue a total of 2,304,345 shares of common stock as collateral; however, none of the shares have been issued.  At June 30, 2005 and December 31, 2004, the Company had 1,000 shares and 2,304,345 shares, respectively, issuable as collateral on notes payable.

Advertising and Promotional Services Agreement - In August 2004, the Company signed a one-year agreement with Hobson, Lorenze, Bowersock & Associates (“HLB”).  The agreement called for the Company to issue up to 500,000 shares of common stock and up to 50,000 shares of Class A preferred stock for HLB’s assistance in raising capital.  The shares were to be issued as follows: 30,000 shares of common stock each month, 100,000 shares of common stock if HLB assisted in raising at least $100,000 and all the remaining shares of common and preferred stock if HLB assisted in raising at least $1,100,000.  In October 2004, the Company amended its agreement with HLB so that the Company would issue 600,000 shares of common stock and 50,000 shares of Class A preferred stock for HLB’s assistance in raising capital. The shares were to be issued as follows: 50,000 shares of common stock each month, 100,000 shares of common stock if HLB assisted in raising at least $100,000 and 50,000 shares of Class A preferred stock during the last month of the agreement. In February 2005, the Company issued a final installment of 70,000 shares of common stock and cancelled the agreement.  During the six months ended June 30, 2005 and 2004, the services rendered by HLB under this agreement amounted to $42,000 and $0, respectively.

Consulting Agreements - In April 2002, the Company signed three-year consulting agreements with both Synergistic Connections, Inc. and Corporate Dynamics, Inc. (collectively “Consultants”).  The agreements called for the Company to pay $10,000 per month for consulting services.   During the six months ended June 30, 2005 and 2004, the services rendered by Consultants under these agreements amounted to $30,000 and $30,000 respectively.

HAPS USA, INC.

[Formerly American Hospital Resources, Inc.]

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 10 - COMMITMENTS AND CONTINGENCIES [Continued]

Equity Line of Credit Agreement - In November 2002, the Company signed an Equity Line of Credit Agreement with Cornell Capital Partners, LP (“Cornell”).  The agreement called 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 required 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 was effective.  The agreement also stated that, at the time of each stock sale transaction, the Company would pay $500 in legal fees and pay Cornell 7% of the proceeds received.  In 2003, the Company issued 1,200,000 shares of common stock as payment of a commitment fee of $290,000 and paid $10,000 in legal fees which were classified as deferred stock offering costs.  The Company also paid $757,000 to consultants who negotiated the agreement which were also classified as deferred stock offering costs [See Below].  In September 2004, the Company abandoned its plan for a stock offering and expensed the deferred stock offering costs of $1,084,609 as general and administrative expense.

Finder Agreements - In April 2002, the Company signed three-year finder agreements with both Synergistic Connections, Inc. and Corporate Dynamics, Inc. (collectively “Consultants”).  The agreements called 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 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 were classified as deferred stock offering costs [See above].  From August 2003 through August 2004, the Company signed notes payable with proceeds totaling $212,845 which were negotiated by Consultants and the Company recorded loan costs totaling $22,178 which were deferred and amortized over the lives of the related notes [See Note 3].  In March 2004, the Company sold 8,108 shares of Class A preferred stock for cash of $15,000 which was negotiated by Consultants and the Company recorded stock offering costs of $1,563 which were offset against the proceeds [See Note 4].

In March 2004, the Company signed an agreement with GunnAllen Financial (“GAF”) wherein the Company agreed to pay GAF 1-7% of any proceeds received by the Company depending upon the nature of the financing.  The agreement also provided for the issuance of warrants to GAF with similar terms as those issued in financing transactions.

Judgment and Share Cancellation - In February 2004, a shareholder of the Company filed a written stipulation for final judgment in which the shareholder sought to have certificates representing the following shares cancelled for lack of consideration: 6,250,000 shares of common stock for an anticipated financing agreement, 600,000 shares of Class B preferred stock for a proposed acquisition of RX Solutions, Inc., 1,000,000 shares of common stock for a proposed acquisition of Coastalmed Inc. and Coastalmed of Panama City, Inc. and 671,824 shares of common stock and 78,760 shares of Class A preferred stock for the acquisition of American Hospital Resources, Inc. (a Delaware corporation).  The shareholder also sought to cancel a Purchase and Sale Agreement with Gaelic Capital Group and to cancel 75,000 warrants to purchase common stock which had been issued to the Company’s former Chief Executive Officer. In February 2004, the court entered a judgment against the Company and ordered that the Company cancel all the shares, the agreement and all the warrants listed in the filing.  As a result of these proceedings, the Company cancelled certificates representing 7,921,824 shares of common stock, certificates representing 78,760 shares of Class A preferred stock, certificates representing 600,000 shares of Class B preferred stock and 75,000 warrants to purchase common stock, and the Company was released as a defendant.  The financial statements reflect the stock, agreement and warrants as having been cancelled in 2003.

HAPS USA, INC.

[Formerly American Hospital Resources, Inc.]

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 10 - COMMITMENTS AND CONTINGENCIES [Continued]

Management Agreement - In March 2004, the Company signed a Management Agreement with Judah Feigenbaum (“JF”) to act as an agent of the Company through July 15, 2004.  The agreement called for the Company to pay $24,000 plus 3% of the consideration of any pharmacy acquisitions completed through March 2005.  During the six months ended June 30, 2005 and 2004, respectively, the services rendered by JF under the agreement amounted to $0 and $6,000.

NOTE 11 - SUBSEQUENT EVENTS

Unwinding of the Acquisition  of HAPS USA, Inc. – In August 2005, the Company determined to unwind the acquisition of HAPS USA, Inc., (a Delaware corporation). [See Note 2].  

Conversion of Shares -  In July and August of 2005, shareholders of the Company converted 126,300 shares of Class A preferred stock into 631,500 shares of common stock.

ITEM 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operations

Safe Harbor for Forward-Looking Statements

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

HAPS USA, Inc. or HAPS, 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 (AHR).  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. On December 22, 2003, we discontinued our hospital management consulting business. The Company’s board of directors determined that the Company had not realized the expected benefits from the acquisition of AHR subsidiary and made the determination to seek to dispose of the AHR subsidiary. As a result, the Company repurchased 2,131,249 shares of common stock for $85,250 and obtained a court order to cancel the remaining 1,065,624 shares. AHR has since discontinued operations and has been voided by the State of Delaware.  All operations of AHR subsidiary have been reclassified to discontinued operations. Our common stock is quoted on the OTCBB under the symbol HAPS.

We were unsuccessful in our attempt to enter the health care services industry and did not generate any revenues during the past two fiscal years ended December 31, 2003 and 2004. The Company amended its Articles of Incorporation on May 10, 2005 to increase the capitalization of the Company to 750,000,000 shares of Common Stock, no par value and 150,000,000 shares of Preferred Stock, no par value with rights, preferences and designations of the Preferred Stock to be determined by the Board of Directors.  The Company also changed its name to HAPS USA, Inc.

We are now considered a “blank check” company. Management believes it is in the best interest of the Company and its shareholders to simultaneously seek, investigate, and if warranted, acquire an interest in a different business opportunity.  We are not restricting our search to any particular industry or geographical area.  We may therefore engage in essentially any business in any industry.  Our management has unrestricted discretion in seeking and participating in a business opportunity, subject to the availability of such opportunities, economic conditions and other factors.

On May 30, 2005, the Company reported the completion of the acquisition of HAPS USA, Inc., Delaware, and filed a current report on Form 8-K.   The acquisition of HAPS USA, Inc., Delaware, was contingent upon certain terms and conditions including the condition that HAPS USA, Inc., Delaware provide audited financials statements and pro formas no later than 60 days following the filing date of the Form 8-K reporting the acquisition.

The Company disclosed in the May 30, 2005 Form 8-K that it was impracticable to provide the financial statements of HAPS Delaware at the time of the filing of the May 30, 2005 Form 8-K and that such financial statements would be filed as soon as they became available, but not later than 60 days following the date of filing the May 30, 2005 Form 8-K. The May 30, 2005 Form 8-K also disclosed that the pro forma financial information was not then available, but that the Company expected to file such financial information not later than 60 days following the date of filing the May 30, 2005 Form 8-K.

As of the date of this filing, the Company has not filed an amendment to the May 30, 2005 Form 8-K to provide the required financial statements and pro forma financial information specified in Item 9.01 of Form 8-K, and is not at this time able to provide an expected date for filing such financial statements and pro forma financial information.

On August 22, 2005, the Company filed a current report on Form 8-K stating among other things:

The completion of the share exchange transaction triggered an obligation on the part of the Company to file with the SEC:

The Company and HAPS USA, Inc., Delaware and the Kanemitsus (who owned a majority of the HAPS USA, Inc., Delaware stock) have agreed to unwind the transaction. Pursuant to the terms of the Agreement, an aggregate of 116,595,760 shares of Class  E Preferred Stock (the “Shares”) of the Company was issued to the Stockholders in exchange for all issued and outstanding shares of common stock of HAPS USA, Inc., Delaware.  The Class E Preferred Stock will be cancelled and all shares of HAPS USA, Inc., Delaware will be returned to the HAPS USA, Inc., Delaware shareholders, placing both parties in the position held prior to the acquisition agreement. Upon completion of the unwinding, in accordance with the Rescission and Release Agreement, the Class E Preferred Stock will have been cancelled and all of the shares of HAPS USA, Inc. Delaware will have  been returned to the HAPS USA, Inc. Delaware shareholders, seeking to place the relevant parties in the position held prior to consummation of the Purchase Agreement.  

The Company has learned that Mr. Yoshihiro Kanemitsu has recently passed away.  Further, due to the unwinding of the HAPS USA, Inc., Delaware transaction, Junyo Kanemitsu has advised that he is resigning from the board of directors and as an officer of the Company and the Company expects to receive the resignation of Mr. Haruo Miyano as a director of the Company.  Mr. Mark Buck has been re-appointed Chairman of the Board and President and Chief Financial Officer of the Company and Mr. Antoine Gedeon has been re-appointed to the board of directors.  A complete copy of the Rescission and Release Agreement dated September 15, 2005 is attached as an exhibit to this report.

The Company intends to seek a suitable candidate for acquisition in the near future.

Three Month and Six Month Periods Ended June 30, 2005 and 2004

We had no revenues for the three and six months ended June 31, 2005 or 2004.  Our general and administrative expenses were $66,128 for the three months ended June 30, 2005 compared to $57,335 for the same period of 2004.  For the three months ended June 30, 2005, we had $915,212 in costs of unsuccessful HAPS acquisition and $6,898 in interest expense compared to $61,353 in interest expense for the same period in 2004.  For the six months ended June 30, 2005, we had general and administrative expenses of $1,004,130 compared to $800,537 for the same period in 2004.  Our increase in expenses was mainly due to the anticipated HAPS acquisition.  Our net loss for the three months ended June 30, 2005 was $988,238 compared to $118,688 for the three months ended June 30, 2004.  For the six months ended June 30, 2005 our net loss was $1,942,282 compared to $914,000 for the same period in 2004.

Liquidity and Capital Resources

At June 30, 2005, total current assets consisted of $115 in cash on hand compared to $2,120 in cash on hand at December 31, 2004.   

At June 30, 2005, we had total liabilities of $19,836 compared to $586,475 at December 31, 2004.  Our current liabilities include $19,745 in accounts payable, $8 in accrued interest and $83 in convertible notes payable.  The decrease is mainly attributable to debt conversion.

During the next twelve months we will have legal and auditing expenses relating to our public reports.  Management hopes to identify and acquire an appropriate on-going business in order to generate revenue to cover operating expenses.   However, 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.  We have no material commitments for capital expenditures for the next twelve months.

Item 3.  Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures.  The Company's management, with the participation of the chief executive officer/chief financial officer, carried out an evaluation of the effectiveness of the Company's "disclosure, controls and procedures" (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(3) and 15-d-15(3) as of the end of the period covered by this quarterly report (the "Evaluation Date").  Based upon that evaluation, the chief executive officer/chief financial officer concluded that, as of the Evaluation Date, the Company's disclosure, controls and procedures are effective, providing material information relating to the Company as required to be disclosed in the reports the Company files or submits under the Exchange Act on a timely basis.

(b)

Changes in Internal Control over Financial Reporting.  There were no changes in the Company's internal controls over financial reporting, known to the chief executive officer or the chief financial officer, that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II – OTHER INFORMATION

Item 2.  Changes in Securities and Use of Proceeds

Unless other wise noted, the following stock issues 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.

In May and June 2005, the Company issued 70,000 shares of its previously authorized but unissued restricted common stock for services totaling $49,500.

In May 2005, the Company issued 250,743 shares of Class A preferred stock for services valued at $915,212 and also issued 80,000 shares of Class A preferred stock to cancel 2,000,000 options to purchase common stock.

In May 2005, the Company issued 460,669 shares of Class A preferred stock to repay notes totaling $212,845 with accrued interest of $32,374.  The Company also issued 96,000 shares of Class A preferred stock to pay accounts payable of $120,000.

In February 2005, the Company issued 50,000 shares of its previously authorized but unissued Class A preferred stock for services valued at $150,000 or $3.00 per share.

In February and March 2005, the Company issued a total of 144,335 shares of its previously authorized but unissued common stock upon the conversion of a total of 28,867 shares of Class C preferred stock.

In February 2005, the Company issued 320,000 shares of its previously authorized but unissued common stock for services rendered valued at $192,000, or $.60 per share.

In February 2005, the Company issued 1,000,000 shares of its previously authorized but unissued common stock for services rendered valued at $510,000, or $.51 per share.

In February 2005, the Company issued a total of 463,453 shares of its previously authorized but unissued common stock to pay accrued Class A preferred stock dividends totaling $189,859, or approximately $.41 per share.

In January and February 2005, the Company issued a total of 372,000 shares of its previously authorized but unissued common stock for cash totaling $93,000, or $.25 per share.

In January 2005, the Company issued 36,000 shares of its previously authorized but unissued common stock to pay accounts payable of $18,000, or $.50 per share.

In January 2005, the Company issued 10,000 shares of its previously authorized but unissued common stock for services rendered valued at $4,000, or $.40 per share.

In January 2005, the Company issued 495,000 shares of its previously authorized but unissued common stock to cancel 550,000 warrants to purchase common stock.

In January 2005, the Company issued 40,000 shares of its previously authorized but unissued common stock for services rendered valued at $15,200, or $.38 per share.

In December 2004 the Company issued a total of 30,000 shares of common stock for services valued at a total of $18,000.

In December 2004 the Company reissued stock it had previously canceled for a total of 2,131,249 shares of common stock valued at a total of $85,250 payment off a liability.

In December 2004 the Company issued a total of 20,000 shares of common stock for cash of $7,000.

In November 2004, the Company issued a total of 90,000 shares of common stock for services valued at a total of $36,000.

In September 2004, the Company issued 30,000 shares of its previously authorized but unissued common stock for services rendered valued at $6,300, or $.21 per share.

In August 2004 the Company issued 30,000 shares of its previously authorized but unissued common stock for services rendered valued at $9,600 or $.32 per share.

In March, 2004, the Company issued 8,108 shares of Class A preferred stock for cash of $15,000 with a beneficial conversion feature of $14,189 which has been accounted for as a dividend on the day of issue.

In March 2004, the Company issued 20,000 shares of its common stock for $1,000 cash upon the exercise of outstanding options.

In February 2004, the Company issued 1,100,000 shares of its common stock to pay accounts payable of $29,382 and for services valued at $476,618.  Of the 1,100,000 shares issued, 250,000 of the shares were registered on Form S-8.

In February 2004, the Company issued 110,000 shares of Class A preferred stock for services valued at $253,000.

In December 2003, the Company cancelled 1,065,624 shares of its common stock due to a court order.  In December 2003, the Company repurchased and cancelled 2,131,249 shares of the Company’s issued and outstanding common stock for $85,250, or $.04 per share.

In December 2003, the Company issued 2,537,150 shares of its previously authorized but unissued common stock upon the conversion of 353,750 shares of Class A preferred stock and 153,680 shares of Class C preferred stock.

In October 2003, the Company issued 1,200,000 shares of common stock to pay a liability of $290,000 or approximately $.2417 per share.

In September 2003, the Company issued 173,747 shares of Class C preferred stock to a third party in exchange for payment of liabilities totaling $868,735 which were owed to shareholders of the Company.  

In June and July, 2003, the Company issued 8,800 shares of Class C preferred stock for $44,000 cash.

In May 2003, shareholders of the Company converted 505,010 shares of Class A preferred stock into 2,525,050 shares of common stock.

From April through June 2003, the Company issued a total of 388,300 shares of Class A preferred stock with beneficial conversion features totaling $324,775 which have been accounted for as dividends on the day of issue.

In April and May 2003, the Company issued 570,000 shares of common stock for services valued at $131,000.

In February 2003, the Company issued 40,000 shares of common stock for $10,000 cash.

Option and Warrants

All Securities are issued without registration in reliance on the exemption provided by Section 4(2) and/or Rule 506, Regulation D of the Securities Act.  No broker was involved and no commissions were paid in any transaction.

In December 2004 the Company granted 150,000 warrants to purchase common stock from the 2004 Stock Bonus Pool as payment of $45,000 to officers and directors for compensation. The warrants vested immediately and are exercisable at $0.25 per share for a period of five years.  As of December 31, 2004, none of these warrants had been exercised, forfeited or cancelled.  These warrants have been cancelled in exchange for shares of restricted common stock of the Company.

In December 2003, the Board of Directors authorized the 2004 Stock Bonus Pool which consists of 1,000,000 warrants to purchase common stock at $0.25 per share.  The Company granted 200,000 warrants to purchase common stock from the 2004 Stock Bonus Pool to officers and directors for services rendered valued at $4,000.   As of December 31, 2004, none of these warrants had been exercised, forfeited or cancelled. These warrants have been cancelled in exchange for shares of restricted common stock of the Company.

Item 6.  Exhibits and Reports on Form 8-K

The Company filed the following reports on Form 8-K:

Date

Item(s)

June 1, 2005

2.01, 3.02. 5.01, 5.02 and 9.01

August 22, 2005

8.01

Exhibits:

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunton duly authorized.

American Hospital Resources, Inc.

Date: September 15, 2005

/s/ Mark Buck

Mark Buck

Chief Executive Officer

Chief Financial Officer