Attached files
| file | filename |
|---|---|
| 8-K/A - Willing Holding, Inc. | v218956_8ka.htm |
Exhibit 99.1
Atlantic Medical Supply, Inc.
Financial Statements
December 31, 2010 and 2009
Table of Contents
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Report of Independent Registered Public Accounting Firm
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1
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Financial Statements:
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Balance Sheets
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2
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Statements of Income
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3
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Statements of Stockholders’ Deficit
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4
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Statements of Cash Flows
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5
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Notes to Financial Statements
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6 - 11
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Valiant Health Care, Inc.
Coral Springs, Florida
We have audited the accompanying balance sheets of Atlantic Medical Supply, Inc. (the “Company”) as of December 31, 2010 and 2009, and the related statements of income, stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Atlantic Medical Supply, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Daszkal Bolton LLP
Fort Lauderdale, Florida
April 18, 2011
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Atlantic Medical Supply, Inc.
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Balance Sheets
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December 31, 2010 and 2009
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2010
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2009
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|||||||
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ASSETS
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||||||||
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Current assets:
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||||||||
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Cash and cash equivalents
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$ | 22,666 | $ | 18,984 | ||||
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Accounts receivable, net
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106,011 | 96,820 | ||||||
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Inventory
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104,726 | 117,041 | ||||||
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Prepaid expenses and other assets
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111,707 | 50,368 | ||||||
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Total current assets
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345,110 | 283,213 | ||||||
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Property and equipment, net
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199,993 | 100,658 | ||||||
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Other assets:
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||||||||
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Deferred Costs
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59,517 | 15,222 | ||||||
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Security deposits
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100 | 100 | ||||||
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Total other assets
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59,617 | 15,322 | ||||||
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Total assets
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$ | 604,720 | $ | 399,193 | ||||
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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||||||||
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Current liabilities:
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||||||||
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Accounts payable
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$ | 230,741 | $ | 130,653 | ||||
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Accrued expenses
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15,312 | 4,116 | ||||||
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Leases payable, current maturities
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374,244 | 385,431 | ||||||
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Line of credit
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233,379 | 249,879 | ||||||
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Notes Payable, current maturities
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32,697 | 40,016 | ||||||
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Total current liabilities
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886,373 | 810,095 | ||||||
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Long-term liabilities:
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||||||||
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Leases payable, net of current maturities
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63,341 | 177,007 | ||||||
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Notes payable, net of current maturities
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122,945 | 154,991 | ||||||
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Total long-term liabilities
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186,286 | 331,998 | ||||||
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Total Liabilities
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1,072,659 | 1,142,093 | ||||||
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Commitments and contingencies
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||||||||
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Stockholders' deficit:
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||||||||
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Common stock, 500 shares authorized, issued and outstanding
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500 | 500 | ||||||
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Accumulated deficit
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(468,439 | ) | (743,400 | ) | ||||
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Total stockholders' deficit
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(467,939 | ) | (742,900 | ) | ||||
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Total liabilities and stockholders' deficit
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$ | 604,720 | $ | 399,193 | ||||
See accompanying notes to the financial statements.
- 2 -
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Atlantic Medical Supply, Inc.
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Statements of Income
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For the Years Ended December 31, 2010 and 2009
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2010
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2009
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Revenues
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$ | 2,294,522 | $ | 2,265,355 | ||||
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Cost of goods sold
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554,081 | 688,990 | ||||||
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Gross profit
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1,740,441 | 1,576,365 | ||||||
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Operating expenses:
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Advertising and marketing
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48,854 | 72,409 | ||||||
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General and administrative
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947,033 | 966,619 | ||||||
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Total operating expenses
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995,887 | 1,039,028 | ||||||
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Income from operations
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744,554 | 537,337 | ||||||
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Other expense:
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Interest expense
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81,504 | 75,463 | ||||||
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Other expenses
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4,811 | 5,861 | ||||||
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Total other expense
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86,315 | 81,324 | ||||||
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Net income
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$ | 658,239 | $ | 456,013 | ||||
See accompanying notes to the financial statements.
- 3 -
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Atlantic Medical Supply, Inc.
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Statements of Changes in Stockholders' Deficit
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For the Years Ended December 31, 2010 and 2009
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Additional
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Common Stock
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Paid-In
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Accumulated
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Shares
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Par Value
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Capital
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Deficit
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Total
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Balance, December 31, 2008
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500 | $ | 1 | $ | - | $ | (777,775 | ) | $ | (777,275 | ) | |||||||||
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Net income
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- | - | - | 456,013 | 456,013 | |||||||||||||||
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Distributions
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- | - | - | (421,638 | ) | (421,638 | ) | |||||||||||||
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Balance, December 31, 2009
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500 | $ | 1 | $ | - | $ | (743,400 | ) | $ | (742,900 | ) | |||||||||
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Net income
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- | - | - | 658,239 | 658,239 | |||||||||||||||
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Distributions
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- | - | - | (383,278 | ) | (383,278 | ) | |||||||||||||
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Balance, December 31, 2010
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500 | $ | 1 | $ | - | $ | (468,439 | ) | $ | (467,939 | ) | |||||||||
See accompanying notes to the financial statements.
- 4 -
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Atlantic Medical Supply, Inc.
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Statements of Cash Flows
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For the Years Ended December 31, 2010 and 2009
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2010
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2009
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Cash flows from operating activities:
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Net income
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$ | 658,239 | $ | 456,013 | ||||
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Adjustments to reconcile net income to net cash provided by operating activities
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Depreciation expense
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64,219 | 35,697 | ||||||
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Depreciation included in costs of goods sold
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218,576 | 356,066 | ||||||
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(Increase) decrease in:
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Accounts receivable
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34,163 | 86,652 | ||||||
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Allowance for doubtful accounts
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(43,353 | ) | (9,045 | ) | ||||
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Inventory
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12,316 | (44,668 | ) | |||||
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Prepaid expenses and other assets
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(61,339 | ) | (42,394 | ) | ||||
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Deferred Costs
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(44,294 | ) | (9,802 | ) | ||||
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Increase (decrease) in:
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Accounts payable
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100,087 | 12,073 | ||||||
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Accrued expenses
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(11,196 | ) | 832 | |||||
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Net cash provided by operating activities
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927,418 | 841,425 | ||||||
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Cash flows from investing activities:
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Purchase of property and equipment
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- | (973 | ) | |||||
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Sales of Medical Equipment
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- | 1,200 | ||||||
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Net cash used in investing activities
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- | 227 | ||||||
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Cash flows from financing activities:
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Payments on leases
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(484,593 | ) | (341,769 | ) | ||||
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Proceeds on line of credit
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- | 8,500 | ||||||
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Payments on line of credit
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(16,500 | ) | (8,000 | ) | ||||
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Proceeds on notes payable
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- | (5,634 | ) | |||||
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Payments on notes payable
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(39,365 | ) | (42,992 | ) | ||||
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Shareholder distributions
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(383,278 | ) | (421,638 | ) | ||||
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Net cash used in financing activities
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(923,736 | ) | (811,533 | ) | ||||
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Increase in cash and cash equivalents
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3,682 | 30,119 | ||||||
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Cash and cash equivalents, beginning of year
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18,984 | (11,135 | ) | |||||
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Cash and cash equivalents, end of year
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$ | 22,666 | $ | 18,984 | ||||
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Supplemental cash flow information
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Cash paid for interest
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$ | 21,959 | $ | 26,675 | ||||
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Cash paid for income taxes
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$ | - | $ | - | ||||
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Additions to capital leases
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$ | 357,304 | $ | 437,229 | ||||
See accompanying notes to the financial statements.
- 5 -
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Atlantic Medical Supply, Inc.
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Notes to Financial Statements
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Note 1 – Nature of Business
Atlantic Medical Supply, Inc. (“AMS”) is a full line durable medical equipment business providing quality products and services in South Florida since 1993. AMS is accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO.) On November 12, 2010, AMS entered into a Stock Purchase Agreement with Valiant Health Care, Inc. (“Valiant”). Under the terms of the Agreement, Valiant has agreed to purchase all of AMS’s outstanding stock and AMS will become a wholly-owned subsidiary of Valiant.
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2010 and 2009, cash and cash equivalents was $22,666 and $18,984, respectively.
Allowance for Doubtful Accounts
The Company conducts business and extends credit based on an evaluation of the financial condition of the third-party payers and customers generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. A significant portion of accounts receivable is owed by Medicare, substantially all of which is expected to be collected in full. The balance of accounts receivable is primarily due from third-party payers or customers and is subject to credit risk. The Company reviews its accounts receivable due from third-party payers at the amount expected to be collected and records accordingly, allowance for doubtful accounts. At December 31, 2010 and 2009, allowance for doubtful accounts was $213,596 and $256,949, respectively.
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful economic lives of the assets.
Inventory
Inventory is comprised of medical supplies and is stated at the lower of cost or market. Cost is determined using the first-in, first-out method.
- 6 -
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Atlantic Medical Supply, Inc.
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Notes to Financial Statements
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Note 2 – Summary of Significant Accounting Policies, continued
Revenue Recognition Policy
Revenue related to product sales is recognized upon shipment to customers who have placed orders, provided that risk of loss has passed to the customer and the Company has received and verified the required written forms, if applicable, to bill Medicare, other third-party payers, and customers
Revenue for Medicare reimbursement is calculated based on government-determined prices for Medicare-covered items and is recognized at such reimbursement amounts.
Medicare reimbursements are subject to review by appropriate government regulators. Medicare reimburses at 80% of the government-determined reimbursement prices for reimbursable products. The remaining balance is billed based upon the government-determined pricing to either third-party payers or directly to customers.
Revenue related to wholesale product sales and retail sales to consumers are recognized upon shipment to customers who have placed orders provided that the risk of loss has passed to the customer.
Shipping and Handling Costs
Amounts billed to third-party customers for shipping and handling is included as a component of revenue. Shipping and handling costs incurred are included in cost of goods sold and totaled $24,299 and $13,193 for the years ended December 31, 2010 and 2009, respectively.
Income Taxes
Atlantic Medical Supply, Inc., has elected to be taxed as an S Corporation under the Internal Revenue Code. As such, stockholders of an S corporation are taxed on their proportional share of the corporate taxable income. Therefore, these financial statements contain no provision for corporate income taxes.
Advertising Costs
The Company’s policy is to report advertising costs as expensed in the periods in which the costs are incurred. The total amounts charged to advertising expenses were approximately $48,854 and $72,409 for the years ended December 31, 2010 and 2009, respectively.
Subsequent Events
The Company evaluates events and transactions occurring subsequent to the date of the financial statements for matters requiring recognition or disclosure in the financial statements. The accompanying financial statements consider events through April 18, 2011.
Note 3 – Fair Value Disclosure
The carrying value of cash, accounts receivable, prepaid expense, accounts payable and accrued expenses approximate their fair value because of their short maturities. The carrying value of notes payable approximates their fair value because the variable interest rate approximates the market rate.
- 7 -
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Atlantic Medical Supply, Inc.
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Notes to Financial Statements
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Note 4 – Property, Plant and Equipment
Certain non-cancelable leases are classified as capital leases, and the leased assets are included in property, plant and equipment. Any obligation under a capital lease is capitalized at a fixed rate of interest and is collateralized by the corresponding equipment.
Furniture, fixture and equipment consisted of the following at December 31, 2010 and 2009:
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Estimated Useful
Lives (in Years)
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2010
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2009
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Furniture and fixtures
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3 - 10 | $ | 20,143 | $ | 20,143 | ||||||
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Computer and equipment
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3 - 10 | 44,106 | 44,106 | ||||||||
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Leasehold improvements
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3 - 5 | 1,795 | 1,795 | ||||||||
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Medical equipmnet
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3 - 5 | 586,899 | 423,345 | ||||||||
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Vehicles
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3 - 5 | 81,906 | 81,906 | ||||||||
| 734,849 | 571,295 | ||||||||||
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Less: accumulated depreciation and amortization
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(534,856 | ) | (470,637 | ) | |||||||
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Property and equipment, net
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$ | 199,993 | $ | 100,658 | |||||||
Amortization expense is included with depreciation expense for the years ended December 31, 2010 and 2009. Depreciation expense related to furniture, fixture and equipment totaled $64,219 and $35,697 for the years ended December 31, 2010 and 2009, respectively.
Note 5 – Concentration of Credit Risk
Sales of Medical Supplies and Trade Accounts Receivable
Substantially all of the Company’s sales are to customers covered by Medicare and private health insurance. Therefore, substantially all of the trade accounts receivable as of December 31, 2010 and 2009 are due from customers covered by Medicare and private health insurance.
Vendor and Accounts Payable
During 2010, the Company purchased approximately $286,992 of its materials from three suppliers representing 43.41% of total purchases, respectively. At December 31, 2010, these suppliers represented 48.17% of the balance of accounts payable.
During 2009, the Company purchased approximately $456,100 of its materials from three suppliers representing 63.55% of total purchases, respectively. At December 31, 2009, these suppliers represented 40.80% of the balance of accounts payable.
- 8 -
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Atlantic Medical Supply, Inc.
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Notes to Financial Statements
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Note 6 – Leases
The Company leases its office/warehouse space under an operating lease. The Company renewed its existing lease for office space through December 2011. The lease calls for monthly rent of approximately $6,750 including taxes and operating expenses. The term of the lease is through December 2011. Rent expense incurred in 2010 and 2009 totaled $81,000 and $81,000, respectively.
The Company also has various leases payable secured by the medical equipment purchases and a lease payable for furniture and equipment to institutions that bear interests from 0.0% to 48.4% per annum and is collateralized by the equipment. Payments are due monthly and the leases mature at various dates through August 2013.
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Capital
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Operating
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Years Ending December 31
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Leases
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Leases
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2011
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$ | 405,706 | $ | 81,000 | ||||
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2012
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65,170 | - | ||||||
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2013
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19,044 | - | ||||||
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Total minimum lease payments
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489,920 | $ | 81,000 | |||||
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Less: amount representing interest
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(52,335 | ) | ||||||
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Present value of net minimum lease payments
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437,585 | |||||||
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Less: current maturities of capital lease obligations
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(374,244 | ) | ||||||
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Capital lease obligations, net of current maturities
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$ | 63,341 | ||||||
- 9 -
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Atlantic Medical Supply, Inc.
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Notes to Financial Statements
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Note 7 – Notes Payable
The Company’s notes payable consist of the following at December 31, 2010 and 2009:
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2010
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2009
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Note Payable with financial institution with borrowings up to $50,000; interest accrued at the lower of the prime rate or LIBOR plus 3% (6.25% at December 31, 2010 and 6% at December 31, 2009); and is secured subtantially all of the Company's assets and guaranteed by the stockholders.
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$ | 1,931 | $ | 11,187 | ||||
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Note Payable with financial institution with borrowings up to $199.999; interest accrued at the lower of the prime rate or LIBOR plus 2.75% (6% at December 31, 2010 and 6% at December 31, 2009); and is secured substantially all of the Company's assets and guaranteed by the stockholders.
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112,963 | 135,185 | ||||||
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Note Payable with financial institution with borrowings up to $100,000; interest accrued at the lower of the prime rate or LIBOR plus 2.75% (6% at December 31, 2010 and 6% at December 31, 2009); and is secured substantially all of the Company's assets and guaranteed by the stockholders.
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40,748 | 48,635 | ||||||
| 155,642 | 195,007 | |||||||
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Less: current maturities
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(32,697 | ) | (40,016 | ) | ||||
| $ | 122,945 | $ | 154,991 | |||||
- 10 -
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Atlantic Medical Supply, Inc.
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Notes to Financial Statements
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Note 8 – Line of Credit
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2010
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2009
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Line of credit with a financial institution with borrowings up to $250,000; interest accrues at the lower of the prime rate or LIBOR plus 1% (4.25% at December 31, 2010); and is secured by substantially all of the Company's assets; line of credit is payable on demand.
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$ | 233,379 | $ | 249,879 | ||||
Under the term of the line of credit, the Company is subject to certain restrictive financial covenants. As of December 31, 2010 and December 31, 2009, the Company was in compliance with the financial covenants.
- 11 -
Valiant Health Care, Inc.
Pro Forma Consolidated Balance Sheet
As of December 31, 2010
|
Historical Valiant
Health Care, Inc
(VHCI)
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Historical
Atlantic Medical
Supply, Inc.
|
Pro Forma
Adjustments
|
Pro Forma
Consolidated
|
|||||||||||||
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ASSETS
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Current assets:
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Cash
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$ | 46,917 | $ | 22,666 | $ | - | $ | 69,583 | ||||||||
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Accounts receivable, net
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199,538 | 106,011 | 49,460 | B | 355,009 | |||||||||||
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Inventory
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- | 104,726 | - | 104,726 | ||||||||||||
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Prepaid expenses
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7,448 | 9,881 | (3,918 | )B | 13,411 | |||||||||||
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Other receivables
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9,896 | 101,826 | 28,968 | B | 140,690 | |||||||||||
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Notes receivable - deferred revenue
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64,050 | - | - | 64,050 | ||||||||||||
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Notes receivable
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- | - | - | - | ||||||||||||
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Total current assets
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327,849 | 345,110 | 74,510 | 747,469 | ||||||||||||
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Property and equipment, net
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75,670 | 199,993 | - | 275,663 | ||||||||||||
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Other assets:
|
||||||||||||||||
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Security deposits
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15,000 | 100 | (100 | )A | 15,000 | |||||||||||
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Deferred Costs
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- | 59,517 | - | 59,517 | ||||||||||||
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Deferred Tax Asset
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169,324 | - | - | 169,324 | ||||||||||||
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Intangible Asset, net
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- | - | 664,707 | B | 664,707 | |||||||||||
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Goodwill
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- | - | 908,666 | B | 908,666 | |||||||||||
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Long term receivables
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79,606 | - | - | 79,606 | ||||||||||||
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Purchse of AMS
|
1,725,100 | - | (1,725,100 | )B | - | |||||||||||
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Total other assets
|
1,989,030 | 59,617 | (151,827 | ) | 1,896,820 | |||||||||||
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Total assets
|
$ | 2,392,549 | $ | 604,720 | $ | (77,317 | ) | $ | 2,919,952 | |||||||
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LIABILITIES AND STOCKHOLDER'S EQUITY
|
||||||||||||||||
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Current liabilities:
|
||||||||||||||||
|
Accounts payable and accrued expenses
|
$ | 288,834 | $ | 246,053 | $ | (156,235 | )A | $ | 378,652 | |||||||
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Capital lease, current maturities
|
6,934 | 374,244 | - | 381,178 | ||||||||||||
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Notes payable, current maturities
|
1,589,338 | 266,076 | (266,076 | )A | 1,589,338 | |||||||||||
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Deposit on Prospective Units
|
20,000 | - | - | 20,000 | ||||||||||||
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Deferred revenue
|
64,050 | - | - | 64,050 | ||||||||||||
|
Unrecognized Tax Benefit
|
130,632 | - | - | 130,632 | ||||||||||||
|
Total current liabilities
|
2,099,788 | 886,373 | (422,311 | ) | 2,563,850 | |||||||||||
|
Commitments and contingencies
|
||||||||||||||||
|
Long-term liabilities:
|
||||||||||||||||
|
Capital lease, net of current portion
|
- | 63,341 | - | 63,341 | ||||||||||||
|
Notes payable, net of current maturities
|
33,202 | 122,945 | (122,945 | )A | 33,202 | |||||||||||
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Total long-term liabilities
|
33,202 | 186,286 | (122,945 | ) | 96,543 | |||||||||||
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Total liabilities
|
2,132,990 | 1,072,659 | (545,256 | ) | 2,660,393 | |||||||||||
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Stockholder's equity:
|
||||||||||||||||
|
|
||||||||||||||||
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Preferred stock
|
- | - | - | - | ||||||||||||
|
Common stock
|
2,980 | 500 | (500 | )B | 2,980 | |||||||||||
|
Additional paid-in-capital
|
250,996 | - | 545,156 | A | 250,996 | |||||||||||
| (545,156 | )B | - | ||||||||||||||
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Retained earnings
|
5,583 | (468,439 | ) | 468,439 | B | 5,583 | ||||||||||
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Total stockholder's equity
|
259,559 | (467,939 | ) | 467,939 | 259,559 | |||||||||||
|
Total liabilities and stockholder's equity
|
$ | 2,392,549 | $ | 604,720 | $ | (77,317 | ) | $ | 2,919,952 | |||||||
A To record assets and liabilities not included in the acquisition per the agreement.
B To record intangible assets related to the acquisition of Atlantic Medical Supply, Inc.
Valiant Health Care, Inc.
Pro Forma Consolidated Statement of Operations
As of December 31, 2010
|
Historical Valiant
Health Care, Inc
(VHCI)
|
Historical
Atlantic Medical
Supply, Inc.
|
Pro Forma
Adjustments
|
Pro Forma
Consolidated
|
|||||||||||||
|
Revenue
|
$ | 1,381,706 | $ | 2,294,522 | $ | - | $ | 3,676,228 | ||||||||
|
Expenses:
|
||||||||||||||||
|
Cost of Goods Sold, Medical Equipment
|
- | 554,081 | - | 554,081 | ||||||||||||
|
Sales and marketing
|
49,933 | 48,854 | - | 98,787 | ||||||||||||
|
Bad Debt Expense
|
231,142 | 148,259 | - | 379,401 | ||||||||||||
|
General and administrative
|
1,337,405 | 798,774 | 231,202 | D | 2,367,381 | |||||||||||
|
Depreciation
|
23,584 | - | - | 23,584 | ||||||||||||
|
Total expenses
|
1,642,064 | 1,549,968 | 231,202 | 3,423,234 | ||||||||||||
|
Operating income (loss)
|
(260,358 | ) | 744,554 | (231,202 | ) | 252,994 | ||||||||||
|
Other expenses
|
||||||||||||||||
|
Interest expense (income)
|
11,400 | 81,504 | - | 92,904 | ||||||||||||
|
Other expenses
|
103,635 | 4,812 | - | 108,447 | ||||||||||||
|
Total other expenses
|
115,035 | 86,315 | - | 201,351 | ||||||||||||
|
Income (loss) from operations
|
(375,393 | ) | 658,239 | (231,202 | ) | 51,643 | ||||||||||
|
Federal and state income tax (expense) benefit:
|
||||||||||||||||
|
Non Current
|
(29,398 | ) | - | - | (29,398 | ) | ||||||||||
|
Deferred
|
130,598 | - | - | 130,598 | ||||||||||||
| 101,200 | - | - | 101,200 | |||||||||||||
|
Net (loss)income
|
$ | (274,193 | ) | $ | 658,239 | $ | (231,202 | ) | $ | 152,843 | ||||||
|
Income (loss) Per Share - Basic and Diluted
|
(0.01 | ) | - | - | 0.00 | |||||||||||
|
Weighted Average shares Outstanding Basic and Diluted
|
27,736,869 | - | - | 29,035,499 | ||||||||||||
Description of the pro forma adjustments:
D To adjust for depreciation of intangible asset due to the acquisition