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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended August 31, 2002
[ ] Transition Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number: 0-31152
LIFEN, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 76-0585701
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
455 Market Street, Suite 1220, San Francisco, California 94105
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(Address of Principal Executive Offices) (Zip Code)
(415) 543-1535
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(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of class: Name of each exchange on which registered:
Common Stock, $.0001 par value None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K [ ]
Indicate the number of shares outstanding of each of issuer's classes of
Common Stock, as of the latest practicable date. At August 31, 2002,
9,998,286 shares of Common Stock, $.0001 par value, were outstanding.
The aggregate market value of the voting stock held by non-affiliates of
Registrant on August 31, 2002 was $0.
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FORM 10-KSB
August 31,2002
LIFEN, INC.
TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS 1
PART I
ITEM 1. Description of Business 1
ITEM 2. Description of Property 9
ITEM 3. Legal Proceedings 9
ITEM 4. Submission of Matters to a Vote of Security Holders 10
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters 10
ITEM 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
ITEM 7. Financial Statements 14
ITEM 8. Changes in and Disagreements with Accountants 14
PART III
ITEM 9. Directors, Executive Officers, Promoters and
Control Persons 15
ITEM 10. Executive Compensation 20
ITEM 11. Security Ownership of Certain Beneficial
Owners and Management 20
ITEM 12. Certain Relationships and Related Transactions 22
ITEM 13. Controls and Procedures 23
ITEM 13. Exhibits and Reports on Form 8-K 23
PART F/S
Financial Statements F-1 to F-13
Signatures 25
Certifications 26
Exhibits
FORWARD LOOKING STATEMENTS
Some of the information contained in this Report may
constitute forward-looking statements or statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on current
expectations and projections about future events. The words
"estimate", "plan", "intend", "expect", "anticipate" and similar
expressions are intended to identify forward-looking statements
which involve, and are subject to, known and unknown risks,
uncertainties and other factors which could cause the Company's
actual results, financial or operating performance, or achievements
to differ from future results, financial or operating performance, or
achievements expressed or implied by such forward-looking
statements. Projections and assumptions contained and expressed
herein were reasonably based on information available to the
Company at the time so furnished and as of the date of this filing.
All such projections and assumptions are subject to significant
uncertainties and contingencies, many of which are beyond the
Company's control, and no assurance can be given that the
projections will be realized. Potential investors are cautioned not to
place undue reliance on any such forward-looking statements,
which speak only as of the date hereof. The Company undertakes
no obligation to publicly release any revisions to these forward-
looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(A) Corporate History
The Company was incorporated under the laws of the state
of Delaware on November 10, 1997. The Company is a
development stage company with no present commercial
operations. To date, the Company has been engaged in market
research, initial website development, and seeking initial financing
in order to commence commercial operations. In 1998 the
Company became involved with ThinkTanks Worldwide
("ThinkTanks") which had developed a preliminary plan to create
an internet based, content driven, multi-point video conferencing
company, offering live, interactive connectivity to communities of
users worldwide. However, after additional market research and
analysis, the Company determined that the ThinkTanks concept
would require substantially more time and capital than originally
estimated to develop, raising the question of economic feasibility,
and subsequently ended its participation in the project. In early
1999, the Company began development of a conceptual plan for a
health and wellness related business, which has been further
defined and expanded as discussed below. In 2002, the
Company's business plan was extended to include the acquisition
of specialized private companies in the healthcare services field
that provide temporary healthcare professionals. These private
companies, because of their smaller size, find it difficult to
compete for limited funding, public exposure, and technology that
can only be provided by critical mass.
1
(B) Business of Registrant
I. Overview of Acquisition of Temporary Healthcare
Professional Staffing Companies
The Company's objective is to capitalize on an opportunity
that currently exists in the healthcare industry by targeting the
critical nursing shortage issue. There are many small companies
that are addressing the rapidly expanding needs of the healthcare
industry. Unfortunately, due to their relatively small capitalization,
they are unable to maximize their potential, obtain outside capital
or expand. By consolidating well-run small private companies into
a larger public entity, the Company intends to facilitate access to
capital, the acquisition of technology, and expanded distribution
that, in turn, drive internal growth. There are a number of reasons
why the Company has selected this focus:
. GROWTH - The $1.5 trillion healthcare industry
shows no sign of slowing its growth, and the aging
baby boomers will likely provide further fuel to
escalating costs. The Centers for Medicare and
Medicaid Services project that healthcare
expenditures is projected to grow at an annual rate
of 7.1% for the next eight years.
. NEED - This significant industry-wide expansion
provides an increased need for cost-efficient,
quality solutions that improve the delivery
capabilities of the current health care system. This
need includes the availability of skilled healthcare
workers for hospitals, physician offices, and
assisted living centers.
. LIQUIDITY - While this environment is ideal for
corporate opportunity, all of this is occurring in a
very difficult market for private capital formation
for small companies. Venture capital and other
forms of private equity financing are difficult to
attract, especially for service companies.
However, in spite of its size, the healthcare industry is
predominantly served by small companies. The overwhelming
majority of these companies have the following characteristics:
. Revenues ranging between $1 million and $10
million with modest profits
. Limited geographic focus
. Little, if any, utilization of technology
. Inability to invest in continuing education and other
professional requirements to create employee
loyalty and company differentiation
. Limited ability to attract professional management
or investment capital
. Few avenues for liquidity
The Company intends to provide a platform for select
companies in this environment to consolidate and create sufficient
critical mass to provide access to capital and professional
management, build a common technology backbone, open new
markets, and reinvest in the professional staff to create a larger
revenue opportunity. It will do so initially through acquisitions and
then integration using technology for expense and operating
synergy.
2
II. Temporary Healthcare Professional Staffing Division
A report published in July, 2002 by the U. S. Department of
Health and Human Services indicates that by year 2020, the
nation's registered nurse workforce will be 29% below projected
requirements if current trends continue. This projected shortage
results from a projected 40% increase in demand between 2000
and 2020 compared to a projected 6% growth in supply. Factors
driving the growth in demand include an 18% increase in
population, a larger proportion of elderly persons, and medical
advances that increase the need for nurses. In contrast, the
projected growth in supply is expected to reach a peak of only 10%
by 2011 and then begin to decline as the number of nurses leaving
the profession exceeds the number that enter. The factors causing
the projected decline include an aging workforce, nurses leaving
the profession for less stressful occupations, and decreasing
number of nursing school enrollments.
The temporary healthcare staffing industry is projected to
increase to $10.6 billion in 2002 from $8.7 billion in 2001, a 22%
increase, according to estimates by The Staffing Industry Report.
Approximately 70% of the temporary healthcare staffing industry
consists of nurse staffing and approximately 30% consists of
related health, physician and other healthcare professionals. By
2010, this industry is projected to be a $46 billion market, a
projected 20% annual growth rate.
The Company has identified opportunities to expand
services in areas that are currently under-served by the temporary
medical staffing industry. These areas include medical
professionals for the health insurance industry, as well as specialty
healthcare support workers such as tumor registrars.
The Company, which plans to operate this division under
the trade name "Crdentia", believes that temporary staffing
companies must consolidate in order to survive. The success of the
large industry leaders is indicative of the efficiency, both in
operations as well as capital formation, of this strategy. Small
companies in this sector will increasingly be at a competitive
disadvantage in the marketplace because technology and operating
efficiency will soon be the key to survival.
Crdentia's Website
The Crdentia website is being designed to provide an
overview of the business concept, the market opportunity with
regard to the acquisition of temporary healthcare staffing
companies, the conditions driving this special market and
information regarding the nursing shortage.
The Crdentia website is currently under development, but
may be viewed at www.crdentia.com.
3
Competition
The temporary healthcare industry is highly competitive
and the Company will compete with national, regional and local
companies for acquisitions, virtually all of whom have greater
financial resources and market recognition than the Company. In
addition, the Company will be competing with established venture
capital companies who seek to acquire similar temporary
healthcare companies. Consequently, the Company will be
competing with many other companies for both acquisition
candidates and a share of the available market for each such
acquired company and no assurance can be given that in the future
the Company will be able to achieve an adequate position to
achieve commercial success.
III. Wellness Division
The wellness industry is fragmented and encompasses a
broad range of businesses that are focused on areas such as health,
fitness, nutrition, and beauty. The industry includes medical
practitioners and facilities, wellness centers, health and fitness
clubs, spas, manufacturers of traditional and alternative medical,
nutritional and beauty related products.
The purpose of the Company's Wellness Division is to
provide information on a subscription basis regarding professional
services to improve the health, fitness, nutrition, and physical
appearance of its clients through an integrated approach involving
many potential therapies available. The Company intends to
provide only services that do not require it to obtain medical
licenses. The Company is not authorized or qualified to engage in
any activity which may be construed or be deemed to constitute the
practice of medicine and intends to be an independent supplier of
non-medical services only.
If successful, the Company intends to expand this website
to include other health problems that can be reduced by preventive
measures, such as cardiac disease or arteriosclerosis.
The beginning phase of the business will include activities
such as fund raising, establishing relationships with medical
professionals and beauty experts, development of the website and a
marketing program for wellness service provided to individual and
corporate clients.
Wellness Website
The Wellness Division's website is being designed to
provide consumers with a variety of healthcare content, including
information on acute ailments, chronic illnesses, nutrition, fitness,
and wellness, and access to medical databases, publications, and
real-time medical news. In addition, the Company intends to offer
various interactive communities consisting of chat support groups.
The planned content to be provided on a website and the chat
support groups will not require medical licensing on the part of the
Company. The support groups will enable users to share
experiences with others who face, or have faced, similar health
conditions, making the entire group's experience available to each
member.
4
The Wellness Division website is currently under
development, but may be viewed at www.lifen.com.
The Company intends to develop relationships with
established wellness providers who will provide their users easy
access to the information and services offered on the Company's
website. These relationships will provide the opportunity for broad
exposure of the Company's brand, direct traffic to the Company's
website, and acquire and distribute related local content.
Competition
In regard to the Company's Wellness Division, a large
number of companies compete for users, advertisers and other
sources of on-line revenue. In addition, traditional media and
healthcare companies compete for consumers both through
traditional methods as well as through new internet initiatives. The
competition for healthcare consumers will continue to increase as
the internet grows as a commercial medium. The Company will be
competing directly for advertisers and affiliates with numerous
internet and non-internet businesses. The Company believes that
competition in this marketplace will be based primarily on the
quality and market acceptance of healthcare content, brand
recognition, and the quality and market acceptance of new
enhancements, features and tools. The Company's operations will
compete with other health resource businesses that have a
wellness-focused environment and provide consumers with access
to traditional and alternative health information. Most of these
competitors will have significantly greater financial and other
resources, larger facilities, multiple locations, provide a wider
array of services, more experience providing services, and have
longer established relationships with buyers of such services than
the Company.
IV. Government Regulation
Various federal, state and local laws regulate companies in
the health care industry. The Company does not plan to offer
healthcare services which are subject to such laws. Although
management does not believe that any of the Company's current or
planned operations are subject to existing federal or state
regulations, it is possible that in the future new laws may be
enacted that would have a material adverse impact upon the
Company's then operations. In addition, it is possible that some of
the companies that may be acquired by the Company will be
subject to federal or state regulations with respect to their
operations.
V. Risk Factors
Lack of Operating History and Earnings. The Company
was formed in November, 1997, and has no operating history or
revenues. Most recently, the Company has been engaged in the
development of a new business plan and the search for funding in
order to commence commercial operations. Therefore, the
Company must be considered to be a "start-up" operation and
subject to all the risks inherent in a new business venture, many of
which are beyond the control of the Company, including the
inability to implement successful operations, lack of capital to
finance acquisitions and failure to achieve market acceptance.
5
Reliance Upon Management. Presently, the Company is
totally dependent upon the personal efforts of its management
team. The loss of any officer or director of the Company could
have a material adverse effect upon the business and future
prospects of the Company. The Company does not presently have
key-man life insurance upon the life of any of its officers or
directors. Further, all decisions with respect to management of
Company affairs will be made exclusively by current management.
The Company will also employ independent consultants to provide
business and marketing advice. Such consultants have no fiduciary
duty to the Company or its shareholders, and may not perform as
expected. The success of the Company will, in significant part,
depend upon the efforts and abilities of management, including
such consultants as may be engaged in the future. Additionally, as
the Company implements its planned expansion of commercial
operations it will require the services of additional skilled
personnel. There can be no assurance that the Company can attract
persons with the requisite skills and training to meet their future
needs or, even if such persons are available, that they can be hired
on terms favorable to the Company. See "PART III, ITEM 9.
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS".
Company Growth is Dependent on the Successful
Implementation of the Company's Business Plan. It is currently
anticipated that the Company's future growth will result from the
development of its planned operations, the completion of
acquisitions and their subsequent integration into the Company's
business mainstream, development of brand awareness, the ability
to develop strategic relationships, responding effectively to
competition, development and upgrading of its future technology,
the ability to attract and retain qualified personnel and the ability to
obtain necessary financing on acceptable terms. Additionally, as
the Company implements its business plan, there can be no
assurance that there will not be substantial unanticipated costs and
expenses associated with the start-up and implementation of such plan.
The Company's Financial Statements Contain a "Going
Concern Qualification". The Company may not be able to operate
as a going concern. The independent auditor's report
accompanying the Company's financial statements contains an
explanation that the Company's financial statements have been
prepared assuming that the Company will continue as a going
concern. Note 6 to these financial statements indicates that the
Company is in the development stage and needs additional funds to
implement its plan of operations. This condition raises substantial
doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty. The Company's audit report and
financial statements are included herein as "PART F/S".
Ability to Fund Business and Acquisition Strategy. The
Company's business strategy will require that substantial capital
investment and adequate financing be available to the Company
for the completion of acquisitions, development and integration of
operations and technology as needed. Should the Company be
unable to obtain the amount of capital presently anticipated, the
Company may be required to obtain financing through borrowings
or the issuance of additional equity or debt securities, which could
have an adverse effect on the value of the existing Common Stock
to the current shareholders.
6
Growth of the Temporary Healthcare Professional Staffing
Business is Dependent on the Successful Completion of
Acquisitions. It is currently anticipated that growth of the
temporary healthcare professional staffing business will result
from acquisitions. The Company's acquisition plan depends on its
ability to identify suitable candidates, effectively integrate acquired
companies into its organization, retain personnel and customers in
the acquired companies, and obtain necessary financing on
acceptable terms. While the Company is in discussions with
acquisition candidates, there can be no assurance that any
acquisition will be consummated or that they will be profitable for
the Company.
Risk Associated with Acquisitions. Any acquisition is
accompanied by risks which include difficulty assimilating the
operations and personnel of acquired businesses, the inability of
management to maximize the financial and strategic position of the
Company through the successful incorporation and integration of
acquired personnel and customers, the maintenance of uniform
standards and impairment of relationships with employees and
customers. Additionally, as the Company implements its business
plan, there can be no assurance that there will not be substantial
unanticipated costs and expenses associated with the start-up and
implementation of such acquisition plan.
Uncertainty As To Management's Ability To Control Costs
And Expenses. With respect to the planned business operations of
the Company, management cannot accurately project or give any
assurance, with respect to its ability to control development and
operating costs and/or expenses in the future. Consequently, even
if the Company is successful in implementing its planned
commercial operations (of which there can be no assurance),
management still may not be able to control costs and expenses
adequately, and such operations may generate losses.
Possible Adverse Effect of Government Regulations and
Future Regulatory Changes Regarding Healthcare. Although the
Company's planned operations are not subject to any regulations
governing the acquisition of healthcare companies, it is likely that,
in the future, such regulations will be put in place. Although it is
not possible to predict the extent of any such future regulations,
and although management is not aware of any pending regulations
which would be applicable to its planned business operations, it is
possible that future or unforeseen changes may have an adverse
impact upon the Company's ability to continue or expand its
operations as presently planned. The extent of such regulations is
impossible to predict, as is the potential impact upon the business
operations of the Company in accordance with its business plan.
No Dividends. The Company has not paid any dividends
nor, by reason of its present financial status and contemplated
financial requirements, does it anticipate paying any dividends in
the foreseeable future.
Competition. The Company is a start-up venture with no
established commercial operations and no market recognition in
either area of its business. As such, in all aspects of its planned
operations, the Company will face significant competition from
many companies virtually all of which are larger, better financed
and have a significantly greater market recognition than the
Company. See the discussion of competition contained in Item 1,
"DESCRIPTION OF BUSINESS" above, for each of the
Company's two divisions.
7
Liability For Information Services. Because content made
available by third parties may be subsequently distributed to
others, there is a potential that claims will arise against the
Company for defamation, negligence or personal injury, or based
on other theories due to the nature of such content. In addition, the
Company could be exposed to liability with respect to the content
and materials that may be posted by users in services offered by
the Company. Although the Company intends to carry general
liability insurance, the Company's insurance may not cover
potential claims of this type or may not be adequate to fully
indemnify the Company. Any successful imposition of liability
could have a material adverse effect on the Company's business,
results of operations and financial condition.
Lack of Public Market For Securities. There currently is no
public market for the Company's securities, nor can there be any
assurance that a public market will develop in the future.
Risks of Low-Priced Stocks And Possible Effect of "Penny
Stock" Rules on Liquidity. It is likely that if the Company's stock
is eligible to be traded in the future it will be defined as a "penny
stock" under Rule 3a51-1 adopted by the Securities and Exchange
Commission under the Securities Exchange Act of 1934. In
general, a "penny stock" includes securities of companies which
are not listed on the principal stock exchanges or the National
Association of Securities Dealers Automated Quotation System
("NASDAQ") or National Market System ("NASDAQ NMS") and
have a bid price in the market of less than $5.00; and companies
with net tangible assets of less than $2,000,000 ($5,000,000 if the
issuer has been in continuous operation for less than three years),
or which has recorded revenues of less than $6,000,000 in the last
three years. "Penny stocks" are subject to rule 15g-9, which
imposes additional sales practice requirements on broker-dealers
that sell such securities to persons other than established customers
and "accredited investors" (generally, individuals with net worth in
excess of $1,000,000 or annual incomes exceeding $200,000, or
$300,000 together with their spouses, or individuals who are
officers or directors of the issuer of the securities). For transactions
covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale.
Consequently, this rule may adversely affect the ability of broker-
dealers to sell the Company's stock, and therefore, may adversely
affect the ability of the Company's stockholders to sell stock in the
public market.
Shares Eligible for Future Sale. A total of 9,998,286 shares
of Common Stock are issued and outstanding as of the date of this
Report, of which in excess of 6,698,586 shares thereof are
"restricted securities" as that term is defined under the Securities
Act. Therefore, all such restricted shares must be held indefinitely
unless subsequently registered under the Securities Act or an
exemption from registration becomes available. One exemption
which may be available in the future is Rule 144 adopted under the
Securities Act. Generally, under Rule 144 any person holding
restricted securities for at least one year may publicly sell in
ordinary brokerage transactions, within a 3 month period, the
greater of one (1%) percent of the total number of the Company's
shares outstanding or the average weekly reported volume during
the four weeks preceding the sale, if certain conditions of Rule 144
are satisfied by the Company and the seller. Furthermore, with
respect to sellers who are "non-affiliates" of the Company, as that
term is defined in Rule 144, the volume sale limitation does not
apply and an unlimited number of shares may be sold, provided the
seller meets a holding period of 2 years. Sales under Rule 144
8
may have a depressive effect on the market price of the Company's
securities, should a public market develop or continue for the
Company's shares.
Forward-Looking Statements. This document contains
forward-looking statements. Readers are cautioned that all
forward-looking statements involve risk and uncertainty. Although
the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of
the assumptions could be inaccurate, and therefore, there can be no
assurance that the forward-looking statements included in this
document will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as
a representation by the Company or any other person that the
objectives and plans of the Company will be achieved. (See
"Forward Looking Statements", PART I).
(C) Reports to Security Holders
The public may read and copy any materials filed with the
SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an
internet site that contains reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC. The address of that SEC internet site
is www.sec.gov. The Company's websites are currently under
development, but may be viewed as discussed in ITEM 1, Section
II and Section III.
ITEM 2. DESCRIPTION OF PROPERTY
The Company is located at 455 Market Street, Suite 1220,
San Francisco, California 94105, which office was acquired
subsequent to the end of fiscal 2002. Its telephone number is (415)
543-1535. The Company previously occupied offices at 444
Madison Avenue, Suite 2904, New York, New York 10022, during
the fiscal year ended August 31, 2002, which it rented on a month-
to-month basis from Ameristar Group, Incorporated, an affiliate of
two corporate shareholders of the Company, at a monthly rental of
$1,000 (See PART III, ITEM 12. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS). The Company's present
offices consist of a sublease dated September 26, 2002, for 2,487
square feet of office space from City National Bank. (Refer to
Exhibit 10.2 included with this Report.) The term of the sublease
is from October 30, 2002 until July 31, 2004. The monthly rent is
$4,559.50 and the Company paid the sum of $45,595 as the
advance rent payment for ten prepaid months and the additional
sum of $9,119 as a security deposit.
The Company currently has no material assets, and the
Company does not own any real property.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company, nor any of its officers or directors, is
a defendant in any litigation. To the knowledge of management,
there is no litigation currently pending or contemplated against the
Company or any of its officers or directors in their capacity as such.
9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company solicited the written consent from a majority
of its shareholders in accordance with the provisions of Delaware
law, on August 15, 2002 with respect to the following matters:
1. The sale of 2,000,000 shares of the Company's
Common Stock pursuant to a Common Stock Purchase Agreement
(the "Agreement") executed effective May 15, 2002 by the
Company, James D. Durham and Malahide Investments for
aggregate proceeds of $100,000. This number of shares equals
20% (including these shares) of the fully diluted number of issued
and outstanding shares of the Registrant's Common Stock.
2. The name of the Corporation will be changed to a
name that is acceptable to the Company and the new investors, and
will be reflective of the Company's new planned business
direction.
3. Increase the number of Common Shares authorized
from 25,000,000 shares to 50,000,000 shares.
4. Re-classify the Board into three classes of
Directors, with the first such class holding office until the first
annual meeting of stockholders; the second class holding office
until the second annual meeting of stockholders; the third class
holding office until the third annual meeting of stockholders. Each
class of Directors will be elected for a three-year term.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
As of the date of this Report, there is no public market for
the Company's securities. The Company intends to apply for a
listing of its Common Stock on the OTC Bulletin Board. There can
be no assurance that the OTC Bulletin Board will approve the
listing application or, if the application is approved, that a market
will develop for the Company's Common Stock. In the event that
the Company's listing application is approved, its Common Stock
may be thinly traded, if traded at all, even if the Company achieves
full operation and has significant revenue.
As of the date of this report, there were 64 record holders
of the Company's Common Stock.
The Company has no outstanding options or warrants to
purchase, or securities convertible into, shares of the Company's
Common Stock. On August 31, 2002, the end of the Company's
fiscal year, there were 9,998,286 shares issued and outstanding,
and as of the date of this Report, 6,698,586 shares of the
Company's Common Stock that may be eligible for future sale by
shareholders pursuant to Rule 144 under the Securities Act (See
"RISK FACTORS, Shares Eligible for Future Sale"). There are no
shares of the Company's Common Stock that are currently being
publicly offered, or proposed to be publicly offered.
10
Subject to the terms and conditions of the Common Stock
Purchase Agreement, executed effective May 15, 2002, during the
one year period beginning on the closing date of the Company's
first acquisition, each Investor shall also have the right to purchase
at a purchase price of $0.0001 per share, additional shares of
Common Stock based upon the number of additional shares of
Common Stock and other securities convertible into Common
Stock issued in connection with any Acquisition (as defined in the
Agreement) Refer to Form 8-K dated August 21, 2002 and
incorporated herein as reference.
The Company has not paid any cash dividends since its
inception and does not anticipate paying dividends in the
foreseeable future. It is anticipated that earnings, if any, will be
retained for the operation of the Company's business.
The following transactions describe the sale of unregistered
securities by the Company during the fiscal year ended August 31,
2002. All of the shares were sold privately by the Company and
not offered to the public, and were not registered under the
Securities Act of 1933 (the "Act"), as amended. All shares listed
below were sold as restricted shares.
On November 16, 2001, the Company issued 366,000
shares of its Common Stock to nine parties who had performed
services on behalf of the Company. The shares were issued in
consideration of debt owed by the Company at the agreed upon
rate of $.0001 per share, and the shares were sold in reliance on the
exemption provided by Section 4(2) of the Act. The parties
discussed and evaluated marketing proposals, discussed and
evaluated strategic partners, and considered and evaluated
alternative wellness center locations.
The Company provided full disclosure of its business plan,
capitalization and risk factors of investing to the nine investors.
The Company has a reasonable basis to believe each investor is
accredited. All shares were issued as restricted, and the certificates
bear the customary restrictive legend under rule 144 of the
Securities Act of 1933. For these transactions, the Company relied
on the Section 4(2) exemption from the Section 5 registration
requirement of the Securities Act of 1933.
On August 14, 2002, the Company sold 574,286 shares of
its Common Stock to one foreign investor at a price of $.70 per
share and received total proceeds of $402,000. The shares were
sold pursuant to Regulation S promulgated under the Securities
Act of 1933, as amended. The Company provided full disclosure of
its pertinent financial and business information regarding future
operating plans. All shares were issued as restricted, and the
certificate bears the customary restrictive legend under Rule 144 of
the Act.
Effective May 15, 2002, a Common Stock Purchase
Agreement was executed by the Company, James D. Durham and
Malahide Investments. Under the terms of this Agreement, James
D. Durham and Malahide Investments purchased a total of
2,000,000 shares of the Company's Common Stock at an aggregate
purchase price of $100,000. All shares were issued as restricted,
and the certificates bear the customary restrictive legend under
Rule 144 of the Act.
Subsequent to the period covered by this Report, at the
Company's Board Meeting on October 22, 2002, the issuance of
100,000 shares of the Company's Common Stock to each of the
11
Directors of the Company, Robert Kenneth, Joseph M. De Luca
and Robert P. Oliver, was approved. Said shares were valued at
$.007 per share and vest over a three year period, with a vesting
start date of October 22, 2002, and will be issued in exchange for
providing services to the Company. All of the 300,000 shares will
be issued as restricted, and the certificates will bear the customary
restrictive legend under Rule 144 of the Act.
Also, at the Board Meeting on October 22, 2002, the Board
approved the issuance of 399,931 and 291,949 shares of Common
Stock to Pamela Atherton, President, and Lawrence M. Davis,
Chief Financial Officer and Secretary, respectively. Said shares
were valued at $2,666.66 and $2,000.00, respectively, and vest
over a four year period, with a vesting start date of November 1,
2002 and will be issued in exchange for providing services to the
Company. All of the total of 691,880 shares will be issued as
restricted, and the certificates will bear the customary restrictive
legend under Rule 144 of the Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the fiscal years ended August 31, 2002 and 2001, the
total loss for the Company was $248,173 and $121,619,
respectively. From inception, November 10, 1997, through August
31, 2002, the total loss was $455,169. These losses resulted from
the Company's start-up expenses, business plan development,
initial market research activities, and initial website development,
which have been funded by Ameristar Group, Incorporated
("Ameristar"), an affiliate of two corporate shareholders of the
Company (refer to "ITEM 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS"), and by the private placement
sale of shares of Common Stock totaling $402,000 during fiscal
year 2002. No assurance can be made that Ameristar will continue
to fund the Company's operations or that the Company will be able
to raise additional funds through the private placement sale of its
securities. Although Ameristar has funded the Company's
operations in the past, Ameristar is under no legal obligation to
provide additional funding in the future.
The audit report accompanying the Company's financial
statements for the fiscal years ended August 31, 2002 and 2001
contains a going concern qualification because the Company is in
the development stage and needs additional capital to begin
commercial operations. Refer to "RISK FACTORS" and the audit
report and financial statements contained in "PART F/S".
For the fiscal year ended August 31, 2002, the total loss for
the Company was $248,173 compared to a loss of $121,619 for the
comparable prior fiscal year period, an increased loss of $126,554.
This increased loss resulted from increased consulting expenses of
$63,904, the majority being the cost of hiring Mr. James Durham
as Chief Executive Officer and $94,165 for the cancellation of the
Management Service Agreement with Ameristar. Professional fees
decreased by $41,055 in the year ended August 31, 2002. For the
year ended August 31, 2001 the majority of the legal fees were
incurred in filings with the Securities and Exchange Commission
for the Company to become a reporting company. Other operating
expenses increased by $9,450 as the Company explored several
business opportunities.
12
In regard to its capital requirements for the next twelve
months, additional funding will be required and the Company
plans to meet its immediate capital needs through private equity or
debt financing. Issuing additional equity will result in dilution to
the existing shareholders.
The Company is considered to be a development stage
enterprise because it has not yet generated revenue from the sale of
products or services. There have been no business operations since
the date of incorporation. Since its inception, the Company has
devoted all of its efforts to business research and development, the
preparation of a business plan, discussions with potential
acquisition candidates, the discussion of specific services to be
offered, marketing considerations, planning development of a
website, discussions regarding strategic alliances and the search for
sources of capital to fund its efforts.
In addition to the Company's projected expenses and cash
flow, financing requirements will depend on other factors, such as
the progress of its market research and development, acquisition
costs, any changes resulting from continuing research,
development of new technology, and the economic impact of
competition. The Company's future long-term capital requirements
will depend significantly on the rate of its business growth, the
introduction of services, and the success of such services after they
are introduced. Projections of future long-term cash needs are
subject to substantial uncertainty.
Liquidity and Capital Resources
At August 31, 2002, the Company had cash totaling
$440,517. The Company's management is engaged in raising
additional capital to execute its business plan. There is no
assurance that the Company will be able to raise the amount of
capital required to meet its objectives.
Plan of Operations
The Company's success in achieving profitability will
depend on its ability to consummate acquisitions of healthcare
companies, to implement its marketing strategy and to achieve a
revenue stream from the sale of products and services, while not
exceeding budgeted expenses. During the implementation of its
business plan, the Company will be subject to all of the risks
inherent in an emerging business, including the need to provide
reliable and effective products and services, to develop marketing
expertise, and to generate sales. In the event that the Company's
projected market does not develop as anticipated, the Company's
business, financial condition and results of operations could be
materially adversely affected.
During the next twelve months, the Company intends to
perform the activities required to establish its business operations,
as described in "ITEM 1 (B) Business of Issuer". In executing its
current plans, the Company's objectives will include the following:
. Find healthcare companies to acquire and
consummate acquisitions
. Develop brand awareness
13
. Build an operations structure to support the business
. Develop management information systems and
technology to support operations
. Attract and retain qualified personnel
According to the Company's estimates, from $1,000,000 to
$3,000,000 will be needed through the twelve months ending
August 31, 2003 to establish these business operations, not
including revenues from operations, which are not expected to
materialize in significant amounts until the second or third
calendar quarters of 2003 at the earliest. Primary to the Company's
solvency in the coming year is raising additional equity.
Capital commitments for the next twelve months are
minimal, and additional funds raised through various equity
offerings should be sufficient to meet the Company's obligations
for that period and until the various planned activities described
herein are able to create significant cash flow. The Company has
received an audit opinion which includes a "going concern" risk.
The Company is aware of this risk and plans to raise any necessary
capital through the sale of additional equity. If additional capital is
not readily available, the Company will be forced to scale back its
development activities such that its income will exceed its
expenses. Although this will slow the Company's development, it
will allow for the Company's survival. Notwithstanding the
foregoing, there is substantial doubt regarding the Company's
ability to continue as a going concern, and as such, the Company is
substantially dependent upon its ability to raise sufficient capital to
cover its development costs.
The Company plans to perform market research and
development during the next twelve months regarding such
considerations as additional definition of services to be offered,
and pricing of services. The Company's planned business does not
require the purchase of plants, factories, extensive capital
equipment, or inventory.
The Company has no employees as of the date of this
Report. There are intentions to hire employees during the next
twelve months as its business plan is executed, which will be
dependent on the Company's ability to raise the required funds. In
the interim, the Company will rely on its management to perform
the activities required for preliminary business development. The
failure to attract and retain the required personnel would have a
material adverse effect on the Company's business and results of
operations.
ITEM 7. FINANCIAL STATEMENTS
Audited financial statements for the fiscal years ended
August 31, 2002 and 2001 are submitted herein as PART F/S on
Pages F-1 to F-13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
14
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
Name Age Position
James D. Durham 55 Chief Executive Officer and Chairman of the Board
Pamela G. Atherton 53 President
Lawrence M. Davis 53 Chief Financial Officer and Secretary
Robert J. Kenneth 66 Director
Robert P. Oliver 75 Director
Joseph M. De Luca 46 Director
The Company's previous Officers and Directors resigned
effective August 16, 2002.
The Company's Restated Certificate of Incorporation
adopted on August 15, 2002 changed the election of Directors,
such that; the Directors are classified into three classes, with the
first such class holding office until the first annual meeting of
stockholders; the second class holding office until the second
annual meeting of stockholders; and the third class holding office
until the third annual meeting of stockholders. Each class of
Directors will be elected for a three year term.
The initial Class I Directors are vacant. The initial Class II
Directors are Joseph M. De Luca and Robert P. Oliver. The initial
Class III Directors are James D. Durham and Robert J. Kenneth.
The Officers are appointed by, and serve at the will of, the
Board of Directors. There are no family relationships among the
Directors and Officers of the Company. On October 22, 2002, an
Audit Committee was formed consisting of three Directors: Joseph
M. De Luca, Robert J. Kenneth and Robert P. Oliver. There are at
present no other committees of the Board of Directors.
Officers and Directors
James D. Durham, Chief Executive Officer and Chairman of the Board
Mr. James D. Durham has been Chief Executive Officer
and the Chairman of the Board of the Company since August,
2002. Mr. Durham has also been Chief Executive Officer and a
Director of First Medical Resources Corporation, a publicly held
company, since March, 2002.
In 1999, Mr. Durham co-founded Market Insite Group,
Inc., which offers an exclusive web-based scoring and correlation
algorithm to match business with their customers. Mr. Durham
also founded ChartOne, Inc. to offer web-based storage and
retrieval capabilities for medical records, which has over 1,000
hospital customers. In 1993, Mr. Durham founded QuadraMed
Corporation, a public company, which offers a suite of software
15
products and services focused on the financial and clinical needs of
hospitals. In 1986, in a turn-around situation, Mr. Durham became
CEO of Knowledge Data Systems, which was then in bankruptcy,
and restructured the company, which returned to profitability and
later was sold to Ameritech.
From 1971 to 1979, Mr. Durham served in a variety of
positions at Medicus Corporation, and became President and Chief
Financial Officer of a subsidiary of the company. During this
period, Mr. Durham founded the first company in the healthcare
industry to use personal computers, which later became a public
company as Medicus Systems Corporation.
Mr. Durham has a Bachelors Degree in Industrial
Engineering from the University of Florida, graduating with high
honors, and has a Masters Degree in Business Administration from
UCLA. He is a Certified Public Accountant, licensed in the State
of Illinois.
Pamela G. Atherton, President
Ms. Atherton was appointed President of the Company in
August, 2002 by the Company's CEO and her appointment was
ratified by the Board of Directors in October, 2002.
Ms. Atherton has over 25 years experience in the healthcare
industry. Her career includes time as a corporate executive with a
large national HMO, as well as ten years as Chairman and CEO of
two healthcare services organizations. Ms. Atherton began her
career at Humana, Inc., where she served from 1982 to 1992. She
held numerous field and corporate positions and was the corporate
director of Nursing/Allied Heath Recruitment and Retention from
1988 to 1992. In that role, she led the nursing and allied health
recruitment for hospitals nationwide. Her creative solutions to
recruitment and retention were featured in Modern Healthcare and
numerous other trade publications. From 1992 to 1997, Ms.
Atherton served as Chief Executive Officer of Resource Factor, a
privately held female business enterprise that she founded, which
specialized in per diem and mobile nurse/allied health staffing.
After securing venture capital, the company expanded into two
additional satellite offices. Ms. Atherton led the sale of those
businesses in 1997. From 1996 to 2000, Ms. Atherton served as
Chairman and Chief Executive Officer of Aperture Credentialing,
Inc., a company she founded which provides data management of
physician information for provider credentialing. The company
also provided nurses nationwide, to perform physician office site
visits and HEDIS data collection. Since 2000, Ms. Atherton has
continued to serve as Vice Chairman of Aperture's Board of
Directors. Since 2001, Ms. Atherton has led the commercial
division of Appriss, Inc., a pioneering voice application service
provider. Her division specializes in providing innovative voice
solutions for the healthcare industry. These applications assist the
industry in enabling access to mission critical information over the
telephone using human speech. Ms. Atherton formed Crois, Inc., in
2000 as a consulting company specializing in healthcare services
and staffing. She has served as a consultant to the company.
Ms. Atherton graduated, magna cum laude, from Kentucky
Southern College and holds a Masters Degree from the University
of Louisville. Ms. Atherton is a Woodrow Wilson Fellow and has
been honored as a female business owner as well as an innovative
entrepreneur and community leader.
16
Lawrence M. Davis, Chief Financial Officer and Secretary
Mr. Lawrence M. Davis was appointed Chief Financial
Officer of the Company in August, 2002 by the Company's CEO
and his appointment was ratified by the Board of Directors in
October, 2002. Mr. Davis has performed CFO level services for
First Medical Resources Corporation, a publicly held company,
since July, 2002. He also serves as a director and treasurer of
Sawhorse Enterprises, Inc., a privately held ecommerce company,
and serves on the Board of two non-profit organizations.
Mr. Davis has more than 25 years experience as a financial
executive. From January 1999 to present, Mr. Davis has served as
an independent financial consultant, providing consulting services
to numerous software and technology companies in preparing for
financing events including initial public offerings and venture
financings. Such consulting services included creating financial
reporting systems, designing and implementing long-range
financial forecasts, and providing advice regarding cash
management and all aspects of corporate administration. From
March 1997 to August 1998, Mr. Davis was the corporate
controller and interim CFO of FirstAmerica Automotive, Inc., a
publicly held consolidator of automotive dealerships. This
company was formed as the result of a reverse merger into a
"shell" while simultaneously raising $250 million in debt financing
from GE Capital for the purpose of financing seven acquisitions.
In 1998, this company was sold to Sonic Automotive. Previously,
Mr. Davis served as the CFO of The Nalley Companies, another
consolidator of automotive dealerships, where he arranged for its
sale to Asbury Automotive. Other professional experience has
included serving as a senior credit officer and commercial lender
with Citicorp, controllership of the U.S. subsidiary of LeasePlan
Holland N.V., Europe's largest automotive leasing company, and
as a member of the audit staff of Arthur Andersen. He also served
as a Regular Army officer in tank battalions in the former Federal
Republic of Germany and stateside.
Mr. Davis earned his MBA and BS (accounting) from
Auburn University, and a BS (Mechanical Engineering and
Russian language) from the U.S. Military Academy at West Point,
New York. He is licensed as a Certified Public Accountant by the
State of Georgia.
Robert J. Kenneth, Director
Mr. Kenneth has been active in the healthcare industry for
34 years. He is the founder of Kenneth Associates, a leading
provider of staffing and professional services to hospitals and
physicians in California, focused on on-site billing staff and
management as well as off-site billing services with a goal of
reducing accounts receivable. Mr. Kenneth has also served on the
Board of Trustees of St. Francis Memorial Hospital where he was a
member of the Investment Committee, Chairman of the Budget
and Finance Committee and Chairman of the Retirement and
Personnel Committee. Mr. Kenneth also serves on the Board of
Overseers for the University of California School of Nursing. Mr.
Kenneth is also a Director of Nurses Network Inc., a San Francisco
based nurse staffing agency. Mr. Kenneth is also a member of the
Healthcare Financial Management Association, the American
Guild of Patient Accounts Managers, and is the author of
numerous articles and publications. He is a regular speaker for
healthcare professional organizations and has served as an expert
witness before the U.S. House of Representatives Ways and Means
Committee.
17
Mr. Kenneth earned his Bachelors Degree in Business
Administration from Roosevelt University in Chicago and a
Masters Degree in Business Administration from Golden Gate
University.
Robert P. Oliver, Director
Mr. Oliver is presently the Chief Executive Officer of
CorDev Financial, Inc., a privately held company specializing in
growth-oriented CEO consulting and mergers and acquisitions.
While in this position he has served as the principal negotiator for
over 25 acquisitions or divestitures. Mr. Oliver's management
experience has encompassed a wide variety of manufacturing,
retail, service, and distribution companies. Mr. Oliver previously
served as head of the Culligan International development group
where he led an innovative and active plan of acquiring Culligan
dealers. Subsequently, he served as co-managing partner for Anne
Klein & Co. where he launched the very successful Anne Klein
retail operation. Mr. Oliver has also served in a variety of
management positions in computer service and software,
automotive manufacturing and distribution, publishing,
international pipeline construction, and real estate development.
Mr. Oliver has served as a member of the Board of Directors of a
number of manufacturing, software and service companies and
presently is a board member of AMCAL, Inc., Calpine Containers,
Inc., North American Imports, Inc., and, ex officio, Willitts
Designs International, Inc.
Mr. Oliver is a graduate of the U.S. Naval Academy and
served five years as a surface and submarine naval officer. He has
been a long-time member of the Young Presidents Organization
and its graduate group, World Presidents Organization, and has
been a guest lecturer to several graduate schools of business.
Joseph M. De Luca, Director
Mr. De Luca has provided consulting services in addition to
line, interim or turnaround management positions in the healthcare
industry for over 22 years. His experience includes healthcare
information technology suppliers, healthcare delivery systems,
academic medical centers, payor and physician organizations. His
clients include the nation's largest investor owned financially
integrated delivery system, the nation's largest non-profit
financially integrated delivery system, and the nation's largest
delegated risk physician organization. His professional continuum
also includes futurist, research and publication activities. In 1996,
Mr. De Luca co-founded Healthcare Investment Visions LLC, a
research, business development and management consultancy
located in the San Francisco Bay Area. The firm is committed to
providing objective, visionary services within the context of
current healthcare information and medical technology trends,
adoption and market conditions. Between 1985 and 1995, Mr. De
Luca was the founder and President of JDA, a consulting firm
providing information systems strategy, vendor selection,
development, implementation and management services to
healthcare provider organizations. In 1995, JDA was acquired by
Science Applications International Corporation. Between 1984 and
1985, Mr. De Luca served as a senior manager with Computer
Synergy Inc., a public company who developed hospital
information systems. His duties included corporate strategy
development, sales and marketing support, financial systems
product management, and operational finance. Between 1980 and
1984, Mr. De Luca was a manager with the Management
18
Information Consulting Division of Arthur Andersen (now
Accenture), responsible for healthcare information systems
consulting services to provider and payor organizations. Mr. De
Luca is a fellow of the American College of Healthcare Executives
("ACHE"), and was recently awarded the ACHE Regent's Senior
Leadership Award for service to the community. Mr. DeLuca is a
frequent speaker at high-profile regional and national conferences,
a lecturer for university programs, and is the author of numerous
manuscripts and books.
Mr. De Luca holds a Master Degree of Arts-Health
Services Administration from the University of Wisconsin,
Madison, and graduated from Lawrence University, Appleton,
Wisconsin with a Bachelors Degree in Biology, with high honors.
Conflict of Interest
As discussed herein, certain members of senior
management of the Company have other business interests that
will require a portion of their time and efforts. Although we
believe they will be able to devote such time as is necessary for the
proper management of the Company's business, it is possible that
their obligations to these other business interests may interfere
with or distract from the full performance of their duties as
management of the Company. At present management expects that
any acquisitions that may be made in the future will be of
operating companies with adequate management already in place.
Further, it is believed that as the need for full time management
arises, the Company will be able to hire such personnel as it may
require. There can be no assurance that these assumptions will
prove accurate or that suitable personnel will be available to the
Company on acceptable terms.
In addition, another company with which certain members
of management are involved also seeks to make acquisitions of
companies. The current plans of this other entity involves the
search for companies in distinct healthcare markets that are not
competitive with the acquisitions planned by the Company. The
Company is focused on making acquisitions on the provider side of
the healthcare market while the other entity seeks to make
acquisitions of companies on the payor side. As such management
does not believe that any conflict will arise in the foreseeable
future. However, it is possible that the business direction of either
the Company or these other entities could change in the future and
that certain opportunities may be found by officers of the Company
that would be appropriate for both companies. In such event, a
potential conflict could arise with respect to which company the
opportunity is presented first. Because of the potential for conflict,
we believe it is unlikely that the Company will ever pursue
opportunities to acquire payor side companies.
19
ITEM 10. EXECUTIVE COMPENSATION
The Company paid consulting fees of $58,333 to its
Chairman of the Board and CEO; $4,050 to its CFO and Secretary;
$1,700 to its former President during the fiscal year ended August
31, 2002; and $13,350 to its former President during the fiscal year
ended August 31, 2001. The Company's current President has not
received any compensation as of the date of this Report, and will
not receive any compensation until an acquisition has been
consummated by the Company.
On August 14, 2002, the Company entered into an
Employment Agreement for period of two years with its Chairman
and CEO, which provides for a base salary of $200,000 per year.
From this date through December 31, 2002, the Chairman and
CEO has been and will continue to be compensated as a consultant
based upon the pro rata portion of his annual salary. Effective
January 1, 2003, he will be compensated as an employee of the Company.
Subsequent to the period covered by this Report, at the
Company's Board Meeting on October 22, 2002, the issuance of
100,000 restricted shares of Common Stock to each of the
Company's three Directors and 399,931 and 299,949 restricted
shares of Common Stock to the Company's President and CFO,
respectively, was approved. Refer to "Part II, Item 5, Market for
Registrant's Common Equity and Related Stockholder Matters."
There are no other written agreements between the
Company and any other of its Officers and Directors, and there are
no agreements with Directors for the payment of Directors fees.
The Company does not have any pension plan, profit sharing plan,
or similar plans for the benefit of its Directors, Officers or
employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 31, 2002, the
end of the Company's fiscal year, information with respect to; (1)
any person known by the Company to own beneficially more than
five (5%) percent of the Company's Common Stock, based on
9,998,286 shares issued and outstanding as of the end of fiscal
2002, (2) Common Stock owned beneficially by each Officer or
Director of the Company, and (3) the total of the Company's
Common Stock owned beneficially, directly or indirectly, by the
Company's Officers and Directors.
Number of Percent of
Name and Address of Beneficial Owner (1) Shares Owned (2) Class
------------------------------------------- ---------------- ----------
James D. Durham and
Sandra J. Durham, JTWROS (4)* 980,000 9.80 %
31 West Shore Drive
Belvedere, CA 94920
Paine Weber,
Custodian for the IRA FBO James Durham (5)* 40,000 0.40 %
31 West Shore Drive
Belvedere, CA 94920
20
Malahide Investments (6) 980,000 9.80 %
P.O. Box 170, Churchill Building
Grand Turk
Turks & Caicos Islands
Robert Gordon 760,000 7.60 %
444 Madison Avenue, Ste. 2904
New York, NY 10022
Parthian Securities 704,286 7.04 %
36 Boulevard Helvetique
1207 Geneva, Switzerland
John Messina (7) 616,000 6.16 %
11 Wyman Street
Rye Brook, NY 10573
J. J. Kadele, Inc. (8) 525,000 5.25 %
37 Parkway East
Yonkers, NY 10701
Dominick Artuso, M.D., F.C.C.M 500,000 5.00 %
247 Broadway
Pleasantville, NY 10570
Atlantic International Capital Holdings, Ltd. 500,000 5.00 %
P.O. Box HM1564
Reid House, 31 Church Street
Hamilton HMFX
Bermuda
Officers and Directors as a group (1 person) (3) 1,020,000 1.20 %
* Officer and/or Director
________________________________________
(1) Persons known by the Company to own beneficially more than five percent
(5%) of the Company's Common Stock.
(2) Common Stock owned beneficially by each Officer and Director of the
Company.
(3) The total number of shares of the Company's Common Stock owned
beneficially, directly or indirectly, by the Officers and Directors of
the Company as a group.
(4) Shares owned by James D. Durham, CEO and Chairman of the Board of the
Company, and his wife, Sandra J. Durham, as Joint Tenants with Rights of
Survivorship.
(5) James D. Durham, CEO and Chairman of the Board of the Company is the
beneficiary of Paine Webber as custodian of these shares.
(6) James D. Durham is an advisor to Malahide Investments but has no
beneficial interest in the shares of the Company owned by Malahide
Investments.
(7) John Messina is the brother of Joseph J. Messina. See "ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
(8) J.J. Kadele, Inc. is a private company of which Mr. Salvatore Messina
is the sole Director, Officer and shareholder. He is the father of
Joseph J. Messina and John Messina. Neither Joseph J. Messina nor John
Messina have voting or dispositive control over the shares held by J.J.
Kadele. See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
21
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During September and October, 2002, the Company rented
office space on a month to month basis from Ameristar Group
Incorporated ("Ameristar"), an affiliate of Remsen Group, Ltd. and
Wilmont Holdings Corp., two corporate shareholders of the
Company, at a rate of $1,000 per month in accordance with an
agreement dated December 27, 1999. In addition, Ameristar
provided administrative services on a month to month basis to the
Company at a monthly cost of $2,000. The total expenses incurred
by the Company from Ameristar for the fiscal years ended August
31, 2002 and 2001, and from inception, November 11, 1997
through August 31, 2002 are $61,000, $36,000 and $127,000,
respectively. The terms of the agreement with Ameristar for the
use of office space and administrative services include a
commencement date of January 1, 2000, termination by either
party with 30 days written notice, a monthly cost of $1,000 for the
use of office space, and for the use of business equipment,
including personal computers, photocopier, fax, telephones, and
basic office supplies, a monthly cost of $3,500 for the period
January 1, 2000 through April 30, 2000, and thereafter a monthly
cost of $2,000.
Remsen Group, Ltd. is a company principally owned and
controlled by Martin I. Saposnick and Wilmont Holdings Corp. is a
company principally owned and controlled by Joseph J. Messina.
Messrs. Saposnick and Messina are Officers and Directors of
Ameristar, and having taken initiative in setting up the Company,
may be deemed founders of the Company. John Messina, brother
of Joseph J. Messina, is not an affiliate of Joseph J. Messina or any
of his affiliates (Refer to "ITEM 11. SECURITY OWNERSHIP
OF BENEFICIAL OWNERS AND MANAGEMENT" and
Footnotes 6 and 7 thereto). Salvatore Messina, father of Joseph J.
Messina and John Messina is not an affiliate of Joseph J. Messina
or any of his affiliates and is not an affiliate of John Messina.
On November 1, 2001, a Management Services Agreement
was executed with Ameristar to provide the Company with
consulting services, office space, and administrative services for a
two year period. The Management Services Agreement superseded
the agreement described above, which was terminated effective
October 31, 2001. The monthly cost of these services was $5,500;
consisting of $2,500 for consulting services, $1,000 for rent, and
$2,000 for administrative services. The consulting services
included such activities as business plans, introductions to
financial community, strategic planning, evaluation of potential
business relationships (such as joint ventures, mergers and
acquisitions), business projections, review of marketing plans, and
general advisory and management services as required.
Effective August 15, 2002, the Management Services
Agreement with Ameristar was terminated in accordance with a
Termination Agreement executed between the Company and
Ameristar on that date. As a result of services provided to the
Company by Ameristar that were beyond the scope of the
Management Services Agreement, the company acknowledged its
obligation to compensate Ameristar therefore. The parties
confirmed and agreed that such compensation shall be paid in full
upon cancellation of debt owed to the Company by Ameristar,
totaling $99,201 as of the date of the Termination Agreement.
22
The total expenses incurred by the Company from
Ameristar for the fiscal year ended August 31, 2002 and 2001, and
from inception, November 11, 1997 through August 31, 2002 are
$61,000, $36,000 and $127,000, respectively. The Company
advanced funds to Ameristar totaling $28,000 during the fiscal
year ended August 31, 2002 and had a balance of funds advanced
to Ameristar totaling $99,201 as of August 15, 2002 (See above
paragraph).
Mr. James D. Durham, CEO and a Chairman of the Board
of the Company, purchased 1,020,000 restricted shares of the
Company's Common Stock at a price of $.05 per share in
accordance with a Common Stock Purchase Agreement effective
May 15, 2002. The 1,020,000 shares purchased represent 10.2%
of the outstanding Common Stock of the Company. (Refer to
Schedules 13D filed with the SEC on September 9, 2002 by James
Durham and Sandra J. Durham.)
Mr. James D. Durham is also CEO, Chairman and a major
shareholder of First Medical Resources Corporation ("FMRC").
Mr. Lawrence M. Davis, CFO and Secretary of Lifen, Inc.,
performs CFO level services for FMRC. In August and September,
2002, the Company paid expenses totaling $4,050 for the benefit of
FMRC. In November, 2002, FMRC reimbursed the Company in
full for those expenses.
ITEM 13. CONTROLS AND PROCEDURES
Subsequent to August 31, 2002 and prior to the filing of
this report, we conducted an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures
under the supervision of and with the participation of our
management, including the Chief Executive Officer and Chief
Financial Officer. Based on that evaluation, our management,
including the Chief Executive Officer and Chief Financial Officer,
concluded that our disclosure controls and procedures were
effective at August 31, 2002, and during the period prior to the
execution of this report. There have been no significant changes in
our internal controls or in other factors that could significantly
affect internal controls subsequent to August 31, 2002.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. The following documents are filed in PART F/S, as
a part of this report on pages F-1 to F-13:
Auditors Report of Sanford Feibusch, C.P.A., P.C. Dated
November, 7, 2002;
Balance Sheet as of August 31, 2002;
Statement of Operations and Consolidated Statement of
Operations for the Years Ended August 31, 2002 and 2001,
and from Inception, November 10, 1997 to August 31, 2002;
Statement of Stockholders' Equity and Consolidated
Statement of Stockholders' Equity for the Years Ended
August 31, 2002 and 2001, and from Inception, November
10, 1997 to August 31, 2002;
23
Statement of Cash Flow and Consolidated Statement of
Cash Flows for the Years Ended August 31, 2002 and
2001, and from Inception, November 10, 1997 to August
31, 2002;
Notes to Financial Statements.
2. Financial Statement Schedules - None.
All applicable information is contained in the financial
statements or notes thereto.
3. Exhibits and Material Contracts.
10.1 Employment Agreement dated August 14, 2002
between the Company and James D. Durham,
CEO and Chairman.
10.2 Sublease for office space with City
National Bank dated September 26, 2002.
(b) Form 8-K filings.
1. Form 8-K filed on August 21, 2002 incorporated
herein by reference Re: the sale of 2,000,000 shares
of the Company's Common Stock pursuant to a
Common Stock Purchase Agreement executed
effective May 15, 2002 by the Company, James D.
Durham and Malahide Investments for aggregate
proceeds of $100,000.
2. Form 8-K filed on November 6, 2002 Re: change of
Registrant's fiscal year end from August 31st to
December 31st, such change to take effect on
December 31, 2002. This change was approved by
the Board of Directors on October 22, 2002 and
registrant will file on Form 10-KSB the report
covering the transition period from September 1,
2002 to December 31, 2002.
24
PART F/S
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Lifen, Inc.
I have audited the accompanying balance sheet of Lifen, Inc. (A Development
Stage Company) as of August 31, 2002 and the related statement of operations,
stockholders' equity and cash flow for the two years then ended and for the
period from November 10, 1997 (inception) to August 31, 2002. These Financial
Statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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 balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Lifen, Inc. as of August 31, 2002
and results of operations, changes in stockholders' equity and cash flows for
the two years then ended and from November 10, 1997 (inception) to August 31,
2002, in conformity with generally accepted accounting principles.
The accompanying Financial Statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 8 to the Financial
Statements, the Company is in the development stage and needs additional funds
for them to implement their plan of operations. This condition raises
substantial doubt about its ability to continue as a going concern. Management's
plans regarding this matter are also described in Note 8. The Financial
Statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Sanford H. Feibusch
---------------------------------------
Certified Public Accountant
Monsey, New York
November 7, 2002
F-1
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS AS OF AUGUST 31
ASSETS
Current Assets: 2002 2001
------------ ------------
Cash $ 440,517 $ 30,529
Prepaid Expenses - 134,341
Other Receivables 2,700 -
------------ ------------
Total Current Assets 443,217 164,870
------------ ------------
Equipment- Net of Accumulated Depreciation of $236 - 944
------------ ------------
Total Assets $ 443,217 $ 165,814
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses $ 82,709 $ 4,865
------------ ------------
Total Current Liabilities 82,709 4,865
------------ ------------
Stockholders' Equity:
Preferred Stock, par value $.0001
Authorized 10,000,000 shares,
No shares issued and outstanding - -
Common Stock, par value $.0001
Authorized 50,000,000 shares
Issued and outstanding 9,998,286 shares
and 7,058,000 shares 1,000 706
Additional paid in Capital 814,677 367,239
Deficit accumulated during development stage (455,169) (206,996)
------------ ------------
Stockholder's Equity 360,508 160,949
------------ ------------
Total Liabilities and Stockholder's Equity $ 443,217 $ 165,814
------------ ------------
------------ ------------
The accompanying notes are an integral part of these financial statements.
F-2
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31
AND FROM INCEPTION NOVEMBER 10, 1997 TO AUGUST 31, 2002
From Inception
Nov. 10, 1997 to
2002 2001 August 31, 2002
---------- ---------- ------------------
Revenue: $ - $ - $ -
---------- ---------- ------------------
Expenses:
Market Research - - 25,000
Professional Fees 3,500 44,555 48,055
Consulting 102,220 38,316 151,366
Write Off of Offering Costs - - 15,546
Rent 12,000 12,000 32,000
Administrative 24,000 24,000 70,000
Cancellation of Management
Service Agreement 94,165 - 94,165
Other Operating Expenses 12,288 2,748 19,037
---------- ---------- ------------------
Total Expenses 248,173 121,619 455,169
---------- ---------- ------------------
Net Loss before Provision
For Income Taxes (248,173) (121,619) (455,169)
Provision for Income Taxes - - -
---------- ---------- ------------------
Net Loss $(248,173) $(121,619) $ (455,169)
---------- ---------- ------------------
---------- ---------- ------------------
Basic Loss per Share $ (0.03) $ (0.02)
---------- ----------
---------- ----------
Weighted Average Number
Shares Outstanding 7,470,262 7,089,500
---------- ----------
The Accompanying Notes are an integral part of these Financial Statements.
F-3
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION NOVEMBER 10, 1997 TO AUGUST 31, 2002
Common Stock
Par Value $.0001 Additional
------------------- Paid-In Retained
Shares Amount Capital (Deficit)
----------- ------ ---------- ---------
January 1998 - Shares Issued
For Services @ $.0001 Per Share 2,250,000 $ 225 $ - $ -
Loss for Year Ended August 31, 1998 - - - (511)
----------- ------ ---------- ---------
Balance - August 31, 1998 2,250,000 225 - (511)
October 1998 Shares Issued
For Services @ $.0001 Per Share 2,750,000 275 - -
Cancellation of Shares Issued
October 1998 @ $.0001 Per Share (2,750,000) (275) - -
November 1998 Shares Issued
For Services Net of Expenses
@ $.05 Per Share 500,000 50 23,250 -
March 1999 Shares Issued
For Services @ $.0001 Per Share 2,325,200 232 - -
Loss for the Year Ended
August 31, 1999 - - - (41,133)
----------- ------ ---------- ---------
Balance - August 31, 1999 5,075,200 507 23,250 (41,644)
March 2000 Shares Issued
For Services @ $.0001 Per Share 1,219,800 122 - -
April 2000 Shares Issued Private
Placement @ $1.00 Per Share 45,000 5 44,995 -
Loss for Year Ended August 31, 2000 - - - (43,733)
----------- ------ ---------- ---------
Balance - August 31, 2000 6,340,000 $ 634 $ 68,245 $(85,377)
----------- ------ ---------- ---------
----------- ------ ---------- ---------
The accompanying notes are an integral part of these financial statements.
F-4
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
FROM INCEPTION NOVEMBER 10, 1997 TO AUGUST 31, 2002
Common Stock
Par Value $.0001 Additional
------------------- Paid-In Retained
Shares Amount Capital (Deficit)
----------- ------ ---------- ---------
Balance August 31, 2000 6,340,000 $ 634 $ 68,245 $(85,377)
October 2000 Shares Issued
For Services @ $.0001 Per Share 660,000 66 - -
October 2000 Shares Issued
Private Placement @ $1.00 Per Share 10,000 1 9,999 -
November 2000 Shares Issued
Private Placement @ $.50 per Share 10,000 1 4,999 -
November 2000 Shares Issued
Private Placement @ $.50 per Share 20,000 2 9,998 -
January 2001 Shares Issued
Private Placement @ $.50 per Share 48,000 5 23,995 -
May 2001 Shares Issued
Private Placement @ $.50 per Share 500,000 50 249,950 -
Less Shares Returned
July 2001 @$.0001 per Share (530,000) (53) 53 -
Loss for the Twelve Months
Ended August 31, 2001 - - - (121,619)
----------- ------ ---------- ---------
Balance - August 31, 2001 7,058,000 $ 706 $ 367,239 $(206,996)
----------- ------ ---------- ---------
----------- ------ ---------- ---------
The accompanying notes are an integral part of these financial statements.
F-5
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
FROM INCEPTION NOVEMBER 10, 1997 TO AUGUST 31, 2002
Common Stock
Par Value $.0001 Additional
------------------- Paid-In Retained
Shares Amount Capital (Deficit)
----------- ------ ---------- ---------
Balance August 31, 2001 7,058,000 $ 706 $ 367,239 $(206,996)
November 2001 Shares Issued
For Services @ $.0001 per Share 366,000 37 - -
August 2002 Shares Issued
Private Placement @ $.70 per Share 574,286 57 402,093 -
August 2002 Shares Issued
Private Placement @ $.05 per Share 2,000,000 200 99,800 -
Costs of Private Placement - - (54,455) -
Loss for the Twelve Months
Ended August 31, 2002 - - - (248,173)
----------- ------ ---------- ---------
Balance - August 31, 2002 9,998,286 $1,000 $ 814,677 $(455,169)
----------- ------ ---------- ---------
----------- ------ ---------- ---------
The accompanying notes are an integral part of these financial statements.
F-6
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31
AND FROM INCEPTION NOVEMBER 10, 1997 TO AUGUST 31, 2002
From Inception
Nov. 10, 1997 to
2002 2001 August 31, 2002
---------- ---------- ----------------
Cash Flows from Operating Activities:
Net (Loss) $(248,173) $(121,619) $ (455,169)
---------- ---------- ----------------
Adjustments to reconcile net (loss) to
Net cash used in operating activities:
Market Research - - 25,000
Consulting 37 5,065 5,682
Depreciation 177 236 413
Changes in operating assets & liabilities:
Accounts payable & accrued expenses 77,844 (12,906) 82,709
Prepaid expenses & other current assets 131,641 (134,341) (2,700)
---------- ---------- ----------------
Net Cash Flows from
Operating Activities (38,474) (263,565) (344,065)
---------- ---------- ----------------
Cash Flows from Investing Activities:
Purchase Equipment - - (1,180)
Disposal Equipment 767 - 767
---------- ---------- ----------------
Net Cash Flows from
Investing Activities 767 - (413)
---------- ---------- ----------------
Cash Flows from Financing Activities:
Issuance Common Stock 502,150 294,000 841,150
Offering Expenses (54,455) - (56,155)
---------- ---------- ----------------
Net Cash Flow from
Financing Activities 447,695 294,000 784,995
---------- ---------- ----------------
Net Increase (decrease) in Cash 409,988 30,435 440,517
Cash - Beginning of Year 30,529 94 -
---------- ---------- ----------------
Cash - End of Year $ 440,517 $ 30,529 $ 440,517
---------- ---------- ----------------
---------- ---------- ----------------
The accompanying notes are an integral part of these financial statements.
F-7
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2002
Note 1. Organization
Lifen, Inc. (the "Company") was incorporated under the laws of the state of
Delaware on November 10, 1997 under the name Digivision International, Ltd. The
Company's name was changed to Lifen, Inc. on June 22, 2000. To date, the Company
has had no commercial operations and has been engaged in the development of its
business plan, market research, initial website development, and seeking initial
financing in order to commence commercial operations.
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 amount of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. The most significant
estimates relate to the valuation allowance in connection with deferred tax
assets. Actual results could differ from those estimates.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided for on the
straight-line method over the estimated useful life. The cost of maintenance and
repairs is charged to operations as incurred.
Accounting for Impairment of Long-Lived Assets
In accordance with SFAS 121, the Company has adopted a policy of recording an
impairment loss on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount.
Organization Costs
The Company has adopted SOP 98-5, "Reporting on the Costs of Start-up
Activities", which requires that all costs of start-up activities and
organization costs be expensed as incurred. The Company expects that the
adoption of SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, will not have a material effect on its financial statements.
F-8
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2002
Website Development
In March 2000, the Emerging Issues Task Force issued No. 00-02 ("EITF 00-02"),
"Accounting for Website Development Costs." EITF 00-02 states that all costs
relating to software used to operate a website and relating to development of
initial graphics and web page design should be accounted for using Statement of
Position ("SOP") 98-1. Under this SOP, costs incurred in the preliminary project
stage should be expensed as incurred, as should most training and data
conversion costs. External direct costs of materials and services and internal
direct payroll-related costs should be capitalized once certain criteria are
met. EITF 00-02 is effective for all fiscal quarters beginning after June 30,
2000. The Company's accounting policy for internal-use software, as required by
SOP 98-1, incorporated the requirements of EITF 00-02. To date, no significant
costs have been incurred.
Income Taxes
The Company records deferred income taxes using the liability method. Under the
liability method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement and income tax basis of the Company's assets and liabilities. An
allowance is recorded, based on currently available information, when it is more
likely than not that any or all of a deferred tax asset will not be realized.
The provision for income taxes includes taxes currently payable, if any, plus
the net change during the period presented in deferred tax assets and
liabilities recorded by the Company.
Per Share Data
The Company has adopted the standards set by the Financial Accounting Standards
Board and computes earnings per share data in accordance with SFAS No. 128
"Earning per Share." The basis per share data has been computed on the loss for
the period divided by the historic weighted average number of shares of common
stock outstanding. There are no potentially dilutive securities which would be
included in computation of fully diluted earnings per share.
Note 3. Income Taxes
There is no provision for Federal or State Income Taxes for the years ended
August 31, 2002 and 2001, since the Company has incurred losses from inception.
Additionally, the Company has reserved fully for any potential tax benefits
resulting from its carryforward operating losses. Deferred tax assets at
August 31, 2002 and 2001 consist of the following:
F-9
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2002
2002 2001
------------ ------------
Net Operating loss carryforward $ 173,000 $ 78,700
Valuation allowance (173,000) (78,700)
------------ ------------
$ -0- $ -0-
As of August 31, 2002, the Company has net operating loss carryfowards of
approximately $455,169 which expire in various years from 2012 through 2017.
Note 4. Common Stock
On January 9, 1998, the Company issued 2,250,000 shares of its common stock to
two founders of the Company for services valued at $225.
On October 30, 1998, the Company issued 2,750,000 shares of its common stock to
four individuals for services to be performed. The agreement was canceled and
the shares of common stock were returned and canceled.
On November 5, 1998, the Company completed a private placement offering of its
common stock, Pursuant to Rule 504 under Regulation D, the Company issued
500,000 shares of its common stock in satisfaction of $25,000 owed to four
parties who had performed services on behalf of the Company.
On March 3, 1999, the Company issued 2,325,200 shares of its common stock to
eight parties for services performed on behalf of the Company, valued at $232.
On March 15, 2000, the Company issued 1,219,800 to ten parties for services
performed on behalf of the Company, valued at $122.
During April 2000, the Company sold 45,000 shares of its common stock at $1.00
per share to three investors in a private placement, pursuant to Rule 504 under
Regulation D, and received total proceeds of $45,000.
On October 2, 2000, the Company issued 660,000 shares of its common stock to six
individuals for consulting services performed, valued at $.0001 per share, or
$66. On October 6, 2000, the Company sold 10,000 shares of its Company stock to
one investor at $1.00 per share. The Company received $5,000 in cash and
services totaling $5,000.
F-10
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2002
In November 2000, the Company sold 30,000 shares of its common stock to two
individual investors at a price of $.50 per share and received total proceeds
of $15,000.
In January 2001, the Company sold 48,000 shares of its common stock to five
individual investors at a price of $.50 per share and received total proceeds
of $24,000.
In May 2001, the Company sold 500,000 shares of its common stock to one
individual investor at a price of $.50 per share. The Company received proceeds
in the amount of $100,000 in May, 2001, $50,000 in June, $50,000 in July, and
$50,000 in August, 2001, for a total of $250,000. These shares were sold in
reliance on the exemption provided by Section 4(2) of the Act.
In July 2001, 530,000 shares of the Company's common stock were returned to the
Company for no consideration and were cancelled.
On November 16, 2001, the Company issued 366,000 shares of its common stock to
nine parties who had performed services on behalf of the Company. The shares
were issued in consideration of debt owed by the Company, at the agreed upon
rate of $.0001 per share, and the shares were sold in reliance on the exemption
provided by Section 4(2) of the Act.
In August, 2002, the Company sold 574,286 shares of its common stock to one
foreign investor at a price of $.70 per share and received total proceeds of
$402,000. The shares were sold pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended.
In August, 2002, the Company sold 2,000,000 shares of its common stock to two
investors at a price of $.05 per share and received total proceeds of $100,000,
pursuant to a Common Stock Purchase Agreement, executed effective May 15, 2002.
Note 5. Related Party Transactions
Ameristar Group Incorporated ("Ameristar") is a corporation that is an affiliate
of two corporate shareholders of the Company and is considered to be a related
party. Ameristar has advanced funds for operating expenses.
During the first quarter of fiscal 2002, the Company reached agreement with
Ameristar to provide the Company with management services needed for its
continuing development. Accordingly, on November 1, 2001, a Management Services
Agreement was executed with Ameristar to provide consulting services, office
space, and administrative services for a two-year period. The monthly cost of
these services is $5,500, consisting of $2,500 for consulting services, $1,000
F-11
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2002
for rent, and $2,000 for administrative services. The consulting services
include such activities as business plans; introductions to financial community;
strategic planning; evaluation of potential business relationships, such as
joint ventures, mergers and acquisitions; business projections; review of
marketing plans; and general advisory and management services as required.
Effective August 15, 2002, the Management Services Agreement with Ameristar was
terminated in accordance with a Termination Agreement executed between the
Company and Ameristar on that date. As part of the Termination Agreement, the
debt owed to the Company by Ameristar in the amount of $99,201 was cancelled in
full payment of compensation owed to Ameristar for additional services provided
to the Company.
Note 6. Commitments and Contingencies - Employment Agreement
Effective August 14, 2002, the Company entered into an employment agreement with
Mr. James D. Durham in the position as Chairman and Chief Executive Officer.
The term of the agreement is for a period of two years with a base annual salary
at the rate of $200,000 per annum.
Note 7. Concentration of Credit Risk
The Company maintains a bank account at one bank as of August 31, 2002 with a
balance of $440,307 on deposit, only $100,000 of which is insured under
Federal law.
Note 8. Going Concern
Lifen, Inc. is considered to be a development stage company. Since inception,
the Company has been engaged in the development of its business plan, market
research and initial website development. At August 31, 2002, the Company had
incurred losses during the development stage of $455,169. Approximately $29,000
of the cumulative losses have been non-cash services in exchange for common
stock in the Company. The balance of the losses, approximately $426,000, was
funded by the private placements of common stock, which totaled $841,000 as of
August 31, 2001.
Primary to the Company's solvency in the coming year is the sale of additional
equity in the Company, continuing the Company's strategy of funding development
through additional equity financing. These funds will be used to manage working
capital requirements and to fund ongoing development costs. Capital commitments
for the next twelve months are minimal, and additional funds raised through
private placements should be sufficient to meet the Company's obligations for
that period and until the various planned activities are able to create
significant cash flow. The Company plans to raise any necessary capital through
the sale of additional equity.
F-12
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2002
If additional capital is not readily available, the Company will be forced to
scale back its development activities such that its income will exceed its
expenses. Although this will greatly slow the Company's development, it will
allow for the Company's survival. Notwithstanding the foregoing, there is
substantial doubt regarding the Company's ability to continue as a going
concern, and as such, the Company is substantially dependent upon its ability
to raise sufficient capital to cover its development costs.
Note 9. Subsequent Events
On September 26, 2002, the Company entered into a sublease as successor in
interest to premises at 455 Market Street, San Francisco, California. The
premises includes 2,487 square feet of office space. The term of the lease is
through July 31, 2004 with a monthly rental through the term of the lease of
$4559.50.
On October 22, 2002, the Company authorized the issuance of 300,000 restricted
shares of the Company's common stock, 100,000 shares to each of three
directors in exchange for providing services to the Company as a member of the
Board of Directors valued at $700 ($0.007 per share) for each of the three
directors.
On November 1, 2002, the Company authorized the issuance of 399,391 restricted
shares of the Company's common stock to Pamela Atherton, President of the
Company and 299,949 restricted shares of the Company's common stock to
Lawrence M. Davis, Chief Financial Officer and Secretary of the Company.
These shares will be issued in exchange for providing services as officers of
the Company valued at $2,666.66 and 2,000.00, respectively.
Note 10. Supplemental Disclosure to Cash Flow Statement
From Inception
Nov. 10, 1997 to
2002 2001 August 31, 2002
---------- ---------- ----------------
Cash paid during the period for:
Interest $ - $ - $ -
Income Taxes $ - $ - $ -
Non Cash Transactions:
Common stock issued for
consulting Services and
market research $ 37 $ 5,065 $ 30,682
F-13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
LIFEN, INC.
Dated: November 27, 2002 By: /s/ James D. Durham
---------------------------------------
James D. Durham
Chief Executive Officer and
Chairman of the Board
Dated: November 27, 2002 By: /s/ Pamela G. Atherton
---------------------------------------
Pamela G. Atherton
President
Dated: November 27, 2002 By: /s/ Lawrence M. Davis
---------------------------------------
Lawrence M. Davis
Chief Financial Officer and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Dated: November 27, 2002 By: /s/ Robert J. Kenneth
---------------------------------------
Robert J. Kenneth
Director
Dated: November 27, 2002 By: /s/ Robert P. Oliver
---------------------------------------
Robert P. Oliver
Director
Dated: November 27, 2002 By: /s/ Joseph M. DeLuca
---------------------------------------
Joseph M. DeLuca
Director
25
CERTIFICATE PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Lifen, Inc. (the "Company")
on Form 10-KSB for the fiscal year ended August 31, 2002 as filed with
the Securities and Exchange Commission (the "Report"), each of the
undersigned, in the capacities and on the dates indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. the Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
Dated: November 27, 2002 By: /s/ James D. Durham
---------------------------------------
James D. Durham
Chief Executive Officer and
Chairman of the Board
Dated: November 27, 2002 By: /s/ Lawrence M. Davis
---------------------------------------
Lawrence M. Davis
Chief Financial Officer and
Secretary
26
CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, James D. Durham, Chief Executive Officer and Chairman of Board of Lifen,
Inc., certify that:
1. I have reviewed this annual report on Form 10-KSB of Lifen,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the Registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 27, 2002 By: /s/ James D. Durham
---------------------------------------
James D. Durham
Chief Executive Officer and
Chairman of the Board
27
CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Lawrence M. Davis, Chief Financial Officer and Secretary of Lifen, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-KSB of Lifen,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the Registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 27, 2002 By: /s/ Lawrence M. Davis
---------------------------------------
Lawrence M. Davis
Chief Financial Officer and
Secretary
28
SUB-CERTIFICATION OF DESIGNATED COMPANY PERSONNEL
I, Robert Gordon, am providing this certification in
connection with the review by Lifen, Inc. (the "Company") of its
report (the "Report") on Form 10-KSB for the year ended August
31, 2002.
SEC Rule 13a-15 requires the Company to maintain
"disclosure controls and procedures" that are designed to ensure
that the financial and non-financial information required to be
disclosed by the Company in the reports that it files with the SEC
is recorded, processed, summarized and reported within the time
periods specified in the SEC's rule and forms.
Section 302 and 906 of the Sarbanes-Oxley Act of 2002
and SEC rules relating to Section 302 require that the Company's
Chief Executive Officer and Chief Financial Officer provide
certifications with the Company's periodic reports, generally to the
effect that: (I) the officer reviewed the report, (ii) based on the
officers' knowledge, the report is accurate and fairly presents the
financial information included, (iii) disclosure controls and
procedures are addressed as provided in applicable SEC rules, and
(iv) the report fully complies with the SEC's applicable rules and
form.
The Company has undertaken an evaluation of its
disclosure controls and procedures as of August 31, 2002.
To assist the Company in these matters, I advise the
Company and its Chief Executive Officer and Chief Financial
Officer that:
1. I have reviewed the Report draft dated as of November 7, 2002.
2. Based on my knowledge within the areas of my expertise
and duties at the Company:
(a) the Report does not contain any untrue statement of
material fact or omit to state a material fact necessary to make the
statements made, in the light of the circumstances under which
such statements were made, not misleading with respect to the
period covered by the Report.
(b) the financial statements, and other financial information
included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
Company as of, and for, the period presented in the Report.
(c) the Report fully complies with the requirements of
applicable SEC rules and form.
3. If any of the following have come to my attention in the
course of my review of the Report, I have reported the same to the
Chief Executive Officer and Chief Financial Officer:
(a) any significant deficiencies in the design or operation of
the internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial date, or
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Company's internal controls, or
(c) any significant changes in the Company's internal
controls or in other factors that could affect internal controls
subsequent to the date of the most recent evaluation indicated
above, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: November 27, 2002 /s/ Robert Gordon
---------------------------------------
Print Name: Robert Gordon
Print Title: President of Lifen, Inc.
Until August 15, 2002
29