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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003.
[ ] TRANSITION REPORT PURSUANT TO 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.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 76-0585701
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
455 Market Street, Suite 1220, San Francisco, CA 94105
------------------------------------------------------
(Address of principal executive offices)
(415) 543-1535
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
10,998,166 shares of Common Stock, $.0001 par value, outstanding on
April 30, 2003.
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LIFEN, INC.
Form 10-QSB Quarterly Report
For Quarterly Period Ended March 31, 2003
Table of Contents
Page
PART I -- FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Unaudited Balance Sheet at March 31, 2003 and
Audited Balance Sheet at December 31, 2002 1
Unaudited Statements of Operations
For Three Months Ended March 31, 2003 and March 31, 2002 2
Unaudited Statements of Cash Flows
For Three Months Ended March 31, 2003 and March 31, 2002 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Controls and Procedures 15
PART II -- OTHER INFORMATION 16
SIGNATURE 17
CERTIFICATIONS 18
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
--------------
ASSETS March 31, 2003 December 31, 2002
(Unaudited) (Audited)
---------------- -----------------
Current Assets:
Cash $ 45,120 $ 125,463
Prepaid Expenses 44,627 33,126
---------------- -----------------
Total Current Assets: 89,747 158,589
---------------- -----------------
Long Term Assets:
Fixed assets, net of accumulated
depreciation of $944 and $377 5,851 6,418
Prepaid rent 22,798 36,476
Website development, net of
amortization of $729 and 292 2,771 3,208
Security deposit 9,119 9,119
---------------- -----------------
Total Long Term Assets: 40,538 55,221
---------------- -----------------
TOTAL ASSETS $ 130,285 $ 213,810
---------------- -----------------
---------------- -----------------
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable $ 25,348 $ 49,569
Accrued Liabilities 21,000 4,144
Note Payable 100,000 -
---------------- -----------------
Total Liabilities: 146,348 53,713
---------------- -----------------
Stockholders' (Deficit)/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
10,998,166 shares 1,100 1,100
Additional paid in capital,
net of costs incurred in
obtaining financing 821,344 821,344
Accumulated deficit during
development stage (838,506) (662,347)
Total Stockholders' (Deficit)/Equity: (16,062) 160,097
TOTAL LIABILITIES & STOCKHOLDERS'
(DEFICIT)/EQUITY $ 130,285 $ 213,810
---------------- -----------------
---------------- -----------------
The accompanying Notes are an integral part of these Financial Statements.
1
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31
AND FROM INCEPTION NOVEMBER 10, 1997 TO MARCH 31, 2003
From Inception
Nov. 10, 1997 to
2003 2002 Mar. 31, 2003
------------- ------------- ----------------
(Unaudited) (Unaudited) (Unaudited)
Revenue: $ - $ - $ -
------------- ------------- ----------------
Expenses:
Market Research 19,100 - 61,952
Consulting 96,519 7,500 379,642
Write Off of Offering Costs - - 15,546
Professional Fees 29,286 - 107,056
Rent and Occupancy 14,064 3,000 55,300
Administrative 13,036 6,171 100,739
Cancellation of Management
Service Agreement - - 94,165
Other Operating Expenses 3,174 122 23,126
------------- ------------- ----------------
Total Expenses 175,179 16,793 837,526
------------- ------------- ----------------
Net Operating Loss (175,179) (16,793) (837,526)
Interrest Income 22 - 22
Interest Expense (1,000) - (1,000)
------------- ------------- ----------------
Net Loss before Provision
for Income Taxes (176,157) (16,793) (838,504)
Provision for Income Taxes - - -
------------- ------------- ----------------
Net Loss $ (176,157) $ (16,793) $ (838,504)
------------- ------------- ----------------
------------- ------------- ----------------
Basic Loss per Share $ (0.02) $ (0.00)
------------- -------------
------------- -------------
Weighted Average Number
Shares Outstanding 10,998,166 7,424,000
------------- -------------
------------- -------------
The accompanying Notes are an integral part of these Financial Statements.
2
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
AND FROM INCEPTION NOVEMBER 10, 1997 TO MARCH 31, 2003
From Inception
Nov. 10, 1997 to
2003 2002 Mar. 31, 2003
------------- ------------- ----------------
(Unaudited) (Unaudited) (Unaudited)
Operating Activities:
Net Loss $ (176,157) $ (16,793) $ (838,504)
------------- ------------- ----------------
Adjustments to reconcile net
(loss) to net cash used in
operating activities:
Market Research - - 25,000
Consulting - - 12,449
Depreciation and amortization 1,003 60 2,084
Changes in operating assets &
liabilities:
Accounts payable &
accrued expenses (7,366) 171 46,347
Prepaid expenses &
other current assets (11,501) (16,500) (44,627)
------------- ------------- ----------------
Net Cash Flows from
Operating Activities: (194,021) (62) (797,251)
------------- ------------- ----------------
Investing Activities:
Purchase of fixed assets - - (7,975)
Long term prepaid expenses 13,679 - (31,916)
Acquisition of intangible assets - - (3,500)
Disposal of Equipment - - 767
------------- ------------- ----------------
Net Cash Flows from
Investing Activities: 13,679 - (42,624)
Financing Activities:
Common Stock Issued - - 841,150
Acquisition of short term debt 100,000 - 100,000
Offering Expenses - - (56,155)
------------- ------------- ----------------
Net Cash Flow from
Financing Activities: 100,000 - 884,995
------------- ------------- ----------------
Net cash (decrease)/increase
for period (80,342) (62) 45,120
Cash at beginning of period 125,462 206 -
------------- ------------- ----------------
Cash at end of period $ 45,120 $ 144 $ 45,120
------------- ------------- ----------------
------------- ------------- ----------------
The accompanying notes are an integral part of these financial statements.
3
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
The accompanying financial statements of Lifen, Inc. (the "Company") have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. In the opinion of
management, the financial statements reflect all adjustments considered
necessary for a fair presentation. For further information, refer to the
financial statements and footnotes thereto included in our transitional report
on Form 10-KSB for the four months ended December 31, 2002 as filed with the
Securities and Exchange Commission on March 11, 2003 and annual report for the
former fiscal year ended August 31, 2002 as filed with the Securities and
Exchange Commission on November 27, 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.
On February 21, 2003, the Company received approval from the National
Association of Securities Dealers ("NASD") to permit shares of its common stock
to be traded on the Over The Counter Bulletin Board ("OTCBB"). The first trade
occurred on February 24, 2003.
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
estimate relates to the valuation allowance in connection with deferred tax
assets. Actual results could differ from those estimates.
Fixed Assets
------------
Fixed assets are stated at cost. Depreciation is provided for utilizing the
straight-line method over the estimated useful life of the asset. The cost of
maintenance and repairs is charged to operations as incurred.
4
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
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. Adoption of this
statement will not have an impact on these financial statements.
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.
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.
5
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
Note 3. Income Taxes
---------------------
There is no provision for Federal or State Income Taxes for the four-month
period ended December 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 December 31, 2002 and 2001 consist of the following:
2002 2001
---------- ----------
Net operating loss carryforward $ 249,700 $ 111,000
Valuation allowance (249,700) (111,000)
---------- ----------
-0- -0-
As of March 31, 2003, the Company has net operating loss carryfoward of
approximately $838,000 which expire in various years from 2012 through 2017.
Note 4. Common Stock
---------------------
During January, 1998, the Company issued 2,250,000 shares of its common stock to
two founders of the Company for services valued at $225.
During October, 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.
During November, 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.
During March, 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.
During March, 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.
6
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
During October, 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. Also during October, 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.
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.
In November, 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.
In October, 2002, the Company authorized 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, which were valued at $700 ($0.007 per share) for each of the three
directors.
In November, 2002, the Company authorized issuance of 399,931 restricted shares
of the Company's common stock to the Company's President and 299,949 restricted
shares of the Company's common stock to the Company's Chief Financial Officer
and Secretary. These shares have been issued in exchange for providing services
as officers of the Company, which were valued at $2,667 and 2,000, respectively.
7
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
Note 5. Related Party Transactions
-----------------------------------
The Company's Chief Executive Officer and Chief Financial Officer also hold
similar positions with First Medical Resources Corporation ("FMRC"). When the
Company was relocated to its new office in October, 2002, certain moving and
equipment installation costs were incurred. These costs were advanced by the
Company for the benefit of itself and FMRC. That portion advanced for the
benefit of FMRC was repaid in full to the Company in December 2002. FMRC is
not engaged in any business activity, nor does it anticipate doing so in the
foreseeable future. A former director of FMRC is attempting to secure a
purchaser for it, at which time the CEO and CFO will have no further involvement
with this entity.
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. During the quarter ended March 31, 2003, the Company paid Ameristar
consulting fees totaling $10,000, with an additional $5,000 accrued but unpaid
at quarter end.
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 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 finncial
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 $94,165 was cancelled in
full payment of compensation owed to Ameristar for additional services provided
to the Company.
On January 2, 2003, the Company entered into an Agreement with a consulting
firm to identify and evaluate potential acquisition candidates. Should such
a transaction occur, the fee will be paid with the Company's stock based upon
the average closing price of the stock over the previous 20 days. This
Agreement was terminated on April 29, 2003 with neither party incurring any
liability to the other. The Chief Executive Officer of the consulting firm
is also a Director of the Company and a member of its audit committee.
8
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
On March 5, 2003 the Company executed a Promissory Note in favor of one of its
Shareholders in the principal amount of $100,000 in exchange for cash in the
same amount. This Promissory Note accrues interest at 12% per annum and
matures on June 13, 2003, at which time the principal plus accrued interest are
payable in full. If the Company should default on this Note, interest will
accrue at 18% per annum as of the date of default. The Company paid a different
Shareholder $5,000 as a transaction fee for securing this loan, which has been
capitalized and will be recognized as an expense over its three month life.
On May 1, 2003, the Company executed a Promissory Note in favor of one of its
Shareholders in the principal amount of $25,000 in exchange for cash in the same
amount. This Promissory Note accrues interest at 12% per annum and matures on
July 31, 2003 at which time the principal plus accrued interest are payable in
full. If the Company should default on this Note, interest will accrue at 18%
per annum as of the date of default.
Note 6. Commitments and Contingencies
--------------------------------------
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 until such date as additional funding may be
obtained, the Chairman/CEO will be compensated as an independent consultant at a
rate of $8,333.33, payable semi-monthly.
On September 26, 2002, the Company entered into a sublease as successor in
interest to premises at 455 Market Street, San Francisco, California. The
premise includes 2,487 square feet of office space and furniture. The term of
the lease is through July 31, 2004 with a monthly rental through the term of the
lease of $4,559.50. The first, second, and thirteenth through twentieth months
of the lease were prepaid as an inducement to the lessee to enter into this
sublease.
On October 30, 2002 the Company entered into an agreement with a consulting firm
to generate a list of businesses that met the Company's acquisition criteria.
The Company agreed to pay the consulting firm $14,250 for these services plus an
additional $42,750 for each business identified by the consulting firm that was
acquired by the Company. To date, no businesses identified by the consulting
firm have resulted in a consummated acquisition. The Company paid the remaining
balance of $9,250 to the consulting firm during the current reporting period.
On November 15, 2002, the Company entered into an agreement with a consultant to
identify businesses that met the Company's acquisition criteria. The Company
agreed to pay the consultant five per cent of the first $1,000,000 in the
aggregate purchase price paid by the Company to the seller. This percentage
declines by one per cent for each additional $1,000,000 in aggregate purchase
price paid by the Company to the seller at which time the consultant is paid one
per cent of the excess of $5,000,000 in aggregate purchase price. To date, no
businesses identified by the consultant has resulted in a consummated
acquisition, and this agreement was terminated effective February 25, 2003.
9
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
Should such a transaction occur with a company identified by the consultant
during the period of time that this agreement was in effect, the consultant's
fee will be paid 75% in cash less the $14,250 paid to the consulting firm
previously referenced and 25% in the Company's common stock based upon the
average closing price of the stock over the previous 20 days prior to the date
of consummation.
On January 2, 2003, the Company entered into an Agreement with a consulting firm
to identify and evaluate potential acquisition candidates. Should such a
transaction occur, the fee will be paid with the Company's stock based upon the
average closing price of the stock over the previous 20 days. This Agreement
was terminated on April 29, 2003 With neither party incurring any liability to
the other. The Chief Executive Officer of the consulting firm is also a
Director of the Company and a member of its audit committee.
On January 22, 2003 the Company entered into an Agreement with a consulting firm
to generate a list of businesses headquartered in Florida that met the Company's
acquisition criteria. The Company agreed to pay the consulting firm a fee of
$7,500 plus out-of-pocket expenses for these services plus an additional
$22,500 for each business identified by the consulting firm that was acquired
by the Company. To date, no businesses identified by the consulting firm have
resulted in a consummated acquisition, and the fee has been paid in full.
Note 7. Concentration of Credit Risk
-------------------------------------
None
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, initial website development and seeking financing in order to commence
commercial operations. At March 31, 2003, the Company had incurred losses during
the development stage of $838,504. $37,449 of the cumulative losses have been in
the form of non-cash services in exchange for common stock in the Company. The
balance of the losses, $801,055, was funded by the private placements of common
stock, which totaled $784,995, net of placement costs, as of March 31, 2003, and
a short term shareholder loan of $95,000, net of transaction fees.
10
LIFEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
The audit report accompanying the Company's financial statements for the four
month period ended December 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 contained in "PART F/S" of Form 10-KSB for the four month
period ended December 31, 2002 and Form 10-KSB for former fiscal year ended
August 31, 2002.
Management recognizes the need to raise additional funds to continue its planned
operations. 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.
If additional capital is not readily available, the Company will be forced to
scale back its development activities such that its income, if any, 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. Supplemental Disclosure to Cash Flow Statement
-------------------------------------------------------
For Three For Three From Inception
Months Ended Months Ended Nov. 10, 1997 to
Mar. 31, 2003 Mar. 31, 2003 Mar. 31, 2003
------------- ------------- ----------------
Cash paid during the period for:
Interest - - -
Income Taxes - - -
Non Cash Transactions:
Common stock issued for
consulting services and
market research $ - $ - $ 37,449
11
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations
The following discussion and analysis should be read in conjunction with the
unaudited financial statements and notes thereto included in Part I - Item 1 of
this report, and Management's Discussion and Analysis of Financial Conditions
and Results of Operations and Risk Factors contained in the Company's
transitional report on Form 10-KSB for the four months ended December 31, 2002
as filed with the Securities and Exchange Commission on March 11, 2003 and
annual report for the former fiscal year ended August 31, 2002 as filed with the
Securities and Exchange Commission on November 27, 2002.
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. Any such 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
materially 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. Readers are cautioned not to place undue reliance on any such forward-
looking statements, which speak only as of the date hereof. Careful
consideration should be given to the Risk Factors contained in the Company's
Form 10-KSB for the fiscal year ended August 31, 2002 and transitional report on
Form 10-KSB for the four months ended December 31, 2002. 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.
Overview of Crdentia's Business Strategy
----------------------------------------
The Company is operating its medical staffing acquisition business under the
trade name "Crdentia".
Crdentia'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 existing medical staffing agencies that are addressing the
rapidly expanding needs resulting from the severe shortages of highly skilled,
licensed healthcare staff. 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 large public entity,
Crdentia intends to facilitate access to capital, the acquisition of technology,
and expanded distribution that, in turn, drive internal growth. Crdentia has
selected this focus for several reasons, including the significant industry and
sector growth, the increased need for skilled healthcare workers, and the
potential liquidity inherent in a public company.
12
Crdentia's web site is currently under development, but may be viewed at
www.crdentia.com. The web site contains more information about Crdentia's
consolidation strategy in the medical staffing arena and market segment, as well
as profiles for Crdentia's management and Board of Directors.
Results of Operations
---------------------
The Company did not have any revenue during the three month period ended March
31, 2003, or during the comparable period for the prior year, and has not had
any revenue since its inception in November 1997. The Company has been engaged
in the development of its business plan, initial market research activities,
discussions with acquisition candidates, initial web site development, and
seeking initial funding in order to commence commercial operations.
The audit report accompanying the Company's financial statements for the four
month period ended December 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 contained in "PART F/S" of Form 10-KSB for the four month
period ended December 31, 2002 and Form 10-KSB for former fiscal year ended
August 31, 2002.
The net loss for the three month period ended March 31, 2003 was $176,157
compared to a net loss of $16,793 for the comparable period in the prior year,
an increased loss of $159,364 resulting primarily from the payment of consulting
fees to the Company's executives and administrative personnel as well as legal
fees incurred for both general representation and assistance in various filings
with the Securities and Exchange Commission.
The total cash and cash equivalents at March 31, 2003 were $45,103 compared to
$125,463 at December 31, 2002, a decrease of $80,060, resulting primarily from
the aforementioned payment of consulting and legal fees, business development,
and office occupancy.
During this quarter, the Company continued the implementation of its new
strategic direction by conducting initial discussions with several medical
staffing companies that meet the Company's desired acquisition criteria.
Although there can be no assurances that these discussions will result in the
consummation of one or more acquisitions, the Company remains confident that the
strategic direction chosen remains sound. Toward this end, during the current
fiscal quarter, the Company entered into a binding Letter of Intent for an
acquisition, as described below; and two additional consulting agreements
regarding the identification of potential acquisitions. Refer to Financial
Statements, Note 6, "Commitments and Contingencies."
Letter of Intent with New Age Staffing, Inc.
--------------------------------------------
The Company entered into a binding Letter of Intent (the "Letter") on March 17,
2003 for the acquisition of 100% of the issued and outstanding capital stock of
New Age Staffing, Inc. ("New Age"), a privately held medical staffing company
headquartered in New Orleans, LA. The base purchase price will be an amount
equal to 7.75 times New Age's earnings before taxes, depreciation and
amortization ("EBITDA") for the fiscal year ended December 31, 2002, as reported
13
by a CPA firm acceptable to the Company in such audited financial statements.
The payment terms in accordance with the Letter are to be 35% in cash in
immediately available funds and 65% in the form of shares of Company's Common
Stock ("Shares"), subject to two post-closing adjustments to account for any
incremental cumulative increase in New Age's EBITDA for fiscal years 2003 and
2004. However, in no event shall the total purchase price, including post-
closing adjustments, exceed $15 Million in Shares and cash. A number of
additional terms and conditions are contained in the Letter and are to be
incorporated in the formal agreement currently in the process of being drafted.
Among the conditions for the acquisition to proceed is the requirement that
Registrant raise additional capital of $2,000,000. To date, management has had
discussions with several parties regarding such financing but has not yet
secured a commitment therefore.
Plan of Operation
-----------------
The Company's success in achieving profitability will depend upon its ability
to consummate acquisitions of healthcare companies, and then to operate them
efficiently after consummation. 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. In executing its current plans,
the Company's objectives will include the following:
. Find healthcare companies to acquire and consummate acquisitions
. Raise necessary funding for its business operations
. Develop brand awareness
. 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 December 31, 2003 to establish these
business operations, not including revenues from operations, which are not
expected to materialize in significant amounts until the third calendar quarter
of 2003 at the earliest. Primary to the Company's solvency in the coming year is
raising additional equity.
The Company has received an audit opinion which includes a "going concern" risk.
The Company is aware of this risk and is attempting to raise this 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
14
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'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. The Company intends
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.
Related Party Transactions
--------------------------
The Company's Chief Executive Officer and Chief Financial Officer also hold
similar positions with First Medical Resources Corporation ("FMRC"). The
Company advanced certain moving and equipment installation costs for the benefit
of itself and FMRC. That portion advanced for the benefit of FMRC was repaid in
full to the Company in December, 2002. (See Note 5 to Financial Statements,
Related Party Transactions.) FMRC is not engaged in any business activity, nor
does it anticipate doing so in the foreseeable future. A former director of
FMRC is attempting to secure a purchaser for it, at which time the CEO and CFO
will have no further involvement with this entity.
During the quarter ended March 31, 2003, the Company paid consulting fees
totaling $10,000 to Ameristar Group Incorporated ("Ameristar"), with an
additional $5,000 accrued but unpaid at quarter end. Ameristar is an affiliate
of Remsen Group, Ltd. and Wilmont Holding Corp., two corporate shareholders of
the Company. (See Note 5 to Financial Statements, Related Party Transactions.)
Subsequent to the period covered by this Report, on April 29, 2003, the Company
and Health Care Investment Visions, LLC ("HCIV") executed an Amendment to
Agreement, which terminated the Agreement entered into on January 2, 2003 by the
Company and HCIV. Both parties acknowledged that no consideration is or has
been due to one another, and that there is no further obligation on
the part of HCIV to render services to Lifen, Inc. (Refer to Exhibit 10.12.)
Liquidity and Capital Resources
-------------------------------
On March 5, 2003 the Company executed a Promissory Note in favor of one of its
shareholders, Gable International Holdings, Ltd., in the principal amount of
$100,000 in exchange for cash in the same amount. This Promissory Note accrues
interest at 12% per annum, and matures on June 13, 2003, at which time the
principal plus accrued interest are payable in full. If the Company should
default on this Note, interest will accrue at 18% per annum as of the date of
default. The Company paid another shareholder, Atlantic International Capital
Holdings, $5,000 as a transaction fee for securing this loan.
15
On May 1, 2003 the Company executed a Promissory Note in favor of one of its
shareholders, Gable International Holdings, Ltd., in the principal amount of
$25,000 in exchange for cash in the same amount. This Promissory Note accrues
interest at 12% per annum, and matures on July 31, 2003, at which time the
principal plus accrued interest are payable in full. If the Company should
default on this Note, interest will accrue at 18% per annum as of the date of
default.
At March 31, 2003, the Company had cash totaling $45,103. There is no assurance
that the Company will be able to raise the amount of capital required to meet
its working capital needs.
Item 3. Controls and Procedures
Based on their evaluation, as of a date within 90 days of the filing of this
Form 10-QSB, the Company's Chief Executive Officer and Chief Financial Officer
have concluded the Company's disclosure controls and procedures (as defined in
Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934) are
effective.
There have been no significant changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There is no material litigation currently pending against us.
Item 2. Change in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
There have been no matters submitted to a vote of security holders
during the period from January 1, 2003 to March 31, 2003 through the
solicitation of proxies or otherwise.
Item 5. Other Information
None.
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
Exhibit No. Description
10.12 Amendment to Agreement with Health Care Investment
Visions, LLC dated April 29, 2003, terminating the
original Agreement dated January 2, 2003.
99.1 Certification under Section 906 of the Sarbanes-Oxley Act
of 2002 of Chief Executive Officer
99.2 Certification under Section 906 of the Sarbanes-Oxley Act
of 2002 of Chief Financial Officer
(b) Reports on Form 8-K
Form 8-K was filed on March 19, 2003 to report that the Registrant has
entered into a binding Letter of Intent with New Age Staffing, Inc. for
the acquisition of 100% of the issued and outstanding capital stock of
New Age Staffing, Inc.
17
SIGNATURES
In accordance with the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed in
its behalf by the undersigned, thereunto duly authorized.
Date: May 5, 2003 By: /s/ James D. Durham
---------------------------------
James D. Durham
Chief Executive Officer
Date: May 5, 2003 By: /s/ Lawrence M. Davis
---------------------------------
Lawrence M. Davis
Chief Financial Officer
18
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 the
Registrant, Lifen, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Lifen, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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 quarterly 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.
Date: May 5, 2003 By: /s/ James D. Durham
---------------------------------
James D. Durham
Chief Executive Officer
and Chairman of the Board
19
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 the Registrant,
Lifen, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Lifen, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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
quarterly 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.
Date: May 5, 2003 By: /s/ Lawrence M. Davis
---------------------------------
Lawrence M. Davis
Chief Financial Officer
and Secretary
20