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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, 2005.
|_| 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
CRDENTIA CORP.
(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)
14114 Dallas Parkway, Suite 600, Dallas, Texas 75254
(Address of principal executive offices)
(972) 850-0780
(Issuer's telephone number)
26,537,879 shares of Common Stock, $.0001 par value, outstanding on May 10,
2005.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
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CRDENTIA CORP.
Form 10-QSB Quarterly Report
For Quarterly Period Ended March 31, 2005
Table of Contents
Page
----
PART I -- FINANCIAL INFORMATION 3
Item 1. Condensed Consolidated Financial Statements 3
Condensed Consolidated Balance Sheets at March 31, 2005
(unaudited) and December 31, 2004 3
Condensed Consolidated Statements of Operations (unaudited)
for the Three Months Ended March 31, 2005 and 2004 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ended March 31, 2005 and 2004 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 23
Item 3. Controls and Procedures 37
PART II -- OTHER INFORMATION 38
Item 1. Legal Proceedings 38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 38
Item 3. Defaults Upon Senior Securities 38
Item 4. Submission of Matters to a Vote of Security Holders 38
Item 5. Other Information 38
Item 6. Exhibits 39
SIGNATURES 42
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
CRDENTIA CORP.
Condensed Consolidated Balance Sheets
March 31, 2005 December 31,
(Unaudited) 2004
---------------- ---------------
Current assets:
Cash and cash equivalents $ 208,713 $ 362,472
Accounts receivable, net of allowance for doubtful
accounts of $99,838 in 2005 and $114,957 in 2004 3,943,127 2,908,403
Unbilled receivables 456,558 303,626
Other current assets 322,734 495,579
---------------- ---------------
Total current assets 4,931,132 4,070,080
Property and equipment, net 373,230 293,600
Goodwill 22,569,976 12,974,973
Intangible assets, net 2,369,593 1,660,717
Other assets 809,024 837,061
---------------- ---------------
Total assets $ 31,052,955 $ 19,836,431
================ ===============
Current liabilities:
Accounts payable and accrued expenses $ 2,552,865 $ 2,523,069
Accrued dividends on convertible preferred stock -- 1,027,254
Accrued employee compensation and benefits 636,945 554,945
Revolving lines of credit 2,613,055 2,521,598
Current portion of note payable to lender, net of discount -- 2,049,816
Note payable to stockholder -- 400,000
Current portion of notes payable to sellers 710,899 184,948
Other current liabilities 243,319 100,017
Subordinated convertible note, net of discount 50,000 50,000
---------------- ---------------
Total current liabilities 6,807,083 9,411,647
Note payable to lender, less current portion 2,117,315 --
Long term bonus payable 907,271 884,962
Notes payable to sellers, less current portion 2,620,844 --
Other long-term liabilities 33,045 33,045
---------------- ---------------
Total liabilities 12,485,558 10,329,654
---------------- ---------------
Commitments and contingencies
Convertible preferred stock, 10,000,000 shares authorized:
Series B Convertible Preferred Stock
$0.0001 par value, no shares outstanding at 2005 and
3,750,000 shares outstanding at 2004 (liquidation
preference of $750,000 in 2004) -- 750,000
Series B-1 Convertible Preferred Stock
$0.0001 par value, no shares outstanding at
2005 and 93,043 shares outstanding at 2004
(liquidation preference of $5,582,580 in 2004) -- 30,123,400
Series C Convertible Preferred Stock
$0.0001 par value, 160,840 shares outstanding at 2005 and
52,501 shares outstanding at 2004 (liquidation preference
of $48,252,000 in 2005 and $15,750,300 in 2004) 8,611,963 1,070,510
Series C preferred stock warrants 974,144 2,079,910
Stockholders' equity (deficit):
Common stock, par value $0.0001, 150,000,000 shares
authorized in 2005 and 50,000,000 shares authorized
in 2004, 27,614,285 shares issued and
26,537,879 shares outstanding in 2005 and 14,202,883
shares issued and 13,126,477 shares outstanding in 2004 2,761 1,420
Additional paid in capital 105,272,888 68,447,288
Treasury stock, 1,076,406 shares at cost -- --
Deferred non-cash stock compensation (569,900) (648,746)
Accumulated deficit (95,724,459) (92,317,005)
---------------- ---------------
Total stockholders' equity (deficit) 8,981,290 (24,517,043)
---------------- ---------------
Total liabilities and stockholders' equity (deficit) $ 31,052,955 $ 19,836,431
================ ===============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
CRDENTIA CORP.
Condensed Consolidated Statements of Operations
Three Months Ended March 31,
------------------------------
2005 2004
(Unaudited) (Unaudited)
------------ ------------
Revenue from services $ 5,122,313 $ 6,217,554
Direct operating expenses 4,048,820 4,947,715
------------ ------------
Gross profit 1,073,493 1,269,839
------------ ------------
Operating expenses:
Selling, general, and administrative expenses 1,715,880 2,113,151
Non-cash stock based compensation 78,846 17,246
------------ ------------
Total operating expenses 1,794,726 2,130,397
------------ ------------
Loss from operations (721,233) (860,558)
Interest expense, net (524,034) (402,241)
------------ ------------
Loss before income taxes (1,245,267) (1,262,799)
Income tax expense -- --
------------ ------------
Net loss $ (1,245,267) $ (1,262,799)
============ ============
Deemed dividend related to beneficial
conversion feature on Series A
convertible preferred stock -- (1,000,000)
Non-cash preferred stock dividends (2,162,187) --
------------ ------------
Net loss attributable to common stockholders $ (3,407,454) $ (2,262,799)
============ ============
Basic and diluted loss per common share
attributable to common stockholders $ (0.25) $ (0.36)
============ ============
Weighted average number of common
shares outstanding 13,634,963 6,279,352
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
CRDENTIA CORP.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31,
-----------------------------
2005 2004
(Unaudited) (Unaudited)
----------- -----------
Operating activities
Net loss $(1,245,267) $(1,262,799)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization of subordinated convertible
note discounts -- 242,411
Amortization of lender note discounts 67,500 --
Amortization of debt issue costs 56,510 --
Amortization of long-term bonus payable 22,309 --
Non-cash stock based expense related to
short-term borrowings 162,500 --
Depreciation and amortization 173,218 245,348
Bad debt expense -- (120,085)
Non-cash stock based compensation 78,846 17,246
Changes in operating assets and liabilities, net
of effects of
purchases of subsidiaries:
Accounts receivable 10,123 (208,943)
Unbilled receivables (152,932) 23,604
Other current assets and liabilities 380,771 (327,665)
Accounts payable and accrued expenses (120,204) 73,216
Accrued employee compensation and benefits 82,000 179,919
Long term bonus payable -- 20,194
----------- -----------
Net cash used in operating activities (484,626) (1,117,554)
----------- -----------
Investing activities
Purchases of property and equipment (3,724) (49,583)
Cash paid for acquisition of subsidiaries, net of
cash received (4,753,994) (36,407)
Other (28,473) (18,983)
----------- -----------
Net cash used in investing activities (4,786,191) (104,973)
----------- -----------
Financing activities
Issuance of preferred stock -- 1,000,000
Exercise of warrants for Series C preferred stock,
net of expenses 6,435,687 --
Net decrease in revolving lines of credit (849,934) (192,836)
Proceeds from notes payable to majority stockholder 1,050,000 --
Repayment of notes payable to majority stockholder (1,450,000) --
Repayment of note payable to lender -- (66,667)
Repayment of notes payable to sellers (68,695) (287,712)
Debt issuance costs -- (31,411)
----------- -----------
Net cash provided by financing activities 5,117,058 421,374
----------- -----------
Net decrease in cash and cash equivalents (153,759) (801,153)
Cash and cash equivalents at beginning of year 362,472 1,469,076
----------- -----------
Cash and cash equivalents at end of year $ 208,713 $ 667,923
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
Note 1. Organization and Summary of Significant Accounting Policies
Organization
Crdentia Corp (the "Company"), a Delaware corporation, is a provider of
healthcare staffing services in the United States. Such services include travel
nursing, per diem staffing, contractual clinical services and private duty home
health care. The Company considers these services to be one segment. Each of
these services relate solely to providing healthcare staffing to customers and
the Company utilizes common procedures, processes and similar methods of
identifying and serving these customers.
At the beginning of 2003, the Company was a development stage company with no
commercial operations. During that year, the Company pursued its operational
plan of acquiring companies in the healthcare staffing field and completed the
acquisition of four operating companies. The companies acquired in 2003 -- Baker
Anderson Christie, Inc., New Age Nurses, Inc., Nurses Network, Inc., and PSR
Nurses, Ltd. (through the acquisition of PSR Nurses Holdings Corp. and PSR Nurse
Recruiting, Inc., which hold the limited partner and general partner interests
in PSR Nurses, Ltd.) -- provide the foundation for future growth. During 2004,
the Company completed the acquisitions of Arizona Home Health Care/Private Duty,
Inc. and Care Pros Staffing, Inc. On March 29, 2005, the Company acquired
TravMed USA, Inc. and Health Industry Professionals, LLC.
Organization
The accompanying financial statements include the results of the wholly-owned
subsidiaries discussed above from their respective dates of acquisition. All
intercompany transactions have been eliminated in consolidation.
On June 28, 2004, the Company executed a one-for-three reverse stock split of
the outstanding shares of Common Stock. All common share and per share
information included in these financial statements have been retroactively
adjusted to reflect the reverse stock split.
Basis of Presentation
The accompanying unaudited financial data as of and for the three months ended
March 31, 2005 and 2004 have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited financial statements and the notes thereto included
in the Company's annual Report on Form 10-KSB for the year ended December 31,
2004.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations, and cash flows as of and for the three months ended March
31, 2005 have been made. The results of operations for the three months ended
March 31, 2005 are not necessarily indicative of the operating results for the
full year.
6
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
Liquidity
The Company generated a loss of $1,245,267 for the quarter ended March 31, 2005
and used cash in operations of $484,626 during the first quarter of 2005.
Additionally, although the Company ended the first quarter of 2005 with a
working capital deficit of $1.9 million, the Company was able to secure
additional funding during 2004 and the first quarter of 2005 to finance its
operations as it continues to execute its business plan to acquire and grow
companies involved in healthcare staffing. As discussed in Note 9, in March 2005
the Company's majority stockholder exercised warrants to purchase 108,333 shares
of Series C Convertible Preferred Stock providing $6.5 million to the Company.
Also, as discussed in Note 13, in May 2005 the Company's majority stockholder
exercised warrants to purchase 22,187 shares of Series C Convertible Preferred
Stock providing $1.3 million to the Company. The infusion of $7.8 million into
the Company enabled it to acquire additional companies and to retire certain
liabilities and to fund operations for the next twelve months. The Company will
also be able to borrow on its existing line of credit to the extent it has
availability under the line.
Trade Receivables
Accounts receivable are uncollateralized customer obligations due under normal
trade terms. The Company provides services to various public and private medical
facilities such as hospitals, prisons, and nursing care facilities. Management
performs continuing credit evaluations of the customers' financial condition. In
addition, the Company provides home healthcare to individuals on a private pay
arrangement or state funded insurance reimbursement.
Senior management reviews accounts receivable on a regular basis to determine if
any receivables will potentially be uncollectible. An allowance for doubtful
accounts is recorded based upon management's evaluation of current industry
conditions, historical collection experience and other relevant factors which,
in the opinion of management, require recognition in estimating the allowance.
After all attempts to collect a receivable have failed, the receivable is
written off against the allowance.
Long-Lived Assets
Long-lived assets are assessed for possible impairment whenever events or
changes in circumstances indicate that the carrying amounts may not be
recoverable or whenever management has committed to a plan to dispose of the
assets. Such assets are carried at the lower of book value or fair value as
estimated by management based on appraisals, current market value, and
comparable sales value, as appropriate. Long-lived assets affected by such
impairment loss are depreciated or amortized at their new carrying amount over
the remaining estimated life. Assets to be sold or otherwise disposed are not
subject to further deprecation or amortization.
7
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
Goodwill and Intangible Assets
Intangible assets other than goodwill consist of customer relationships and
international nurse contracts, are presented net of accumulated amortization and
are amortized over their respective useful lives estimated to be five years.
Goodwill is assessed for impairment at least annually. The valuation of these
intangibles is determined based upon valuations performed by third-party
specialists and management's best estimates of fair value. As a result, the
ultimate value and recoverability of these assets is subject to the validity of
the assumptions used.
Revenue Recognition
The Company recognizes revenue generally on the date the Company's healthcare
staff provides services to healthcare facilities or individuals in their home.
For certain permanent placement contracts, revenue is recognized over the life
of the guarantee period provided in the contract.
Unbilled receivables represent an estimate of revenue earned during the period
in excess of amounts billed.
Stock-Based Compensation
As permitted under the provisions of Statement of Financial Accounting Standard
(SFAS) No. 123, Accounting for Stock-Based Compensation, the Company continues
to account for employee stock-based transactions under Accounting Principles
Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees. However,
SFAS 123 requires the Company to disclose pro forma net loss and loss per share
as if the fair value method had been adopted. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period, which is usually the vesting
period. For non-employees, cost is also measured at the grant date, using the
fair value method, but is actually recognized in the financial statements over
the vesting period or immediately if no further services are required.
If the Company had elected the fair value method of accounting for employee
stock-based compensation, compensation cost would be accrued at the estimated
fair value of the stock award grants over the service period, regardless of
later changes in stock prices and price volatility. The date of grant fair
values for options granted have been estimated based on the Black-Scholes
pricing model.
The table below shows net loss per share attributable to common stockholders for
March 31, 2005 and 2004 as if the Company had elected the fair value method of
accounting for stock options.
8
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
----------- -----------
Net loss attributable to common
stockholders as reported $(3,407,454) $(2,262,799)
Add: stock-based employee compensation
in reported net income, net of related tax effects 78,846 17,246
Deduct: stock-based employee
compensation determined under fair value
method for all awards, net of related tax effects
(92,234) (17,358)
----------- -----------
Proforma net loss attributable to common
stockholders, as adjusted $(3,420,842) $(2,262,911)
=========== ===========
Loss per share attributable to common stockholders:
Basic and diluted, as reported $ (.25) $ (0.36)
Basic and diluted, as adjusted $ (.25) $ (0.36)
Earnings Per Share
The Company adopted the standards set by the Financial Accounting Standards
Board and computes earnings per share in accordance with SFAS No. 128 "Earnings
per Share." The basic per share data has been computed on the loss attributable
to common stockholders for the period divided by the weighted average number of
shares of common stock outstanding for the period. Diluted earnings per common
share include both the weighted average number of common shares and any common
share equivalents such as convertible securities, options or warrants in the
calculation. As the Company recorded losses for the three months ended March 31,
2005 and 2004, common share equivalents outstanding would be anti-dilutive, and
as such, have not been included in weighted average shares outstanding. Common
share equivalents that were excluded in the March 31, 2005 calculation amounted
to 36,522,301 shares.
New Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (revised 2004), Share-Based Payment, which is a revision of SFAS
No. 123, Accounting for Stock-Based Compensation. Statement 123R supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No.
95, Statement of Cash Flows. Generally, the approach in Statement 123R is
similar to the approach described in Statement 123. However, Statement 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative. The Company expects to
adopt Statement 123R on January 1, 2006.
9
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
The Company is evaluating the impact of adopting SFAS 123R and expects that it
will record non-cash stock compensation expense. The adoption of SFAS 123R is
not expected to have a significant effect on the Company's financial condition
or cash flows but is expected to have a significant effect on the company's
results of operations. The future impact of the adoption of SFAS 123R cannot be
predicted at this time because it will depend on the levels of share-based
payments granted by the Company in the future. However, had the Company adopted
SFAS 123R in prior periods, the impact of the standard would have approximated
the impact of SFAS 123 as described in the pro forma net loss attributable to
common stockholders included in the Stock-Based Compensation policy footnote.
Note 2. Acquisitions
TravMed USA, Inc.
On March 29, 2005, the Company acquired TravMed USA, Inc. ("TravMed") in
exchange for $3,215,490 in cash, $3,215,490 in notes payable, and $103,261 of
net acquisition costs. The primary purpose of the acquisition was to enable the
Company to expand its market share in the nurse staffing industry. The following
table summarizes the assets acquired and liabilities assumed as of the closing
date:
Tangible assets acquired $1,189,471
Customer related intangible assets
492,000
Goodwill 5,894,160
----------
Total assets acquired 7,575,631
Liabilities assumed 1,041,390
----------
Net assets acquired $6,534,241
==========
The acquisition was accounted for using the purchase method of accounting.
Customer related intangible assets will be amortized over their estimated useful
life of five years. The purchase price allocated to customer relationships was
determined by management's estimate based on a consistent model for all
acquisitions and has been developed by a professional valutaion group. Goodwill
represents the excess of merger consideration over the fair value of assets
acquired. The Company will be required to issue shares of its Common Stock to
the former stockholders of TravMed should its results of operations exceed
performance standards established in the merger agreement. The goodwill acquired
may not be amortized for federal income tax purposes.
Health Industry Professionals, LLC
On March 29, 2005, the Company acquired Health Industry Professionals, LLC (HIP)
in exchange for $1,350,900 in cash, 1,283,684 shares of the Company's Common
Stock valued at $2,601,600, (determined by the average of $2.03 per share which
approximates the trading value as quoted on the OTC Bulletin Board 3 days before
and 3 days after the acquisition date), and $78,695 of net acquisition costs.
The primary purpose of the acquisition was to enable the Company to expand its
market share in the nurse staffing market. The following table summarizes the
assets acquired and liabilities assumed as of the closing date:
10
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
Tangible assets acquired $ 44,000
Customer related intangible assets 342,000
Goodwill 3,695,195
----------
Total assets acquired 4,081,195
Liabilities assumed 50,000
----------
Net assets acquired $4,031,195
==========
The acquisition was accounted for using the purchase method of accounting.
Customer related intangible assets will be amortized over their estimated useful
life of five years. The purchase price allocated to customer relationships was
determined by management's estimate based on a consistent model for all
acquisitions and has been developed by a professional valutaion group. Goodwill
represents the excess of merger consideration over the fair value of assets
acquired. The Company will be required to issue shares of its Common Stock to
the former stockholders of HIP should its results of operations exceed
performance standards established in the merger agreement. The goodwill acquired
may not be amortized for federal income tax purposes.
Unaudited Pro Forma Summary Information
The following unaudited pro forma summary approximates the consolidated results
of operations as if all acquisitions (including 2004 acquisitions) had occurred
as of the beginning of each period presented, after giving effect to certain
adjustments, including amortization of specifically identifiable intangibles and
interest expense. The pro forma financial information does not purport to be
indicative of the results of operations that would have occurred had the
transactions taken place at the beginning of the periods presented or of future
results of operations.
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------ ------------
Revenue from services $ 8,992,940 $ 12,883,508
Net loss (1,000,406) (948,864)
Net loss attributable to common stockholders (3,162,593) (1,948,864)
Basic and diluted net loss per common share
attributable to common stockholders (.21) (.25)
Weighted-average shares of common stock
outstanding 14,875,858 7,763,036
11
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
Note 3. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
March 31, December 31,
2005 2004
---------- ----------
Accounts payable $1,835,677 $1,815,778
Accrued expenses 717,188 707,291
---------- ----------
$2,552,865 $2,523,069
========== ==========
Note 4. Revolving Lines of Credit
On June 16, 2004, the Company entered into a Loan and Security Agreement with a
company specializing in healthcare finance, pursuant to which the Company
obtained a revolving credit facility up to $15,000,000 (the "Loan"). During the
first quarter of 2005, the revolving line of credit facility was reduced to
$10,000,000 permitting the Company to lower its effective interest rate through
lower unused line fees. The Loan has a term of three years and bears interest at
a rate equal to the greater of three percent (3.0%) per annum over the prime
rate or nine and one-half percent (9.5%) per annum (9.5% at March 31, 2005).
Interest is payable monthly. Accounts receivable serves as security for the Loan
and the Loan is subject to certain financial and reporting covenants. Customer
payments are used to repay the advances on the credit facility after deducting
charges for interest expense, unused line and account management fees. The
financial covenants are for the maintenance of minimum net worth, minimum debt
service coverage ratios, minimum EBITDA, maximum capital expenditure limits and
maximum operating lease obligations. At March 31, 2005, the Company was out of
compliance with certain financial covenants of the Loan, for which a waiver was
received from the lender. In May 2005, the covenants were restructured and,
based on the Company's projections, management believes that the Company can
comply with covenants in future periods. The outstanding balance on the Loan is
$2,613,055 at March 31, 2005.
Note 5. Notes Payable to Lender
Pursuant to a loan agreement dated August 31, 2004, the Company obtained a term
loan credit facility ("Term Loan") in the amount up to $10.0 million from a
company specializing in healthcare finance. The Company may obtain loans under
the agreement to fund permitted acquisitions. Any loans obtained under the Term
Loan agreement are due and payable in full on August 31, 2007 and bear interest
at the rate of fifteen and one-quarter percent (15.25%) per annum. Interest is
payable monthly. The Term Loan is secured by all assets of the Company. On
August 31, 2004, the Company received proceeds from the Term Loan of $2,697,802
for the acquisitions of Arizona Home Health Care/Private Duty, Inc. and Care
Pros Staffing, Inc. To date, this is the only advance received under the Term
Loan.
12
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
The Term Loan provides that the Company shall issue warrants to purchase shares
of Common Stock to the lender up to 12% of the Company's overall capitalization
on the date of borrowing. On August 31, 2004, the Company issued warrants to
purchase 905,758 shares of Common Stock at a price of $3.15 per share in
connection with the first borrowing under the credit facility. As a result, the
Term Loan has been recorded net of a discount of $810,000 which represents the
estimated fair market value related to the warrants at the date of issuance. The
discount will be amortized to interest expense over the life of the Term Loan.
The Term Loan financial covenants are for the maintenance of minimum net worth,
minimum debt service coverage ratios, minimum EBITDA, maximum capital
expenditure limits and maximum operating lease obligations. At March 31, 2005,
the Company was out of compliance with certain financial covenants of the Term
Loan, for which a waiver was received from the lender. In May 2005, the
covenants were restructured and, based on the Company's projections, management
believes that the Company can comply with covenants in future periods.
Accordingly, the outstanding balance of the Term Loan as of March 31, 2005 has
been classified as a long-term liability on the accompanying Balance Sheet.
Note 6. Notes Payable to Stockholders
On November 29, 2004, MedCap Partners L.P., the Company's majority stockholder,
loaned the Company $400,000 for working capital purposes. During the first
quarter of 2005, the Company borrowed an additional $1,050,000 from the majority
stockholder for working capital purposes. The notes required interest at 5% and
were payable on demand. These notes plus accrued interest were repaid on March
29, 2005. As an incentive to the majority stockholder to provide the working
capital until acquisitions were consummated in the first quarter of 2005, the
Company issued 77,751 shares of common stock to the majority stockholder at an
average market value of $2.09 per share. The related expense of $162,500 has
been recorded as interest expense in the accompanying statement of operations
for the three months ended March 31, 2005.
Note 7. Notes Payable to Sellers
As partial consideration for the acquisition of TravMed USA, Inc. on March 29,
2005, the Company issued unsecured subordinated notes to the former TravMed
stockholders in the total amount of $3,215,490. The notes are three-year
convertible notes bearing interest at Prime plus 2%. Monthly interest payments
are required for the first six months followed by principal and interest
payments the next thirty months to fully repay the debt.
The Company also has notes payable to the former stockholders of Care Pros
Staffing, Inc. of $116,253 at March 31, 2005.
13
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
At March 31, 2005 and December 31, 2004, the long-term debt discussed in Notes
5, 6, and 7 plus the subordinated convertible note consists of the following:
March 31, December 31,
2005 2004
----------- -----------
Term Loan, 15.25% interest, maturity date
August 31, 2007 $ 2,697,802 $ 2,697,802
Stockholder Note - Promissory Note,
5% interest, due on demand -- 400,000
Subordinated Convertible Note 50,000 50,000
Seller Notes-TravMed USA, Inc. 3,215,490 --
Seller Notes - Care Pros Staffing, Inc. 116,253 184,948
----------- -----------
Total long-term debt 6,079,545 3,332,750
Less debt discount (580,487) (647,986)
Less current portion (760,899) (2,684,764)
----------- -----------
Long-term debt $ 4,738,159 $ --
=========== ===========
Amounts reconcile to the financial statements as follows:
March 31, December 31,
2005 2004
---------- ----------
Note payable to lender $2,117,315 $2,049,816
Note payable to stockholder -- 400,000
Subordinated convertible notes,
net of discount 50,000 50,000
Current portion of notes payable
to sellers 710,899 184,948
Noncurrent portion of notes
payable to sellers 2,620,844
Discount on term loan 580,487 647,986
---------- ----------
$6,079,545 $3,332,750
========== ==========
Note 8. Long Term Bonus Payable
On December 16, 2003, the Board of Directors granted the Chief Executive Officer
two cash bonuses in the amount of $540,000 each. The bonuses are to be paid on
December 31, 2006 and January 4, 2007. The present value of bonuses has been
recorded at the Company's estimated incremental cost of borrowing of 10%.
14
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
Note 9. Convertible Preferred Stock
Convertible Preferred Stock Issued and Outstanding
The Company is authorized to issue 10,000,000 shares of preferred stock at a par
value of $0.0001. At March 31, 2005 and December 31, 2004 there are shares
issued and outstanding consisting of the following:
March 31, 2005 December 31, 2004
-------------- -----------------
Shares Shares Shares Shares
Issued Outstanding Issued Outstanding
------ ----------- ------ -----------
Series A Convertible Preferred Stock -- -- -- --
Series B Convertible Preferred Stock -- -- 6,250,000 3,750,000
Series B-1 Convertible Preferred Stock -- -- 97,582 93,043
Series C Convertible Preferred Stock 160,840 160,840 52,501 52,501
The conversion price of all Convertible Preferred Stock is subject to
appropriate adjustment in the event of stock splits, stock dividends, reverse
stock splits, capital reorganizations, recapitalizations, reclassifications, and
similar occurrences as well as the issuance of Common Stock in consideration of
an amount less than the then effective conversion price.
All Convertible Preferred Shares issued and outstanding are convertible
currently at the option of the holder. The Company has evaluated the potential
effect of any beneficial conversion terms related to convertible instruments. As
a result, the convertible instruments may have a carrying amount that differs
significantly from its redemption amount. In such cases, the difference between
the carrying amount and the redemption amount (limited to the actual proceeds
received) is recorded as a beneficial conversion feature and deducted as a
deemed dividend in determining net loss attributable to common stockholders. The
table below summarizes the redemption requirements and beneficial conversion of
the Convertible Preferred Shares outstanding as of March 31, 2005:
Common Shares Beneficial
Series of Issuable Conversion
Convertible Shares Carrying Upon Recorded at
Preferred Stock Outstanding Amount Conversion Issuance
C 160,840 $ 8,511,574 16,084,000 $ 1,070,510
15
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
Series B Convertible Preferred Stock (Series B)
The holder of the Series B is entitled to receive a quarterly dividend in an
amount equal to .00833 shares of Common Stock for each share of outstanding
Series B held by them. In the event of any liquidation or winding up of the
Company, the holder of the Series B shares will be entitled to receive in
preference to the holders of Common Stock, and any other series of Preferred
Stock, an amount equal to the amount of their purchase price. The Series B is
convertible at the option of the holder into common shares at an initial
conversion ratio of one share of Common Stock for three shares of Series B. The
conversion ratio upon voluntary conversion is subject to adjustment under
certain circumstances. Unless previously voluntarily converted prior to such
time the Series B shares will be automatically converted into Common Stock at a
conversion ratio of one share of Common Stock for three shares of Series B upon
the earlier of the closing of an underwritten public offering of Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended, with aggregate net proceeds of at least $25 million, or the date
specified by written consent or agreement of the holders of a majority of the
then outstanding shares of Series B.
On June 16, 2004, the Company issued 6,250,000 shares of Series B at a per share
price of $0.20 to MedCap Partners L.P. The Company recorded a deemed dividend
due to the beneficial conversion price of $1,250,000 which represents the lesser
of the proceeds or the beneficial conversion feature of $3.2 million.
On September 30, 2004 the Board of Directors declared a dividend and
distribution to the Series B holder. The dividend and distribution consisted of
quarterly dividends that were payable on September 30, 2004 for shares not
converted and quarterly dividends that were payable on September 30, 2004,
December 31, 2004, March 31, 2005 and June 30, 2005 for 2,500,000 Series B
shares converted into Common Stock. As a result, 114,583 shares of Common Stock
were issued on September 30, 2004 related to the dividend and distribution. On
March 22, 2005, the Board of Directors declared a dividend to the Series B
holder. The dividend consisted of quarterly dividends that were payable on
December 31, 2004 which had an estimated fair value of $81,218 and quarterly
dividends that were payable on March 31, 2005 which had an estimated fair value
of $59,375. The dividends were paid through the issuance of 62,488 shares of
common stock during March 2005.
On September 30, 2004, the holder voluntarily converted 2,500,000 shares of
Series B into 833,333 shares of Common Stock. On March 29, 2005, the holder
voluntarily converted 3,750,000 shares of Series B into 1,250,000 shares of
Common Stock.
Series B-1 Convertible Preferred Stock (Series B-1)
The holders of the Series B-1 are entitled to receive a quarterly dividend in an
amount equal to 2.5 shares of Common Stock for each share of outstanding Series
B-1 held by them. If any dividend is declared on the Common Stock, the holders
of the Series B-1 will be entitled to receive dividends out of the legally
available funds as if each share of Series B-1 had been converted to Common
Stock. The holders of the Series B-1 have the right, at the option of the holder
at any time, to convert shares of the Series B-1 into shares of the Company's
Common Stock at an initial conversion ratio of one hundred shares of Common
Stock for each one share of Series B-1. The Series B-1 is convertible at the
option of the holder into common shares at an initial conversion ratio of one
hundred shares of Common Stock for each share of Series B-1. The conversion
ratio upon voluntary conversion is subject to adjustment under certain
circumstances. Unless previously voluntarily converted prior to such time the
Series B-1 shares will be automatically converted into Common Stock at an
initial conversion ratio of one hundred shares of Common Stock for each share of
Series B-1 upon the earlier of the closing of an underwritten public offering of
Common Stock pursuant to a registration statement under the Securities Act of
1933, as amended, with aggregate net proceeds of at least $25 million, or the
date specified by written consent or agreement of the holders of a majority of
the then outstanding shares of Series B-1.
16
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
On August 9, 2004, the Company issued 3,750 shares of Series B-1 Convertible
Preferred Stock at a per share price of $60 to an investor for cash proceeds of
$225,000. The Company recorded a deemed dividend due to the beneficial
conversion price of $225,000 which represents the lesser of the proceeds or the
beneficial conversion feature of $937,500.
Also on August 9, 2004, the Company issued 4,166 shares of Series B-1
Convertible Preferred Stock at a per share price of $60 to the Company's
Chairman and Chief Executive Officer for cash proceeds of $249,960. The Company
recorded a deemed dividend due to the beneficial conversion price of $249,960
which represents the lesser of the proceeds or the beneficial conversion feature
of $1.0 million.
On August 9, 2004, the Company issued 29,990 shares of Series B-1 Convertible
Preferred Stock, issued 40,822 shares of Common Stock and paid approximately
$225,000 in cash in exchange for the cancellation of all the outstanding
principal and accrued and unpaid interest under certain promissory notes (Seller
Notes) that were issued in 2003 in connection with the purchase of certain
subsidiaries.
On September 30, 2004, the Company issued 12,642 shares of Series B-1
Convertible Preferred Stock in exchange for the conversion of $758,640 in
outstanding principal plus accrued and unpaid interest under certain Convertible
Subordinated Promissory Notes (Notes) issued in 2003. The holders of such Notes
included the Company's Chairman and Chief Executive Officer, a member of the
Company's Board of Directors and an entity whose managing member is also on the
Company's Board of Directors. The Company recorded a deemed dividend due to the
beneficial conversion price of $758,640 which represents the lesser of the
cancelled principal and accrued interest or the beneficial conversion feature of
$3.7 million.
On August 31, 2004, the Company issued MedCap Partners L.P. a warrant to
purchase 6,000 shares of Series B-1 Convertible Preferred Stock for $60 per
share for five years. These warrants have not been exercised at March 31, 2005.
17
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
On September 30, 2004, the Board of Directors declared a dividend and
distribution to the Series B-1 holders. The dividend and distribution consisted
of quarterly dividends that were payable on September 30, 2004 for shares not
converted and a distribution equal to the dividends that would have been payable
on September 30, 2004, December 31, 2004, March 31, 2005 and June 30, 2005 to
those shareholders electing early conversion of their 4,112 shares of Series B-1
into Common Stock. As a result, 157,203 shares of Common Stock were issued on
September 30, 2004 related to the dividend and distribution. On March 22, 2005,
the Board of Directors declared a dividend to the Series B-1 holders. The
dividend consisted of quarterly dividends that were payable on December 31, 2004
which had an estimated fair value of $604,780, and quarterly dividends that were
payable on March 31, 2005 which had an estimated fair value of $441,940. The
dividends were paid through the issuance of 465,208 shares of common stock
during March 2005.
On September 30, 2004, certain holders of 4,112 shares of Series B-1 converted
their shares into 411,200 shares of Common Stock. On October 19, 2004, a holder
of 427 shares of Series B-1 converted his shares into 42,700 shares of common
stock.
On November 10, 2004, the Company entered into an agreement to convert
approximately $2.7 million of Seller Notes and accrued interest to Series B-1
Convertible Preferred Stock.
On December 16, 2004, the Company issued 1,582 shares of Series B-1 Convertible
Preferred Stock at a per share price of $60 to investors for cash proceeds of
$94,920. The Company recorded a deemed dividend due to the beneficial conversion
price of $94,920 which represents the lesser of the proceeds or the beneficial
conversion feature of $447,962.
On March 29, 2005, holders of all of the Convertible Preferred Series B-1
voluntarily converted their 93,043 shares of preferred Series B-1 into 9,304,300
shares of Common Stock.
Series C Convertible Preferred Stock (Series C)
The holders of Series C are entitled to receive, when declared by the Board of
Directors, a dividend on each quarter end beginning September 30, 2004 and
ending December 31, 2005 in an amount equal to 2.5 shares of Common Stock for
each share of outstanding Series C held by them. In the event of any liquidation
or winding up of the Company, the holders of the Series C will be entitled to
receive in preference to the holders of Common Stock an amount equal to five
times their initial purchase price plus any declared but unpaid dividends and
any remaining liquidation proceeds will thereafter be distributed on a pro rata
basis to the holders of the Company's Common Stock and any other series of
Preferred Stock expressly entitled to participate in such distribution. Assuming
exercise of all of the warrants to purchase shares of Series C Preferred Stock,
upon a liquidation or winding up of the Company, the holders of Series C
Preferred Stock would be entitled to receive approximately $92,000,000 prior to
the payment of any amounts to the holders of other equity securities. The Series
C is convertible at the option of the holder into common shares at an initial
conversion ratio of one hundred shares of Common Stock for each share of Series
C. The conversion ratio upon voluntary conversion is subject to adjustment under
certain circumstances. Unless previously voluntarily converted prior to such
time, the Series C will be automatically converted into Common Stock at an
initial conversion ratio of one hundred shares of Common Stock for each share of
Series C upon the earlier of (i) the closing of an underwritten public offering
of our Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended, with aggregate net proceeds of at least $25 million, or
(ii) the date specified by written consent or agreement of the holders of a
majority of the then outstanding shares of Series C. The description of the
foregoing rights, preferences and privileges of the Series C is qualified in its
entirety by the Certificate of Designations, Preferences and Rights of Series C
filed with the Secretary of State of the State of Delaware on August 31, 2004.
18
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
On August 31, 2004, the Company issued 35,840 shares of Series C Convertible
Preferred Stock (Series C) in exchange for cash proceeds of $2,150,400. The
shares were issued to certain accredited investors as well as MedCap Partners
L.P. and the Company's Chairman and Chief Executive Officer. The purchasers were
granted Series C Warrants to purchase an aggregate of 89,600 Series C
Convertible Preferred Shares. The Series C Warrants are exercisable for a period
of five years at a price per Series C share of $60. The Company valued the
warrants at $1.3 million and has accordingly reduced the face value of the
Series C by this amount. The Company recorded a deemed dividend due to the
beneficial conversion price of $876,000 which represents the lesser of the value
assigned to the Series C and the beneficial conversion feature of $11.7 million.
On September 30, 2004, the Board of Directors declared a dividend to the Series
C holders. The dividend consisted of quarterly dividends that were payable on
September 30, 2004. As a result, 97,325 shares of Common Stock were issued on
September 30, 2004 related to the dividend and distribution. On March 22, 2005,
the Board of Directors declared a dividend to the Series C holders. The dividend
consisted of quarterly dividends that were payable on December 31, 2004 which
had an estimated fair value of $341,257, and quarterly dividends that were
payable on March 31, 2005 which had an estimated fair value of $249,408. The
dividends were paid through the issuance of 262,521 shares of common stock
during March 2005.
Makewell Agreement
Pursuant with the Term Loan, in August 2004, MedCap Partners L.P. (a member of
the Company's Board of Directors is the managing member of MedCap Management &
Research LLC, the general partner of MedCap Partners L.P.) entered into a
Makewell Agreement with the lender to provide equity to the Company (in the form
of purchases of additional shares of Series C Convertible Preferred Stock and
warrants) up to $1.0 million to be issued if the Company failed to meet certain
monthly financial targets which did occur and resulted in the purchase of shares
and issuance of warrants. The proceeds from the shares issued under the Makewell
Agreement were to be used to pay down the balance of the revolving line of
credit Loan, which allowed the Company additional availability to draw on the
Loan.
In connection with the Makewell Agreement, the Company agreed that for every
share of Series C Convertible Preferred Stock purchased by MedCap Partners L.P.
under the Makewell Agreement, the Company would grant MedCap Partners L.P. a
warrant to purchase 2.5 shares of Series C Convertible Preferred Stock. For
every share over 4,333 shares purchased by MedCap Partners L.P. under the
Makewell Agreement, the Company would grant MedCap Partners L.P. an additional
warrant to purchase 10 shares of Series C Convertible Preferred Stock (for a
total of 12.5 warrants to purchase Series C for every share over 4,333).
19
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
Pursuant to the Makewell Agreement, the Company issued to MedCap Partners L.P.,
(i) 3,090 shares of Series C Convertible Preferred Stock (Series C) on September
23, 2004, (ii) 1,250 shares of Series C on October 12, 2004, (iii) 5,000 shares
of Series C on October 18, 2004, (iv) 1,417 shares of Series C on October 25,
2004 and (v) 5,910 shares of Series C on November 3, 2004. Such shares of Series
C were issued at a cash price per share of $60. Each share of Series C is
convertible into one hundred shares of the Company's Common Stock. The proceeds
were used to reduce the amount outstanding on the revolving line of credit Loan.
In connection with the Company's issuances of the shares of Series C described
above, MedCap Partners L.P., was granted (i) a warrant to purchase 7,725 shares
of Series C on September 25, 2004 (ii) a warrant to purchase 65,685 shares of
Series C on October 18, 2004, (iii) a warrant to purchase 17,712 shares of
Series C on October 25, 2004 and (iv) a warrant to purchase 73,875 shares of
Series C on November 3, 2004. Such warrants are exercisable for a period of five
years at a price per share of Series C of $60. The Company valued the warrants
at $805,000 and has accordingly reduced the face value of the Series C Preferred
Shares by this amount. The Company recorded a deemed dividend due to the
beneficial conversion price of $195,000 which represents the lesser of the value
assigned to the Series C and the beneficial conversion of $6.3 million.
The Makewell Agreement terminated on November 3, 2004 as MedCap Partners L.P.
had made an aggregate of $1.0 million in contributions under the Makewell
Agreement triggered by failure of the Company to meet certain financial targets.
Warrants to Purchase Convertible Preferred Stock
As of March 31, 2005, warrants to purchase Convertible Preferred Stock are
outstanding as follows:
Series of Convertible Exercise Price
Preferred Stock Warrants Per share
B-1 6,000 $60
C 146,264 $60
On March 29, 2005, 108,333 of the Series C warrants were exercised providing
proceeds, net of issue costs, of $6,435,687. On May 2, 2005, 22,187 of the
Series C warrants were exercised providing proceeds of $1,331,220. Dividends
accrue on warrants but are payable only upon exercise. Accordingly, dividends
declared for the quarters September 30, 2004, December 31, 2004 and March 31,
2005 became payable on the warrants exercised at March 31, 2005, with an
estimated fair value of $1,411,464. These dividends were paid in March 2005
through the issuance of 705,732 shares of common stock. Dividends relative to
the 22,187 warrants exercised in May 2005 will be recorded in the second quarter
of 2005.
20
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
Note 10. Common Stock
The Company is authorized to issue 150,000,000 shares of common stock at a par
value of $0.0001. The authorized shares were increased in January 2005 from
50,000,000 shares. Currently there are 27,614,285 shares issued with 26,537,879
shares outstanding. The difference of 1,076,406 shares is held by the Company in
treasury.
On June 28, 2004, the Company executed a one-for-three reverse stock split of
the outstanding shares of Common Stock. All common share and per share
information included in these financial statements and footnotes have been
retroactively adjusted to reflect the reverse stock split.
In connection with an agreement, 250,000 shares of Common Stock were delivered
by parties to the agreement, to an escrow agent. These shares will be released
from escrow as follows: (i) beginning on July 1, 2004 and continuing on the
first day of each month through and including June 1, 2005, the Company, or its
assignee, shall pay $31,250 to the escrow agent, and the escrow agent shall
cause 10,417 shares to be transferred to the Company or its assignee; and (ii)
beginning on July 1, 2005 and continuing on the first day of each month through
and including June 1, 2006, the Company, or its assignee, shall pay $46,875 to
the escrow agent, and the escrow agent shall cause 10,417 shares to be released
to the Company or its assignee. The escrow agent shall distribute funds received
from the Company, or its assignee, to the stockholders who are parties to the
Stock Purchase Agreement. For July, 2004 through December, 2004, the Company
assigned its right to purchase under the Stock Purchase Agreement to an existing
shareholder.
Note 11. Commitments and Contingencies
Commitment to Issue Additional Common Stock Warrants
In accordance with the terms of the Term Loan (see Note 5), the Company agreed
to issue warrants to purchase Common Shares to the lender up to 12% of the
Company's overall capitalization at a price of $3.15 per share. On August 31,
2004, the Company issued a warrant for 905,758 Common Shares in connection with
the first borrowing on the credit facility. If borrowing were to continue up to
the maximum of $10,000,000, the Company would have to issue an additional
2,451,605 warrants to purchase Common Shares.
21
CRDENTIA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
Note 12. Supplemental Disclosure to the Cash Flow Statement
March 31, March 31,
2005 2004
----------- -----------
Supplemental cash flow disclosures:
Cash paid for interest $ 157,913 $ 159,830
Cash paid for income taxes -- --
Non-cash investing and financing activities:
Conversion of preferred stock into common stock 30,873,400 --
Issuance of the following in connection with
a merger:
Common stock issued 2,601,600 --
Revolving credit line assumed 941,390 --
Notes payable issued 3,215,490 --
Common stock issued as payment of preferred stock
dividends 3,189,441 --
Common stock issued associated with working capital
loans from majority stockholder 162,500 --
Note 13. Subsequent Events
On May 2, 2005, MedCap Partners L. P. exercised 22,187 warrants to purchase
Convertible Series C Preferred Stock at $60 per share. This provided the Company
with $1,331,220 which was used to finance the acquisition discussed below and
working capital needs.
On May 4, 2005, the Company acquired Prime Staff, LP and Mint Medical Staffing
Odessa, providers of per diem nursing services throughout Texas, in exchange for
$150,000 in cash and 165,042 shares of common stock valued at $350,000. The
primary purpose of the acquisition was to enable the Company to expand it's
presence in the nurse staffing industry. The acquired entities reported
unaudited revenues of approximately $8,386,000 for the year ended December 31,
2004.
As discussed in Notes 4 and 5, in May 2005, the covenants related to the
Company's Revolving Credit Facility and Term Loan were restructured and, based
on the Company's projections, management believes that the Company can comply
with covenants in future periods.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This report contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we, nor any other
person, assume responsibility for the accuracy and completeness of the
forward-looking statements. We are under no obligation to update any of the
forward-looking statements after the filing of this Quarterly Report to conform
such statements to actual results or to changes in our expectations.
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes and other financial information appearing
elsewhere in this Quarterly Report. Readers are also urged to carefully review
and consider the various disclosures made by us which attempt to advise
interested parties of the factors which affect our business, including without
limitation the disclosures made under the caption "Management's Discussion and
Analysis or Plan of Operation," under the caption "Risk Factors," and the
audited consolidated financial statements and related notes included in our
Annual Report on Form 10-KSB for the year ended December 31, 2004, previously
filed with the Securities and Exchange Commission.
OVERVIEW
We are a provider of healthcare staffing services, focusing on the areas
of travel nursing, per diem staffing, contractual clinical services, and private
duty home care. Our travel nurses are recruited domestically as well as
internationally, and placed on temporary assignments at healthcare facilities
across the United States. Our per diem nurses are local nurses placed at
healthcare facilities on short-term assignments. Our contractual clinical
services group provides complete clinical management and staffing for healthcare
facilities and our private duty home care group provides nursing case management
and staffing for skilled and non-skilled care in the home. We consider the
different services described above to be one segment as each of these services
relate solely to providing healthcare staffing to customers that are healthcare
providers and utilize similar distribution methods, common procedures, processes
and similar methods of identifying and serving these customers.
During 2003, we pursued our operational plan of acquiring companies in the
healthcare staffing field and completed acquisitions of four companies. In 2004,
we purchased two additional companies, and in the first quarter of 2005
purchased two additional companies. We have contracted with more than 1500
healthcare facilities across 49 U.S. states the District of Columbia.
The companies we acquired in 2003 -- Baker Anderson Christie, Inc., New
Age Nurses, Inc., Nurses Network, Inc., and PSR Nurses, Ltd. (through our
acquisition of PSR Nurses Holdings Corp. and PSR Nurse Recruiting, Inc., which
hold the limited partner and general partner interests in PSR Nurses, Ltd.) --
provide the foundation for our continued growth. During 2003 we began operating
the acquired companies, combining the various back offices and support staff and
began streamlining the operations. We continued our acquisition program in 2004
and acquired Care Pros Staffing, Inc. and Arizona Home Health Care/Private Duty,
Inc. On March 29, 2005, we acquired TravMed USA, Inc. and Health Industry
Professionals, LLC. On May 4, 2005, the Company acquired PrimeStaff, LP and Mint
Medical Staffing Odessa. Following the May 4, 2005 acquisition, in the near term
we do not plan to continue to pursue additional acquisitions until we have
completely integrated the three 2005 acquisitions.
23
We have achieved a number of significant successes from inception through
the first quarter of 2005:
o We have raised over $14 million through issuance of convertible
preferred stock and over $3 million in debt financing, net of debt
issuance costs.
o We have acquired four companies in 2003, two companies in 2004, and
two companies in the first quarter of 2005.
o We have reorganized our travel business in 2004 to eliminate
redundancies and to eliminate over $1.5 million in costs on an
annual basis.
o We have converted debt to convertible preferred stock and
convertible preferred stock to common stock with an ultimate benefit
of eliminating certain debt service costs and increasing
stockholders' equity.
In addition to noteworthy successes, the following are a number of
challenges and management's plan as to how these challenges may be addressed:
Challenges Management's Plan
We have experienced a decline in We are hiring experienced management
revenue in our travel business, and and business development personnel to
travel nurse assignments related to complement existing management in our
one significant customer group efforts to grow the travel business.
representing over 16% of our revenue We also have acquired additional
have not been renewed. We need to find travel business as part of our
ways to attract and retain hospital acquisition program and will use the
clients. management talent from this
acquisition to explore new ways to
expand the travel business and to gain
access to new clients.
Access to international nurses has For the near future, we intend to
been limited following the Federal focus our attention on domestic nurses
Government's overhaul of the and enhance our recruitment efforts
immigration system. We expect annual relative to domestic nurses.
limits on the immigration of workers
from the Philippines, China, and India
to the Unites States in the next two
years.
We have not maintained targeted gross We intend to install new operating
profit levels of 23% to 24%. software to assist us in more
effectively managing gross profits by
nurse and by healthcare facility. We
also intend to vigorously manage
professional liability insurance
costs, workers compensation insurance
costs, and housing and travel costs
related to the travel nurse business.
We need to continue to find ways to In addition to keeping nurse
attract and retain quality nurses. compensation competitive, we are
implementing a stock ownership program
for nurses as an innovative way to
attract and retain nurses.
24
We need to overcome corporate overhead We have completed three acquisitions
costs that are disproportionately high in 2005 to enable us to spread
relative to our revenue base. Costs corporate overhead costs over a larger
related to SEC reporting and volume of business, and are in the
compliance with Sarbanes-Oxley are process of integrating these recent
high, and we expect costs to increase acquisitions into our Company. We also
as we comply with new rules applicable have undertaken an exhaustive expense
in the future. cutting program to ensure that
corporate costs are minimized.
We need to continue to raise money to We are forecasting that the
fund acquisitions. acquisitions in the first quarter of
2005 will permit us to achieve
positive operating cash flow in the
third and fourth quarters of 2005,
which we anticipate will assist us in
raising additional funding.
We need to continue to identify We have a considerable depth of
quality acquisition targets. management and considerable experience
in locating and qualifying excellent
acquisition candidates. We intend to
continue our efforts in this area.
We have not complied with loan We have revised loan covenants to make
covenants relative to our revolving covenant compliance achievable.
line of credit and term loan
facilities.
Our credit facilities require We have reduced the amount of our
significant interest payments. revolving line of credit facility from
$15 million to $10 million to enable
us to reduce unused line fees. This
will reduce the effective interest
rate by several percentage points.
Our Convertible Series C Preferred We have two options to address this
Stock has a significant liquidation situation. This liquidation preference
preference in excess of $92 million will cease to exist only if we can
(assuming exercise of all Series C successfully consummate a public
warrants). offering of at least $25 million or
obtain the consent of a majority of
our Series C Preferred stockholders to
convert to common.
LIQUIDITY AND CAPITAL RESOURCES
During the next twelve months, we intend to continue growing the
businesses acquired and to further expand our operations through acquisitions.
Our goal was to acquire at least three companies in 2005, generally in the areas
of travel nursing, per diem staffing and private duty home care. As we acquire
companies, we expect to realize immediate savings in their operations as we
integrate them into our operations and as we decrease their general and
administrative costs by merging their back office and support operation into
ours.
In June 2004, we obtained a $15 million revolving line of credit facility from
Bridge Healthcare Finance, LLC (reduced to $10 million in March 2005). In August
2004, we obtained a $10 million term loan credit facility from Bridge
Opportunity Finance, LLC. Bridge Opportunity Finance, LLC is an affiliate of
Bridge Healthcare Finance, LLC. We had $2,521,598 and $2,613,055 outstanding at
December 31, 2004 and March 31, 2005, respectively, under our revolving line of
credit facility and $2,697,802 of principal (after adding back the discount) of
term loan outstanding at December 31, 2004 and March 31, 2005. Agreements for
both the revolving line of credit facility and the term loan facility contain
financial covenants for the maintenance of minimum net worth, minimum EBITDA,
maximum capital expenditure limits and maximum operating lease obligations. At
March 31, 2005, we were out of compliance with financial covenants in both
agreements, for which waivers were received from the lenders. In May 2005 we
were successful in renegotiating covenants related to both the revolving line of
credit facility and the term loan and based on the Company's projections,
management believes that the Company can comply with covenants in the future.
Accordingly, the term loan has been classified as a long-term obligation at
March 31, 2005.
25
We generated a loss of $1,245,267 for the quarter ended March 31, 2005
and used cash in operations of $484,626 during the first quarter of 2005.
Additionally, although we ended the first quarter of 2005 with a working capital
deficit of $1.9 million, we have been able to secure additional funding. In
March 2005 our majority stockholder exercised warrants to purchase 108,333
shares of Series C Convertible Preferred Stock providing $6.5 million to us. In
May 2005 the Company's majority stockholder exercised warrants to purchase
22,187 shares of Series C Convertible Preferred Stock providing $1.3 million to
us. The infusion of $7.8 million enabled us to acquire additional companies and
to retire certain liabilities and, based on our projections, we anticipate
generating cash flow from operations in 2005 sufficient to service our debt and
to pursue a plan to reach cash flow break even in 2005. If we are unsuccessful
in executing this plan, we would be compelled to raise additional funds or to
pursue other strategic options.
While we believe we will be successful in raising additional capital for
acquisitions in addition to those closed in March 2005, there is no assurance
that we will be able to raise the amount of capital required to meet our
objectives. If additional capital is not readily available, we will be forced to
scale back our acquisition activities and our operations until our income
exceeds our expenses. This would result in an overall slowdown of our
development.
Our capital commitments for the next twelve months are minimal as our
business does not require the purchase of plants, factories, extensive capital
equipment or inventory.
CRITICAL ACCOUNTING POLICIES AND MANAGEMENT JUDGEMENT
The preparation of the financial statements in accordance with accounting
principles generally accepted in the United States of America requires us to
make judgments, estimates, and assumptions regarding uncertainties that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities, and the reported amounts of revenues and expenses. Areas that
require significant judgments, estimates, and assumptions include the assignment
of fair values upon acquisition of goodwill and other intangible assets, testing
for impairment of long-lived assets and valuation of the stock used to
consummate our acquisitions. We use historical experience, qualified independent
consultants and all available information to make these judgments and estimates,
and actual results will inevitably differ from those estimates and assumptions
that are used to prepare the company's financial statements at any given time.
Accounts Receivable
Accounts receivable are reduced by an allowance for doubtful accounts that
provides a reserve with respect to those accounts for which revenue was
recognized but with respect to which management subsequently determines that
payment is not expected to be received. We analyze the balances of accounts
receivable to ensure that the recorded amounts properly reflect the amounts
expected to be collected. This analysis involves the application of varying
percentages to each accounts receivable category based on the age of the
uncollectible accounts receivable. The amount ultimately recorded as the reserve
is determined after management also analyzes the collectibility of specific
large or problematic accounts on an individual basis, as well as the overall
business climate and other factors. Our estimate of the percentage of
uncollectible accounts may change from time to time and any such change could
have a material impact on our financial condition and results of operations.
26
Accounting for Stock Options
We have used stock grants and stock options to attract and retain
directors and key executives and intend to use stock options in the future to
attract, retain and reward employees for long-term service. In 2003 the grant
prices were significantly under the publicly traded market value per share of
our stock. Therefore, we calculated the intrinsic value of the stock and options
granted and recorded non-cash compensation expense for the difference between
the grant price and the market value at issuance. In the future, we may issue
additional options, at which time we would incur additional non-cash
compensation expense.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123 (revised 2004), Share-Based Payment, which is a revision of
SFAS No. 123, Accounting for Stock-Based Compensation. Statement 123R supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS
No. 95, Statement of Cash Flows. Generally, the approach in Statement 123R is
similar to the approach described in Statement 123. However, Statement 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative. The company expects to
adopt Statement 123R on January 1, 2006.
The Company is evaluating the impact of adopting SFAS 123R and expects
that it will record non-cash stock compensation expense. The adoption of SFAS
123R is not expected to have a significant effect on the Company's financial
condition or cash flows but is expected to have a significant effect on the
company's results of operations. The future impact of the adoption of SFAS 123R
cannot be predicted at this time because it will depend on the levels of
share-based payments granted by the Company in the future. However, had the
Company adopted SFAS 123R in prior periods, the impact of the standard would
have approximated the impact of SFAS 123 as described in the pro forma net loss
attributable to common shareholders included in the Stock-Based Compensation
policy footnote.
Purchase Accounting, Goodwill and Intangible Assets
All business acquisitions have been accounted for using the purchase
method of accounting and, accordingly, the statements of operations include the
results of each acquired business since the date of acquisition. The assets
acquired and liabilities assumed are recorded at their estimated fair value as
determined by management and supported in some cases by an independent
third-party valuation. We finalize the allocation of the purchase price to the
fair value of the assets acquired and liabilities assumed when we obtain
information sufficient to complete the allocation, but in any case, within one
year after acquisition.
Goodwill arising from the acquisitions of businesses is recorded as the
excess of the purchase price over the estimated fair value of the net assets of
the businesses acquired. Statement of Financial Accounting Standards No. 142
("Goodwill and Other Intangible Assets") provides that goodwill is to be tested
for impairment annually or more frequently if circumstances indicate potential
impairment. Consistent with this standard, we will review goodwill, as well as
other intangible assets and long-term assets, for impairment annually or more
frequently as warranted, and if circumstances indicate that the recorded value
of any such other asset is impaired, such asset is written down to its new,
lower fair value. If any item of goodwill or such other asset is determined to
be impaired, an impairment loss would be recognized equal to the amount by which
the recorded value exceeds the estimated fair market value.
27
RESULTS OF OPERATIONS--Three Months Ended March 31, 2005 Compared to Three
Months Ended March 31, 2004
The following condensed financial information includes Crdentia Corp. plus
the results of operations of all companies acquired from their respective dates
of acquisition.
Three Months Ended March 31,
----------------------------
2005 2004
------- -------
(in thousands)
Revenue from services $ 5,122 $ 6,217
Direct operating expenses 4,049 4,948
------- -------
Gross profit 1,073 1,269
Operating expenses:
Selling, general and administrative expenses 1,715 2,113
Non-cash stock based compensation 79 17
Total operating expenses 1,794 2,130
Loss from operations (721) (861)
Interest expense, net (524) (402)
Loss before income taxes (1,245) (1,263)
Income tax expense -- --
------- -------
Net loss (1,245) (1,263)
Deemed dividends -- (1,000)
Non-cash preferred stock dividends (2,162) --
Net loss attributable to common stockholders $(3,407) $(2,263)
======= =======
Revenues in the first quarter of 2005 were $5,122,000 compared to revenues
of $6,217,000 in the first quarter of 2004. In the first quarter of 2005
approximately 27.0% (75.4% in the first quarter of 2004) of our revenue was
derived from the placement of travel nurses on assignment, typically 13 weeks in
length. Such assignments generally involve temporary relocation to the
geographic area of the assignment. In the first quarter of 2005, we also
provided per diem nurses to satisfy the very short-term needs of healthcare
facilities. Per diem services provided 62.9% of our revenue in the first quarter
of 2005 (14.6% in the first quarter of 2004). The balance of our revenue in the
first quarter of 2005 and 2004 came from providing clinical management and
staffing to healthcare facilities and private duty homecare. During the first
quarter of 2005 and 2004, most of our customers were acute care hospitals
located throughout the continental United States. For the first quarter of 2004,
sales to one customer group, Rhode Island Hospital and Newport Hospital,
represented approximately 22.9% of our revenue. In the third quarter of 2004, we
experienced a decline in revenue at these facilities and travel nurse
assignments have not been renewed to date. Revenues in the first quarter of 2005
are down largely because of the loss of this customer group. Additionally, the
entire travel business has been weak as evidenced by the industry in general.
These decreases in revenue have been partially offset by increases in revenues
derived from our August 2004 acquisitions.
28
Our overall gross profit in the first quarter of 2005 was $1,073,000 or
21.0% of revenues compared to $1,269,000 or 20.4% of revenues in the first
quarter of 2004. Our gross profit is the difference between the revenue we
realize when we bill our customers for the services of our healthcare
professionals and our direct operating costs, which include the cost of the
healthcare professionals and the related housing and travel costs, certain
employment related taxes and workers compensation insurance coverage. The gross
pofit percentage in the first quarter of 2005 has improved reflecting higher
gross profits reported by our August 2004 acquisitions relative to gross profits
reported by our 2003 acquisitions.
Our selling, general and administrative costs were $1,715,000 or 33.5% of
revenues in the first quarter of 2005 compared to $2,113,000 or 34.0% of
revenues in the first quarter of 2004. Selling, general and administrative
expenses are comprised primarily of personnel costs, legal and audit fees
related to being a public company and various other office and administrative
expenses. Selling, general and administrative costs as a percentage of revenue
are down somewhat in the first quarter of 2005 following the elimination of
redundant costs in our travel business in October 2004.
Interest costs increased from $402,000 in the first quarter of 2004 to
$524,000 in the first quarter of 2005 reflecting a higher level of non-cash
charges for amortization of debt issuance costs, amortization of debt discount
costs and fees related to short-term working capital loans from the majority
stockholder.
Deemed dividends were $1,000,000 in the first quarter of 2004. The deemed
dividend relates to a beneficial conversion feature of our Series A convertible
preferred stock.
The non-cash preferred stock dividends in the first quarter of 2005
relates to common stock dividends declared by the Board of Directors on our
Series B, Series B-1 and Series C convertible preferred stock as well as
cumulative common stock dividends declared on September 30, 2004, December 31,
2004 and March 31, 2005 related to the warrants exercised on March 29, 2005 for
108,333 shares of Series C convertible preferred stock. The common stock
dividends on the warrants are payable once the warrants are exercised.
Risk Factors
We were formed in November 1997, and commenced operations on August 7,
2003 following our acquisition of Baker Anderson Christie, Inc. Any investment
in our Common Stock involves a high degree of risk. You should consider
carefully the following information about these risks, together with the other
information contained in this report, before you decide to buy our Common Stock.
The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our operations. If any of the
following risks actually occur, our business would likely suffer and our results
could differ materially from those expressed in any forward-looking statements
contained in this report including those contained in the section captioned
"Management's Discussion and Analysis or Plan of Operation" under Item 2. In
such case, the trading price of our Common Stock could decline, and you may lose
all or part of the money you paid to buy our Common Stock.
If we fail to raise additional capital in the near future, our business will
fail.
We have limited cash resources and will need to raise additional capital
through public or private financings or other arrangements in order to meet
current commitments and continue development of our business. We cannot assure
you that additional capital will be available to us when needed, if at all, or,
if available, will be obtained on terms attractive to us. Our failure to raise
additional capital when needed could cause us to cease our operations.
29
We have financed our operations since inception primarily through the
private placement of equity and debt securities and loan facilities. Although
our management recognizes the need to raise funds in the near future, there can
be no assurance that we will be successful in consummating any fundraising
transaction, or if we do consummate such a transaction, that its terms and
conditions will not require us to give investors warrants or other valuable
rights to purchase additional interest in our company, or be otherwise
unfavorable to us. Among other things, the agreements under which we issued some
of our existing securities include, and any securities that we may issue in the
future may also include, terms that could impede our ability to raise additional
funding. The issuance of additional securities could impose additional
restrictions on how we operate and finance our business. In addition, our
current debt financing arrangements involve significant interest expense and
restrictive covenants that limit our operations.
We may face difficulties integrating our acquisitions into our operations and
our acquisitions may be unsuccessful, involve significant cash expenditures or
expose us to unforeseen liabilities.
We continually evaluate opportunities to acquire healthcare staffing
companies that complement or enhance our business and frequently have
preliminary acquisition discussions with some of these companies. In addition,
beginning in August 2003 and through March 2005 we acquired eight businesses.
These acquisitions involve numerous risks, including:
o potential loss of revenues following the acquisition;
o difficulties integrating acquired personnel and distinct cultures
into our business;
o difficulties integrating acquired companies into our operating,
financial planning and financial reporting systems;
o diversion of management attention from existing operations; and
o assumption of liabilities and exposure to unforeseen liabilities of
acquired companies, including liabilities for their failure to
comply with healthcare regulations.
These acquisitions may also involve significant cash expenditures, debt
incurrence and integration expenses that could seriously harm our financial
condition and results of operations. We may fail to achieve expected
efficiencies and synergies. Any acquisition may ultimately have a negative
impact on our business and financial condition.
Our Series C Convertible Preferred Stock has a significant liquidation
preference.
As of May 2, 2005, we had (i) 183,027 shares of Series C Preferred Stock
outstanding and (ii) warrants (the "Warrants") to purchase 124,077 shares of
Series C Preferred Stock outstanding. We anticipate selling additional shares of
Series C Preferred Stock and issuing additional warrants to purchase shares of
Series C Preferred Stock. Each share of Series C Preferred stock is convertible
into one hundred (100) shares of our common Stock. In the event of any
liquidation or winding up of our company, the holders of the Series C Preferred
Stock will be entitled to receive, in preference to the holders of our other
equity securities, an amount equal to five times the original purchase price per
share, or $300 per share, plus any dividends declared on the Series C
Convertible Preferred Stock but not paid. Assuming the exercise of all
outstanding Warrants, upon a liquidation or winding up of our company the
holders of our Series C Preferred Stock would be entitled to receive
approximately $92,000,000 prior to the payment of any amounts to the holders of
our other equity securities. As a result, upon a liquidation or winding up of
the Company, there may not be sufficient proceeds, following the payment of the
Series C liquidation preference described above, to make any distribution to the
holders of our other equity securities.
30
There is a lack of an active public market for our Common Stock, and the trading
price of our common stock is subject to volatility.
The quotation of shares of our Common Stock on the OTC Bulletin Board
began on June 3, 2003. There can be no assurance, however, that a market will
develop or continue for our Common Stock. Our Common Stock may be thinly traded,
if traded at all, even if we achieve full operation and generate significant
revenue and is likely to experience significant price fluctuations. In addition,
our stock is defined as a "penny stock" under Rule 3a51-1 adopted by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended. 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
have 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 our Common Stock, and therefore, may adversely affect the
ability of our stockholders to sell Common Stock in the public market.
The trading price of our common stock is likely to be subject to wide
fluctuations. Factors affecting the trading price of our common stock may
include:
o Variations in our financial results;
o Announcements of innovations, new solutions, strategic alliances or
significant agreements by us or by our competitors;
o Recruitment or departure of key personnel;
o Changes in estimates of our financial results or changes in the
recommendations of any securities analysts that elect to follow our
common stock;
o Market conditions in our industry, the industries of our customers
and the economy as a whole; and
o Sales of substantial amounts of our common stock, or the perception
that substantial amounts of our common stock will be sold, by our
existing stockholders in the public market.
Our need to raise additional capital in the future could have a dilutive effect
on your investment.
We will need to raise additional capital. One possibility for raising
additional capital is the public or private sale of our Common Stock or
securities convertible into or exercisable for our Common Stock.
If we sell additional shares of our Common Stock, such sales will further
dilute the percentage of our equity that our existing stockholders own. In
addition, our recent private placement financings have involved the issuance of
securities at a price per share that represented a discount to the trading
prices listed for our Common Stock on the OTC Bulletin Board and it is possible
that we will close future private placements involving the issuance of
securities at a discount to prevailing trading prices. Depending upon the price
per share of securities that we sell in the future, a stockholder's interest in
us could be further diluted by any adjustments to the number of shares and the
applicable exercise price required pursuant to the terms of the agreements under
which we previously issued securities. No assurance can be given that previous
or future investors, finders or placement agents will not claim that they are
entitled to additional anti-dilution adjustments or dispute our calculation of
any such adjustments. Any such claim or dispute could require us to incur
material costs and expenses regardless of the resolution and, if resolved
unfavorably to us, to effect dilutive securities issuances or adjustments to
previously issued securities. In addition, future financings may include
provisions requiring us to make additional payments to the investors if we fail
to obtain or maintain the effectiveness of SEC registration statements by
specified dates or take other specified action. Our ability to meet these
requirements may depend on actions by regulators and other third parties, over
which we will have no control. These provisions may require us to make payments
or issue additional dilutive securities, or could lead to costly and disruptive
disputes. In addition, these provisions could require us to record additional
non-cash expenses.
31
Our credit facility imposes significant expenses and restrictive covenants upon
us.
In June 2004 we obtained a $15 million revolving credit facility, which
was reduced in 2005 to $10 million, (the "Revolving Facility") from Bridge
Healthcare Finance, LLC. In August 2004 we obtained a $10 million term loan
credit facility from Bridge Opportunity Finance, LLC (the "Term Facility" and
together with the Revolving Facility, the "Credit Facility"). Bridge Opportunity
Finance, LLC is an affiliate of Bridge Healthcare Finance, LLC.
The Credit Facility involves significant interest expenses and other fees.
In addition, except in certain limited circumstances, the Revolving Facility
cannot be pre-paid in full without us incurring a significant pre-payment
penalty.
The Credit Facility imposes various restrictions on our activities with
out the consent of the lenders, including a prohibition on fundamental changes
to us or our direct or indirect subsidiaries (including certain consolidations,
mergers and sales and transfer of assets, and limitations on our ability or any
of our direct or indirect subsidiaries to grant liens upon our property or
assets). In addition, under the Credit Facility we must meet certain net worth,
earnings and debt service coverage requirements. The Credit Facility includes
events of default (with grace periods, as applicable) and provides that, upon
the occurrence of certain events of default, payment of all amounts payable
under the Credit Facility, including the principal amount of, and accrued
interest on, the Credit Facility may be accelerated. In addition, upon the
occurrence of certain insolvency or bankruptcy related events of default, all
amounts payable under the Credit Facility, including the principal amount of,
and accrued interest on, the Credit Facility shall automatically become
immediately due and payable.
The expenses and restrictions associated with the Credit Facility have the
effect of limiting our operations. In addition, our failure to pay required
interest expenses and other fees or to meet restrictions under the Credit
Facility would have a material adverse affect on us.
MedCap Partners L.P. controls a majority of our outstanding capital stock, and
this may delay or prevent change of control of our company or adversely affect
our stock price.
MedCap Partners L.P. controls approximately 58% of our outstanding capital
stock, on a fully diluted as-converted basis. As a result, MedCap is able to
exercise control over matters requiring stockholder approval, such as the
election of directors and the approval of significant corporate transactions.
These types of transactions include transactions involving an actual or
potential change of control of our company or other transactions that the
non-controlling stockholders may deem to be in their best interests and in which
such stockholders could receive a premium for their shares. C. Fred Toney, a
member or our Board of Directors, is the managing member of MedCap Management &
Research LLC, the general partner of MedCap Partners L.P.
32
The ability to attract and retain highly qualified personnel to operate and
manage our operations is extremely important and our failure to do so could
adversely affect us.
Presently, we are dependent upon the personal efforts of our management
team. The loss of any of our officers or directors could have a material adverse
effect upon our business and future prospects. We do not presently have
key-person life insurance upon the life of any of our officers or directors.
Additionally, as we continue our planned expansion of commercial operations, we
will require the services of additional skilled personnel. There can be no
assurance that we can attract persons with the requisite skills and training to
meet our future needs or, even if such persons are available, that they can be
hired on terms favorable to us.
We have had a short operating history.
We were formed in November 1997 and commenced operations on August 7, 2003
with our acquisition of Baker Anderson Christie, Inc. We are a "start-up"
operation and subject to all the risks inherent in a new business venture, many
of which are beyond our control, including the ability to implement successful
operations, lack of capital to finance acquisitions and failure to achieve
market acceptance. In addition, as a start-up venture we will face significant
competition from many companies virtually all of which are larger, better
financed and have significantly greater market recognition than us.
The successful implementation of our business strategy depends upon the ability
of our management to monitor and control costs.
With respect to our planned operations, management cannot accurately
project or give any assurance with respect to our ability to control development
and operating costs and/or expenses in the future. Consequently, as we expand
our commercial operations, management may not be able to control costs and
expenses adequately, and such operations may generate losses.
We may become subject to governmental regulations and oversight, which could
adversely affect our ability to continue or expand our business strategy.
Although our operations are currently not subject to any significant
government regulations, it is possible that, in the future, such regulations may
be legislated. Although we cannot predict the extent of any such future
regulations, a possibility exists that future or unforeseen changes may have an
adverse impact upon our ability to continue or expand our operations as
presently planned.
If we are unable to attract qualified nurses and healthcare professionals for
our healthcare staffing business, our business could be negatively impacted.
We rely significantly on our ability to attract and retain nurses and
healthcare professionals who possess the skills, experience and licenses
necessary to meet the requirements of our hospital and healthcare facility
clients. We compete for healthcare staffing personnel with other temporary
healthcare staffing companies and with hospitals and healthcare facilities. We
must continually evaluate and expand our temporary healthcare professional
network to keep pace with our hospital and healthcare facility clients' needs.
Currently, there is a shortage of qualified nurses in most areas of the United
States, competition for nursing personnel is increasing, and salaries and
benefits have risen. We may be unable to continue to increase the number of
temporary healthcare professionals that we recruit, decreasing the potential for
growth of our business. Our ability to attract and retain temporary healthcare
professionals depends on several factors, including our ability to provide
temporary healthcare professionals with assignments that they view as attractive
and to provide them with competitive benefits and wages. We cannot assure you
that we will be successful in any of these areas. The cost of attracting
temporary healthcare professionals and providing them with attractive benefit
packages may be higher than we anticipate and, as a result, if we are unable to
pass these costs on to our hospital and healthcare facility clients, our
profitability could decline. Moreover, if we are unable to attract and retain
temporary healthcare professionals, the quality of our services to our hospital
and healthcare facility clients may decline and, as a result, we could lose
clients.
33
The temporary staffing industry is highly competitive and the success and future
growth of our business depend upon our ability to remain competitive in
obtaining and retaining temporary staffing clients.
The temporary staffing industry is highly competitive and fragmented, with
limited barriers to entry. We compete in national, regional and local markets
with full-service agencies and in regional and local markets with specialized
temporary staffing agencies. Some of our competitors include AMN Healthcare
Services, Inc., Cross Country, Inc., Medical Staffing Network Holdings, Inc. and
On Assignment, Inc. All of these companies have significantly greater marketing
and financial resources than we do. Our ability to attract and retain clients is
based on the value of the service we deliver, which in turn depends principally
on the speed with which we fill assignments and the appropriateness of the match
based on clients' requirements and the skills and experience of our temporary
employees. Our ability to attract skilled, experienced temporary professionals
is based on our ability to pay competitive wages, to provide competitive
benefits, to provide multiple, continuous assignments and thereby increase the
retention rate of these employees. To the extent that competitors seek to gain
or retain market share by reducing prices or increasing marketing expenditures,
we could lose revenues and our margins could decline, which could seriously harm
our operating results and cause the trading price of our stock to decline. As we
expand into new geographic markets, our success will depend in part on our
ability to gain market share from competitors. We expect competition for clients
to increase in the future, and the success and growth of our business depend on
our ability to remain competitive.
Our business depends upon our continued ability to secure and fill new orders
from our hospital and healthcare facility clients, because we do not have
long-term agreements or exclusive contracts with them.
We generally do not have long-term agreements or exclusive guaranteed
order contracts with our hospital and healthcare facility clients. The success
of our business depends upon our ability to continually secure new orders from
hospitals and other healthcare facilities and to fill those orders with our
temporary healthcare professionals. Our hospital and healthcare facility clients
are free to place orders with our competitors and may choose to use temporary
healthcare professionals that our competitors offer them. Therefore, we must
maintain positive relationships with our hospital and healthcare facility
clients. If we fail to maintain positive relationships with our hospital and
healthcare facility clients, we may be unable to generate new temporary
healthcare professional orders and our business may be adversely affected.
Fluctuations in patient occupancy at our clients' hospitals and healthcare
facilities may adversely affect the demand for our services and therefore the
profitability of our business.
Demand for our temporary healthcare staffing services is significantly
affected by the general level of patient occupancy at our hospital and
healthcare clients' facilities. When occupancy increases, hospitals and other
healthcare facilities often add temporary employees before full-time employees
are hired. As occupancy decreases, hospitals and other healthcare facilities
typically reduce their use of temporary employees before undertaking layoffs of
their regular employees. In addition, we may experience more competitive pricing
pressure during periods of occupancy downturn. Occupancy at our clients'
hospitals and healthcare facilities also fluctuates due to the seasonality of
some elective procedures. We are unable to predict the level of patient
occupancy at any particular time and its effect on our revenues and earnings.
Healthcare reform could negatively impact our business opportunities, revenues
and margins.
34
The U.S. government has undertaken efforts to control increasing
healthcare costs through legislation, regulation and voluntary agreements with
medical care providers and drug companies. In the recent past, the U.S. Congress
has considered several comprehensive healthcare reform proposals. The proposals
were generally intended to expand healthcare coverage for the uninsured and
reduce the growth of total healthcare expenditures. While the U.S. Congress did
not adopt any comprehensive reform proposals, members of Congress may raise
similar proposals in the future. If any of these proposals are approved,
hospitals and other healthcare facilities may react by spending less on
healthcare staffing, including nurses. If this were to occur, we would have
fewer business opportunities, which could seriously harm our business.
State governments have also attempted to control increasing healthcare
costs. For example, the state of Massachusetts has recently implemented a
regulation that limits the hourly rate payable to temporary nursing agencies for
registered nurses, licensed practical nurses and certified nurses' aides. The
state of Minnesota has also implemented a statute that limits the amount that
nursing agencies may charge nursing homes. Other states have also proposed
legislation that would limit the amounts that temporary staffing companies may
charge. Any such current or proposed laws could seriously harm our business,
revenues and margins.
Furthermore, third party payers, such as health maintenance organizations,
increasingly challenge the prices charged for medical care. Failure by hospitals
and other healthcare facilities to obtain full reimbursement from those third
party payers could reduce the demand or the price paid for our staffing
services.
We operate in a regulated industry and changes in regulations or violations of
regulations may result in increased costs or sanctions that could reduce our
revenues and profitability.
The healthcare industry is subject to extensive and complex federal and
state laws and regulations related to professional licensure, conduct of
operations, payment for services and payment for referrals. If we fail to comply
with the laws and regulations that are directly applicable to our business, we
could suffer civil and/or criminal penalties or be subject to injunctions or
cease and desist orders.
Our business is generally not subject to the extensive and complex laws
that apply to our hospital and healthcare facility clients, including laws
related to Medicare, Medicaid and other federal and state healthcare programs.
However, these laws and regulations could indirectly affect the demand or the
prices paid for our services. For example, our hospital and healthcare facility
clients could suffer civil or criminal penalties or be excluded from
participating in Medicare, Medicaid and other healthcare programs if they fail
to comply with the laws and regulations applicable to their businesses. In
addition, our hospital and healthcare facility clients could receive reduced
reimbursements, or be excluded from coverage, because of a change in the rates
or conditions set by federal or state governments. In turn, violations of or
changes to these laws and regulations that adversely affect our hospital and
healthcare facility clients could also adversely affect the prices that these
clients are willing or able to pay for our services.
In addition, improper actions by our employees and other service providers
may subject us to regulatory and litigation risk.
35
Competition for acquisition opportunities may restrict our future growth by
limiting our ability to make acquisitions at reasonable valuations.
Our business strategy includes increasing our market share and presence in
the temporary healthcare staffing industry through strategic acquisitions of
companies that complement or enhance our business. We have historically faced
competition for acquisitions. In the future, such competition could limit our
ability to grow by acquisitions or could raise the prices of acquisitions and
make them less attractive to us.
Significant legal actions could subject us to substantial uninsured liabilities.
In recent years, healthcare providers have become subject to an increasing
number of legal actions alleging malpractice, product liability or related legal
theories. Many of these actions involve large claims and significant defense
costs. In addition, we may be subject to claims related to torts or crimes
committed by our employees or temporary healthcare professionals. In some
instances, we are required to indemnify our clients against some or all of these
risks. A failure of any of our employees or healthcare professionals to observe
our policies and guidelines intended to reduce these risks, relevant client
policies and guidelines or applicable federal, state or local laws, rules and
regulations could result in negative publicity, payment of fines or other
damages. Our professional malpractice liability insurance and general liability
insurance coverage may not cover all claims against us or continue to be
available to us at a reasonable cost. If we are unable to maintain adequate
insurance coverage or if our insurers deny coverage we may be exposed to
substantial liabilities.
We may be legally liable for damages resulting from our hospital and healthcare
facility clients' mistreatment of our healthcare personnel.
Because we are in the business of placing our temporary healthcare
professionals in the workplaces of other companies, we are subject to possible
claims by our temporary healthcare professionals alleging discrimination, sexual
harassment, negligence and other similar activities by our hospital and
healthcare facility clients. The cost of defending such claims, even if
groundless, could be substantial and the associated negative publicity could
adversely affect our ability to attract and retain qualified healthcare
professionals in the future.
Execution of our business strategy and growth of our business are substantially
dependent upon our ability to attract, develop and retain qualified and skilled
sales personnel.
Execution of our business strategy and continued growth of our business
are substantially dependent upon our ability to attract, develop and retain
qualified and skilled sales personnel who engage in selling and business
development for our services. The available pool of qualified sales personnel
candidates is limited. We commit substantial resources to the recruitment,
training, development and operational support of our sales personnel. There can
be no assurance that we will be able to recruit, develop and retain qualified
sales personnel in sufficient numbers or that our sales personnel will achieve
productivity levels sufficient to enable growth of our business. Failure to
attract and retain productive sales personnel could adversely affect our
business, financial condition and results of operations.
We have a substantial amount of goodwill and other intangible assets on our
balance sheet. Our level of goodwill and other intangible assets may have the
effect of decreasing our earnings or increasing our losses.
As of March 31, 2005, we had $24.9 million of goodwill and other
unamortized intangible assets on our balance sheet, which represents the excess
of the total purchase price of our acquisitions over the fair value of the net
assets acquired. At March 31, 2005, goodwill and other intangible assets
represented 80% of our total assets.
36
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001, as well as all purchase
method business combinations completed after June 30, 2001. SFAS No. 142
requires that, subsequent to January 1, 2002, goodwill not be amortized but
rather that it be reviewed annually for impairment. In the event impairment is
identified, a charge to earnings would be recorded. We have adopted the
provisions of SFAS No. 141 and SFAS No. 142. Although it does not affect our
cash flow, an impairment charge of goodwill to earnings has the effect of
decreasing our earnings or increasing our losses, as the case may be. If we are
required to write down a substantial amount of goodwill, our stock price could
be adversely affected.
Demand for medical staffing services is significantly affected by the general
level of economic activity and unemployment in the United States.
When economic activity increases, temporary employees are often added before
full-time employees are hired. However, as economic activity slows, many
companies, including our hospital and healthcare facility clients, reduce their
use of temporary employees before laying off full-time employees. In addition,
we may experience more competitive pricing pressure during periods of economic
downturn. Therefore, any significant economic downturn could have a material
adverse impact on our financial position and results of operations
ITEM 3. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms and that such information is accumulated and
communicated to our management including our Chief Executive Officer and our
Chief Financial Officer, as appropriate, to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives and management is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
As required by Rule 13a-15(b) under the Exchange Act, we conducted an
evaluation under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. Based upon the
foregoing evaluation, our principal executive officer and our principal
financial officer concluded that our disclosure controls and procedures were
effective at the reasonable assurance level as of the end of the fiscal period
covered by this report.
There has been no change in our internal controls over financial reporting
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.
37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There is no material litigation currently pending against us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At a special meeting of stockholders held on January 5, 2005 (the
"Special Meeting"), the Company's stockholders approved a Certificate of
Amendment to the Amended and Restated Certificate of Incorporation of the
Company that increased the number of authorized shares of the Company's common
stock from 50,000,000 to 150,000,000. No other matters were submitted to a vote
of the Company's stockholders at the Special Meeting.
The following table sets forth the number of votes cast for and
against, and the number of abstentions and broker non-votes as to the matter
submitted to a vote of the Company's stockholders at the Special Meeting (on an
as-converted to common stock basis):
Votes For Votes Against Abstentions Broker Non-Votes
14,580,409 0 0 0
Item 5. Other Information
In consideration for MedCap Partners L.P. extending the maturity of
certain indebtedness owed by us, on March 29, 2005 we issued MedCap 77,751
shares of common stock.
38
Item 6. Exhibits
(a) Exhibits
Exhibit No. Description
----------- -----------
2.1(1) Agreement and Plan of Reorganization, dated as of March
28, 2005, by and among Crdentia Corp., CRDE Corp.,
Travmed Acquisition Corporation, Travmed USA, Inc. and
the shareholders of Travmed USA, Inc. Certain schedules
and exhibits referenced in the Agreement and Plan of
Reorganization have been omitted in accordance with Item
601(b)(2) of Regulation S-B. A copy of the omitted
schedule and/or exhibit will be furnished supplementally
to the Securities and Exchange Commission upon request.
2.2(1) Agreement and Plan of Reorganization, dated as of March
28, 2005, by and among Crdentia Corp., HIP Acquisition
Corporation, HIP Holding, Inc. and the shareholders of
HIP Holding, Inc. Certain schedules and exhibits
referenced in the Agreement and Plan of Reorganization
have been omitted in accordance with Item 601(b)(2) of
Regulation S-B. A copy of the omitted schedule and/or
exhibit will be furnished supplementally to the
Securities and Exchange Commission upon request.
3.1(2) Restated Certificate of Incorporation.
3.2(3) Certificate of Amendment to Restated Certificate of
Incorporation.
3.3(4) Certificate of Amendment to Restated Certificate of
Incorporation.
3.4(4) Certificate of Correction of Certificate of Amendment to
Restated Certificate of Incorporation.
3.5(4) Certificate of Correction of Certificate of Amendment to
Restated Certificate of Incorporation.
3.6(2) Restated Bylaws.
3.7(5) Certificate of Designations, Preferences and Rights of
Series A Preferred Stock of Crdentia Corp.
3.8(6) Certificate of Amendment of Certificate of Designations,
Preferences and Rights of Series A Preferred Stock of
Crdentia Corp.
3.9(7) Certificate of Designations, Preferences and Rights of
Series B Preferred Stock of Crdentia Corp.
3.10(8) Certificate of Correction of Certificate of
Designations, Preferences and Rights of Series B
Preferred Stock of Crdentia Corp.
3.77(9) Certificate of Designations, Preferences and Rights of
Series B-1 Preferred Stock of Crdentia Corp.
3.12(10) Certificate of Correction of Certificate of
Designations, Preferences and Rights of Series B-1
Preferred Stock of Crdentia Corp.
3.13(11) Certificate of Designations, Preferences and Rights of
Series C Preferred Stock of Crdentia Corp.
39
3.14(10) Certificate of Correction of Certificate of
Designations, Preferences and Rights of Series C
Preferred Stock of Crdentia Corp.
3.15(12) Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Crdentia Corp.
3.16(13) Certificate of Amendment of Certificate of Designations,
Preferences and Rights of Series C Preferred Stock of
Crdentia Corp.
4.16(1) Letter Agreement dated March 29, 2005 by and among
Crdentia Corp. and MedCap Partners L.P.
4.17(1) Registration Rights Agreement by and among Crdentia
Corp. and the shareholders of Travmed USA, Inc.
4.18(1) Form of Convertible Subordinated Promissory Note
4.19(1) Amended and Restated Revolving Note, in the maximum
principal amount of $10,000,000, dated March 29, 2005,
executed by Crdentia Corp., Baker Anderson Christie,
Inc., Nurses Network, Inc., New Age Staffing, Inc., PSR
Nurses, Ltd., PSR Nurse Recruiting, Inc., PSR Nurses
Holdings Corp., CRDE Corp., Arizona Home Health
Care/Private Duty, Inc., Care Pros Staffing, Inc., HIP
Holding, Inc., Health Industry Professionals, L.L.C.,
and Travmed USA, Inc. in favor of Bridge Healthcare
Finance, LLC.
4.20(1) Amended and Restated Term Note, in the maximum principal
amount of $10,000,000, dated March 29, 2005, executed by
Crdentia Corp., Baker Anderson Christie, Inc., Nurses
Network, Inc., New Age Staffing, Inc., PSR Nurses, Ltd.,
PSR Nurse Recruiting, Inc., PSR Nurses Holdings Corp.,
CRDE Corp., Arizona Home Health Care/Private Duty, Inc.,
Care Pros Staffing, Inc., HIP Holding, Inc., Health
Industry Professionals, L.L.C., and Travmed USA, Inc. in
favor of Bridge Opportunity Finance, LLC.
10.28(1) Amendment No. 1, Joinder and Consent to Amended and
Restated Loan and Security Agreement - Revolving Loans,
dated March 29, 2005 by and among Crdentia Corp., Baker
Anderson Christie, Inc., Nurses Network, Inc., New Age
Staffing, Inc., PSR Nurses, Ltd., PSR Nurse Recruiting,
Inc., PSR Nurses Holdings Corp., CRDE Corp., Arizona
Home Health Care/Private Duty, Inc., Care Pros Staffing,
Inc., HIP Holding, Inc., Health Industry Professionals,
L.L.C., Travmed USA, Inc. and Bridge Healthcare Finance,
LLC.
10.29(1) Amendment No. 2, Joinder and Consent to Loan and
Security Agreement - Term Loan, dated March 29, 2005 by
and among Crdentia Corp., Baker Anderson Christie, Inc.,
Nurses Network, Inc., New Age Staffing, Inc., PSR
Nurses, Ltd., PSR Nurse Recruiting, Inc., PSR Nurses
Holdings Corp., CRDE Corp., Arizona Home Health
Care/Private Duty, Inc., Care Pros Staffing, Inc., HIP
Holding, Inc., Health Industry Professionals, L.L.C.,
Travmed USA, Inc. and Bridge Opportunity Finance, LLC.
10.30(14) Secured Promissory Note, dated March 1, 2005, issued by
Crdentia Corp., Baker Anderson Christie, Inc., Nurses
Network, Inc., New Age Staffing, Inc., PSR Nurses, Ltd.,
PSR Nurse Recruiting, Inc., PSR Nurses Holdings Corp.,
CRDE Corp., Arizona Home Health Care/Private Duty, Inc.
and Care Pros Staffing to MedCap Partners L.P.
10.31(14) Amended and Restated Security Agreement, dated March 1,
2005, by and among Crdentia Corp., Baker Anderson
Christie, Inc., Nurses Network, Inc., New Age Staffing,
Inc., PSR Nurses, Ltd., PSR Nurse Recruiting, Inc., PSR
Nurses Holdings Corp., CRDE Corp., Arizona Home Health
Care/Private Duty, Inc., Care Pros Staffing and MedCap
Partners L.P.
40
10.32 Secured Promissory Note, dated January 4, 2005, issued
by Crdentia Corp., Baker Anderson Christie, Inc., Nurses
Network, Inc., New Age Staffing, Inc., PSR Nurses, Ltd.,
PSR Nurse Recruiting, Inc., PSR Nurses Holdings Corp.,
CRDE Corp., Arizona Home Health Care/Private Duty, Inc.
and Care Pros Staffing to MedCap Partners L.P.
10.33 Secured Promissory Note, dated February 2, 2005, issued
by Crdentia Corp., Baker Anderson Christie, Inc., Nurses
Network, Inc., New Age Staffing, Inc., PSR Nurses, Ltd.,
PSR Nurse Recruiting, Inc., PSR Nurses Holdings Corp.,
CRDE Corp., Arizona Home Health Care/Private Duty, Inc.
and Care Pros Staffing to MedCap Partners L.P.
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley act of 2002.
32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley act of 2002.
-----------------------------------------------------
(1) Filed with a Current Report on Form 8-K dated April 1, 2005.
(2) Filed with a Current Report on Form 8-K dated August 22, 2002.
(3) Filed with a Quarterly Report on Form 10-QSB dated August 12, 2003.
(4) Filed with an amended Current Report on Form 8-K/A dated June 28, 2004.
(5) Filed with a Current Report on Form 8-K dated December 30, 2003.
(6) Filed with a Current Report on Form 8-K dated February 20, 2004.
(7) Filed with a Current Report on Form 8-K dated June 22, 2004.
(8) Filed with an amended Current Report on Form 8-K/A dated October 10, 2004.
(9) Filed with a Current Report on Form 8-K dated August 24, 2004.
(10) Filed with an amended Current Report on Form 8-K/A dated October 10, 2004.
(11) Filed with a Current Report on Form 8-K dated September 7, 2004.
(12) Filed with a Current Report on Form 8-K dated January 1, 2005.
(13) Filed with a Current Report on Form 8-K dated March 21, 2005.
(14) Filed with a Current Report on Form 8-K dated March 4, 2005.
41
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 16, 2005 By: /S/ James D. Durham
----------------------------------------
James D. Durham
Chairman and Chief Executive
Officer
Date: May 16, 2005 By: /S/ James J. TerBeest
----------------------------------------
James J. TerBeest
Chief Financial Officer
42