NOTE
1 SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION -
(A)
Organization and Nature of Business
Healthcare
Business Services Groups Inc. (herein referred to as “Healthcare” or “Company”)
was formed in Delaware in December 1994. On April 23, 2004, the Company acquired
100% of the issued and outstanding shares of Healthcare, a Delaware corporation.
As part of the same transaction on May 7, 2004, the Company acquired 100%
of the
issued and outstanding shares of AutoMed Software Corp., a Nevada corporation
("AutoMed"), and 100% of the membership interests of Silver Shadow Properties,
LLC, a Nevada single member limited liability company ("Silver Shadow").
The
transactions are collectively referred to herein as the "Acquisition." As
a
result of the Acquisition, the Company acquired 100% of three
corporations.
The
Company acquired Healthcare, AutoMed, and Silver Shadow from the sole owner,
in
exchange for 25,150,000 newly issued treasury shares of the Company's common
stock. Immediately after these transactions, there were 31,414,650 shares
of the
Company's common stock outstanding. As a result, control of the Company shifted
to the sole owner who owns approximately 80.0% of the Company's common stock,
and the Company changed its name to Healthcare. Here in after all references
to
the Company refer to Healthcare, AutoMed, and Silver Shadow as a collective
whole since their various inceptions.
The
merger of the Company with Healthcare Business Services Groups Inc., has
been
accounted for as a reverse acquisition under the purchase method of accounting
since the shareholders of Healthcare Business Services Groups Inc. obtained
control of the consolidated entity. Accordingly, the merger of the two companies
has been recorded as a recapitalization of the Healthcare Business Services
Groups Inc., with Healthcare Business Services Groups Inc. being treated
as the
continuing entity. The continuing company has retained December 31 as its
fiscal
year end.
Healthcare
is a medical billing service provider that for over fifteen years has assisted
various health care providers to successfully enhance their billing function.
Healthcare has a diversified market servicing AZ, NY, WA, FL, TX and
California.
PRINCIPLES
OF CONSOLIDATION
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, AutoMed Software Corp. and Silver
Shadow Properties, LLC. All significant inter-company accounts and transactions
have been eliminated in consolidation. The acquisition of Healthcare Business
Services Groups Inc. on May 7, 2004, has been accounted for as a purchase
and
treated as a reverse acquisition. The historical results for the three months
periods ended March 31, 2007 and March 31, 2006 include Healthcare Business
Services Groups Inc. and the Company.
BASIS
OF PRESENTATION
The
unaudited consolidated financial statements have been prepared by Healthcare
Business Services Groups Inc., (herein referred to as “Healthcare” or
“Company”), in accordance with generally
accepted accounting principles for interim financial information and with
the
instructions for Form 10-QSB and Regulation S-B as promulgated by the Securities
and Exchange Commission (“SEC”). Accordingly, these consolidated financial
statements do not include all of the disclosures required by generally accepted
accounting principles in the United States of America for complete financial
statements. These unaudited interim consolidated financial statements should
be
read in conjunction with the audited consolidated financial statements and
the
notes thereto include on Form 10-KSB for the year ended December 31, 2006.
In
the opinion of management, the unaudited interim consolidated financial
statements furnished herein include all adjustments, all of which are of
a
normal recurring nature, necessary for a fair statement of the results for
the
interim period presented. The results of the three month period ended March
31,
2007 are not necessarily indicative of the results to be expected for the
full
year ending December 31, 2007.
(B)
Use of Estimates
In
preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that
affect
the reported amounts of assets, liabilities, revenues and expenses, as well
as
certain financial statements disclosures. While management believes that
the
estimates and assumptions used in the preparation of the financial statements
are appropriate, actual results could differ from those estimates.
(C)
Revenue Recognition
The
Company's revenue recognition policies are in compliance with Staff accounting
bulletin SAB
104.
All
revenue is recognized when persuasive evidence of an arrangement exists,
the
service or sale is complete, the price is fixed or determinable and
collectibility is reasonably assured. Revenue is derived from collections
of
medical billing services. Revenue is recognized when the collection process
is
complete which occurs when the money is collected and recognized on a net
basis.
License
Revenue - The Company recognizes revenue from license contracts when a
non-cancelable, non-contingent license agreement has been signed, the software
product has been delivered, no uncertainties exist surrounding product
acceptance, fees from the agreement are fixed and determinable and collection
is
probable. Any revenues from software arrangements with multiple elements
are
allocated to each element of the arrangement based on the relative fair values
using specific objective evidence as defined in the SOPs. If no such objective
evidence exists, revenues from the arrangements are not recognized until
the
entire arrangement is completed and accepted by the customer. Once the amount
of
the revenue for each element is determined, the Company recognizes revenues
as
each element is completed and accepted by the customer. For arrangements
that
require significant production, modification or customization of software,
the
entire arrangement is accounted for by the percentage of completion method,
in
conformity with Accounting Research Bulletin (“ARB”) No. 45 and SOP
81-1.
Services
Revenue - Revenue from consulting services is recognized as the services
are
performed for time-and-materials contracts and contract accounting is utilized
for fixed-price contracts. Revenue from training and development services
is
recognized as the services are performed. Revenue from maintenance agreements
is
recognized ratably over the term of the maintenance agreement, which in most
instances is one year.
(D)
Basic and diluted net loss per share
Net
loss
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (SFAS No. 128), “Earnings per share”. Basic net loss per share
is based upon the weighted average number of common shares outstanding. Dilution
is computed by applying the treasury stock method. Under this method, options
and warrants are assumed to be exercised at the beginning of the period (or
at
the time of issuance, if later), and as if funds obtained thereby were used
to
purchase common stock at the average market price during the period. Weighted
average number of shares used to compute basic and diluted loss per share
is the
same since the effect of dilutive securities is anti-dilutive.
(E)
Reclassifications
For
comparative purposes, prior years' consolidated financial statements have
been
reclassified to conform to report classifications of the current
year.
(F)
New Accounting Pronouncements
In
February 2007, FASB issued FASB Statement No. 159, The Fair Value Option
for
Financial Assets and Financial Liabilities. FAS159 is effective for fiscal
years
beginning after November 15, 2007. Early adoption is permitted subject to
specific requirements outlined in the new Statement. Therefore, calendar-year
companies may be able to adopt FAS 159 for their first quarter 2007 financial
statements.
The
new
Statement allows entities to choose, at specified election dates, to measure
eligible financial assets and liabilities at fair value that are not otherwise
required to be measured at fair value. If a company elects the fair value
option
for an eligible item, changes in that item's fair value in subsequent reporting
periods must be recognized in current earnings. FAS 159 also establishes
presentation and disclosure requirements designed to draw comparison between
entities that elect different measurement attributes for similar assets and
liabilities. The management is currently evaluating the effect of this
pronouncement on financial statements.
In
September 2006, FASB issued SFAS 158 `Employers' Accounting for Defined
Benefit
Pension and Other Postretirement Plans--an amendment of FASB Statements
No. 87,
88, 106, and 132(R)' This Statement improves financial reporting by requiring
an
employer to recognize the over funded or under funded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an asset
or
liability in its statement of financial position and to recognize changes
in
that funded status in the year in which the changes occur through
comprehensive income of a business entity or changes in unrestricted
net
assets of a not-for-profit organization. This Statement also improves financial
reporting by requiring an employer to measure the funded status of a plan
as of
the date of its year-end statement of financial position, with limited
exceptions. An employer with publicly traded equity securities is required
to
initially recognize the funded status of a defined benefit postretirement
plan
and to provide the required disclosures as of the end of the fiscal year
ending
after December 15, 2006. An employer without publicly traded equity securities
is required to recognize the funded status of a defined benefit postretirement
plan and to provide the required disclosures as of the end of the fiscal
year
ending after June 15, 2007. However, an employer without publicly traded
equity
securities is required to disclose the following information in the notes
to
financial statements for a fiscal year ending after December 15, 2006,
but
before June 16, 2007, unless it has applied the recognition provisions
of this
Statement in preparing those financial statements:
|
1.
|
A
brief description of the provisions of this Statement
|
|
2.
|
The
date that adoption is required
|
|
3.
|
The
date the employer plans to adopt the recognition provisions of
this
Statement, if earlier.
|
The
requirement to measure plan assets and benefit obligations as of the date
of the
employer's fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In
September 2006, FASB issued SFAS 157 `Fair Value Measurements'. This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles ("GAAP"), and expands disclosures
about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board
having
previously concluded in those accounting pronouncements that fair value is
the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. However, for some entities, the application
of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007,
and interim periods within those fiscal years. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
NOTE
2 PROPERTY
AND EQUIPMENT
Property
and equipment at March 31, 2007 consisted of the following:
| |
|
|
|
|
Office
and computer equipment
|
|
$
|
128,966
|
|
|
Furniture
and fixtures
|
|
|
101,889
|
|
| |
|
|
230,855
|
|
|
Less
accumulated depreciation
|
|
|
(178,148
|
)
|
| |
|
$
|
52,707
|
|
Depreciation
expense for the three months periods ended March 31, 2007 and 2006 was $
4,471
and $ 7,069, respectively.
NOTE
3 INTANGIBLE
ASSETS
The
Company is accounting for computer software technology costs under the
Capitalization criteria of Statement of Position 98-1 "Accounting for the
Costs
of Computer Software Developed or Obtained for Internal Use."
Expenditures
for maintenance and repairs are expensed when incurred; additions, renewals
and
betterments are capitalized. Amortization is computed using the straight-line
method over the estimated useful life of the asset. Amortization begins from
the
date when the software becomes operational. The website became operational
from
July 1, 2004. The Company amortized $ 19,489 and $12,538 for the three months
periods ended March 31, 2007 and 2006 respectively. The balance at March
31,
2007 amounts to $ 19,489.
The
intangible asset will be fully amortized by June 30, 2007.
NOTE
4 ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
Accounts
payable, accrued expenses and litigation accrual consist of the following
at
March 31, 2007:
|
Trade
payable
|
|
$
|
868,875
|
|
|
Payable
to clients
|
|
|
474,476
|
|
|
Accrued
interest
|
|
|
55,319
|
|
|
Income
tax payable
|
|
|
9,455
|
|
|
Accrued
payroll
|
|
|
6,039
|
|
|
Accrued
payroll tax
|
|
|
3,322
|
|
|
Accrued
expenses
|
|
|
17,587
|
|
|
Accrued
vacation and sick time
|
|
|
13,114
|
|
|
Payable
for purchase of equipment
|
|
|
1,114
|
|
|
Other
payable
|
|
|
31,706
|
|
| |
|
|
|
|
|
Total
accounts payable and accrued expenses
|
|
$
|
1,481,007
|
|
NOTE
5 LINES
OF CREDIT
The
Company has two revolving lines of credit from two financial institutions
for
$50,000 and $75,000. The credit lines are unsecured and bear an annual interest
rate of 10.75% and 16.24%, respectively. The credit lines are personally
guaranteed by the CEO of the Company. The Company has borrowed $15,837 and
$
77,131 from the credit lines as of March 31, 2007.
NOTE
6 NOTES
PAYABLE
|
Notes
payable are summarized as follows:
|
|
|
|
| |
|
2006
|
|
| |
|
|
|
|
|
Equipment
loan: May 2003 due April 2008; payable in monthly installments
of $1,030;
annual interest of 14%; secured by equipment
|
|
$
|
18,938
|
|
| |
|
|
|
|
| |
|
|
|
|
|
Callable
convertible secured note, due
|
|
$
|
1,300,000
|
|
The
Company recorded interest expense of $ 19,500 and $ 12,753 for the three
months
periods ended March 31, 2007 and 2006 respectively.
NOTE
7 CALLABLE
CONVERTIBLE SECURED NOTE AND SECURITIES
PURCHASE
AGREEMENT
On
June
27, 2006, the Company entered into a Securities Purchase Agreement (the
“Securities Purchase Agreement”) with New Millennium Capital Partners II, LLC,
AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC
(collectively, the “Investors”). Under the terms of the Securities Purchase
Agreement, the Investors purchased an aggregate of (i) $2,000,000 in callable
convertible secured notes (the “Notes”) and (ii) warrants to purchase 50,000,000
shares of our common stock (the “Warrants”).
Pursuant
to the Securities Purchase Agreement, the Investors purchased the Notes and
Warrants in three trenches as set forth below:
|
1.
|
At
closing, on July 1, 2006 (“Closing”), the Investors purchased Notes
aggregating $700,000 and warrants to purchase 17,500,000 shares
based on
the prorate shares of our common
stock;
|
|
2.
|
On
August 8, 2006 the investors purchased Notes aggregating $600,000
and
warrants to puchase 15,000,000 shares based on the prorate shares
of our
common stock and,
|
|
3.
|
Upon
effectiveness of the Registration Statement, the Investors will
purchase
Notes aggregating $700,000. The Company has withdrawn the third
trench as
the Registration Statement was not effective to bring more funds
into the
Company.
|
The
Notes
carry an interest rate of 6% and a maturity date of June 27, 2009. The notes
are
convertible into our common shares at the Applicable Percentage of the average
of the lowest three (3) trading prices for our shares of common stock during
the
twenty (20) trading day period prior to conversion. The “Applicable Percentage”
means 50%; provided, however, that the Applicable Percentage shall be increased
to (i) 55% in the event that a Registration Statement is filed within thirty
days of the closing and (ii) 60% in the event that the Registration Statement
becomes effective within one hundred and twenty days from the Closing.
The
Company has an option to prepay the Notes in the event that no event of default
exists, there are a sufficient number of shares available for conversion
of the
Notes and the market price is at or below $.05 per share. In addition, in
the
event that the average daily price of the common stock, as reported by the
reporting service, for each day of the month ending on any determination
date is
below $.05, the Company may prepay a portion of the outstanding principal
amount
of the Notes equal to 101% of the principal amount hereof divided by thirty-six
(36) plus one month’s interest. Exercise of this option will stay all
conversions for the following month. The full principal amount of the Notes
is
due upon default under the terms of Notes. In addition, the Company has granted
the investors a security interest in substantially all of its assets and
intellectual property as well as registration rights.
The
Company simultaneously issued to the Investors seven year warrants to purchase
32,500,000 shares of common stock at an exercise price of $0.07.
The
Investors have contractually agreed to restrict their ability to convert
the
Notes and exercise the Warrants and receive shares of the Company’s common stock
such that the number of shares of the Company’s common stock held by them and
their affiliates after such conversion or exercise does not exceed 4.99%
of the
then issued and outstanding shares of the Company’s common stock.
The
company accrued interest of $19,500 on the note during the three months periods
ended March 31, 2007.
The
Company is in default of the note as its registration statement has not become
effective as stipulated by the agreement. The note is immediately due and
payable and has been shown as a current liability in the accompanying
financials. The Company has accrued interest on the note at the default interest
rate of 18%.
The
Company computed the beneficial conversion liability of $ 1,300,000 and warrant
liability of $ 115,030 based on Black Scholes model. These amounts have been
reflected on the financials as derivative liability in amount of $ 1,415,030.
NOTE
8 STOCKHOLDERS'
DEFICIENCY
Common
Stock
The
Company is presently authorized to issue 750,000,000 shares of $0.001 par
value
Common Stock. The Company currently has 33,960,450 common shares issued and
outstanding. The holders of common stock, and of shares issuable upon exercise
of any Warrants or Options, are entitled to equal dividends and distributions,
per share, with respect to the common stock when, as and if declared by the
Board of Directors from funds legally available therefore. No holder of any
shares of common stock has a pre-emptive right to subscribe for any securities
of the Company nor is any common shares subject to redemption or convertible
into other securities of the Company. Upon liquidation, dissolution or winding
up of the Company, and after payment of creditors and preferred stockholders,
if
any, the assets will be divided pro-rata on a share-for-share basis among
the
holders of the shares of common stock. All shares of common stock now
outstanding are fully paid, validly issued and non-assessable. Each share
of
common stock is entitled to one vote with respect to the election of any
director or any other matter upon which shareholders are required or permitted
to vote. Holders of the Company's common stock do not have cumulative voting
rights, so that the holders of more than 50% of the combined shares voting
for
the election of directors may elect all of the directors, if they choose
to do
so and, in that event, the holders of the remaining shares will not be able
to
elect any members to the Board of Directors.
The
Company did not issue any stock during the three months period ended March
31,
2007.
The
Company recorded $ 1,750 as officer compensation for 250,000 shares to be
issued
pursuant to the employment agreement. The officer is entitled to 1,000,000
shares every year pursuant to the employment agreement. The value of the
stock
is based on the market value at March 31, 2007.
The
Company did not issue any stock during the three month period ended March
31,
2006.
The
Company recorded $ 16,250 as officer compensation for 250,000 shares to be
issued pursuant to the employment agreement. The officer is entitled to
1,000,000 shares every year pursuant to the employment agreement. The value
of
the stock is based on the market at March 31, 2006.
Class
B Preferred Stock
The
Company’s Articles of Incorporation (Articles”) authorize the issuance of
5,000,000 shares of no par value Class B Preferred Stock. No shares of Preferred
Stock are currently issued and outstanding. Under the Company's Articles,
the
Board of Directors has the power, without further action by the holders of
the
Common Stock, to designate the relative rights and preferences of the preferred
stock, and issue the preferred stock in such one or more series as designated
by
the Board of Directors. The designation of rights and preferences could include
preferences as to liquidation, redemption and conversion rights, voting rights,
dividends or other preferences, any of which may be dilutive of the interest
of
the holders of the Common Stock or the Preferred Stock of any other series.
The
issuance of Preferred Stock may have the effect of delaying or preventing
a
change in control of the Company without further shareholder action and may
adversely affect the rights and powers, including voting rights, of the holders
of Common Stock. In certain circumstances, the issuance of preferred stock
could
depress the market price of the Common Stock.
NOTE
9 COMMITMENTS
During
the three month period ending March 31, 2007, the Company leased its corporate
offices space in Upland, California under operating lease agreement. The
facility lease calls for a monthly rent of $3,387. Rent expenses under operating
leases for the three months period ending March 31, 2007 and 2006 were $
10,161
and $10,749. The Company is on a month to month lease as of March 31,
2007.
NOTE
10 GOING
CONCERN
The
accompanying consolidated financial statements have been prepared in conformity
with generally accepted accounting
principles which contemplate continuation of the company as a going concern.
Although the Company had a profit of $ 160,265 for the three months periods
ending March 31, 2007, there is working capital deficiency of $ 4,974,345,
stockholders’ deficit of $ 4,898,500, and an accumulated deficit of $ 6,511,324.
In view of the matters described above, recoverability of a major portion
of the
recorded asset amounts shown in the accompanying consolidated balance sheet
is
dependent upon continued operations of the company, which in turn is dependent
upon the Company’s ability to raise additional capital, obtain financing and
succeed in its future operations. The financial statements do not include
any
adjustments relating to the recoverability and classification of recorded
asset
amounts or amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
Management
has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with
the
ability to continue as a going concern. The Company is actively pursuing
additional funding and seeking new clients for medical billings, which would
enhance stockholders’ investment. Management believes that the above actions
will allow the Company to continue operations through the next fiscal year.
NOTE
11 LITIGATION
The
Company is currently plaintiff to two and defendant to two law suits. The
Company filed claims for non payment of fees by former clients due to clients
diverted funds billed by company and did not pay Billing fees. The Company
has
accrued $ 209,000 in the accompanying financials statements.
1.
On
July 12, 2004, Nimish Shah, M.D. d/b/a New Horizon Medical, Inc. ("New Horizon")
initiated a lawsuit against the Company in the Superior Court of California,
County of Los Angeles, Case No. VC 042695, styled New Horizon Medical, Inc.
v.
HBSGI, et al. In connection with arbitration, the Company has claimed against
New Horizon the compensatory damages in the amount of $75,000 (subject to
amendment), prejudgment interest, costs and attorneys' fees in an unspecified
amount. New Horizon has not submitted a cross-complaint against the Company
for
the breach of contract alleging that there is substantial discrepancy between
the amounts of bills provided by New Horizon to the Company, for the purpose
of
securing payment from various insurance companies, and the funds actually
received from the Company. This matter was dismissed by arbitrator for non
payment of arbitrator's fee.
2
In
January 2004, Claimant Leonard J. Soloniuk, MD initiated an arbitration against
HBSGI with the American Arbitration Association, Case No. 72 193 00102 04
TMS,
styled Leonard J. Soloniuk, MD v. HBSGI
In
a decision dated April 5, 2006, the arbitrator awarded HBSGI nothing against
Soloniuk. The arbitrator further awarded Soloniuk $ 275,000 against the HBSGI
as
well as interest accruing from June 1, 2006, at the rate of ten percent per
annum on the unpaid balance. The arbitrator further ordered HBSGI to reimburse
Soloniuk costs in the amount of $ 1,875. Company argues that of this $275,000,
$210,000 was already paid to Soloniuk since November 4, 2002, last date of
payment were considered by arbitrator and therefore the judgment should be
reduced accordingly. The Company can provide no assurances that it will be
successful in this argument.
3.
Company recently filed new legal actions against Solonuik for fraud, deception,
and intentional non disclosure of money received from HBSGI collection to
the
arbitration hearing to gain advantage. Company also filed an application
of
injunction to prevent Solonuik to use HBSGI billing method. Hearing is set
for
May 10, 2007. Company is suing Solonuik for $750,000 plus cost of
lawsuit.
4.
On
September 20, 1999, Mohammad Tariq, MD was granted a default judgment in
the
District Court of Collin County, Texas, 380th Judicial District in the amount
of
$280,835.10, plus prejudgment and post-judgment interest against Healthcare
Business Services Group, Inc., d/b/a/ Peacock Healthcare. Kamran Ghadimi
bought the Tariq judgment in April 28, 2006 and pursuing collection in
California.
This
matter was settled on November 8, 2006 for $185,000. The Company paid $140,000
out of $185,000 and making payments monthly for $3,000. As of filing this
report
company owes 15 months of payment equal to $45,000. Case was dismissed in
2007.
5.
Healthcare filed a collection action against Frank Zondlo, and Zondlo also
filed
across-complaint against Healthcare. The matter is now in the discovery
and law and motion stage.
From
time
to time, we may become party to litigation or other legal proceedings that
we
consider to be a part of the ordinary course of our business. Other than
the
legal proceedings listed below, we are not currently involved in legal
proceedings that could reasonably be expected to have a material adverse
effect
on our business, prospects, financial condition or results of operations.
However, we may become involved in material legal proceedings in the
future.
NOTE
12 RELATED
PARTY TRANSACTIONS
The
Company recorded $ 1,750 as officer compensation for 250,000 shares to be
issued
pursuant to the employment agreement. The officer is entitled to 1,000,000
shares every year pursuant to the employment agreement. The value of the
stock
is based on the market value at March 31, 2007.
This
report contains forward looking statements within the meaning of section
27a of
the securities act of 1933, as amended and section 21e of the securities
exchange act of 1934, as amended. The company's actual results could differ
materially from those set forth on the forward looking statements as a result
of
the risks set forth in the company's filings with the securities and exchange
commission, general economic conditions, and changes in the assumptions used
in
making such forward looking statements.
OVERVIEW
Winfield
Financial Group, Inc. (the “Registrant”) was incorporated in the State of Nevada
on May 2, 2000. Prior to the Acquisition, discussed below, the Registrant
was a
business broker, primarily representing sellers and offering its clients'
businesses for sale. As a result of the Acquisition, the Registrant changed
its
business focus.
On
April
7, 2004, the Registrant filed Articles of Exchange with the State of Nevada
to
take effect on such date. Under the terms of the Articles of Exchange, the
Registrant was to acquire Vanguard Commercial, Inc., a Nevada corporation
(“Vanguard”) whereby the Registrant was to issue 197,000 of its shares of Common
Stock in exchange for all of the issued and outstanding Common Stock of
Vanguard. Robert Burley, a former Director of the Registrant and the
Registrant’s former President, Chief Executive Officer and Treasurer is also an
officer and director of Vanguard. Subsequent to the effective date of the
exchange with Vanguard, the Registrant and Vanguard mutually agreed to rescind
the transaction. The Registrant filed a Certificate of Correction with the
State
of Nevada rescinding the exchange with Vanguard, which never took place and
the
Registrant never issued any of its shares with respect thereto.
On
April
22, 2004, the Registrant amended its Articles of Incorporation to increase
the
authorized shares to Fifty Million (50,000,000) shares of Common Stock, to
reauthorize the par value of $.001 per share of Common Stock and to reauthorize
5,000,000 shares of preferred stock with a par value of $.001 per share of
preferred stock.
On
April
23, 2004, the Registrant acquired 100% of the issued and outstanding shares
of
Healthcare Business Services Groups, Inc., a Delaware corporation
(“Healthcare”). As part of the same transaction on May 7, 2004, the Registrant
acquired 100% of the issued and outstanding shares of AutoMed Software Corp.,
a
Nevada corporation (“AutoMed”), and 100% of the membership interests of Silver
Shadow Properties, LLC, a Nevada single member limited liability company
(“Silver Shadow”). The transactions are collectively referred to herein as the
“Acquisition.” The Registrant acquired Healthcare, AutoMed, and Silver Shadow
from Chandana Basu, the sole owner, in exchange for 25,150,000 newly issued
treasury shares of the Registrant’s Common Stock. The term “Company” shall
include a reference to Winfield Financial Group, Inc., Healthcare, AutoMed
and
Silver Shadow unless otherwise stated. Healthcare, AutoMed and Silver Shadow
are
sometimes collectively referred to herein as “HBSGII.”
On
June
21, 2004, the Registrant entered into an agreement with Robert Burley (former
Director, President and Chief Executive Officer of the Registrant) and Linda
Burley (former Director and Secretary of the Registrant) whereby the Registrant
agreed to transfer certain assets owned by the Registrant immediately prior
to
the change in control in consideration for Mr. and Mrs. Burley’s cancellation of
an aggregate of 2,640,000 of their shares of the Registrant’s Common Stock. The
Registrant transferred the following assets to Mr. and Mrs. Burley: i) the
right
to the name “Winfield Financial Group, Inc.” and ii) any contracts, agreements,
rights or other intangible property that related to the Registrant’s business
operations immediately prior to the change in control whether or not such
intangible property was accounted for in the Registrant’s financial statements.
After the issuance of shares to Ms. Basu and the cancellation of 2,640,000
shares of Mr. and Mrs. Burley, there were 28,774,650 shares of the Registrant’s
Common Stock outstanding. As a result of these transactions, control of the
Registrant shifted to Ms. Basu. Ms. Basu currently owns 25,150,000 shares
(or
approximately 81.1%) out of 31,040,150 of the Registrant’s issued and
outstanding Common Stock.
On
January 5, 2005, the Registrant changed its name to Healthcare Business Services
Groups, Inc. The Registrant is a holding company for HBSGI. The business
operations discussed herein are conducted by HBSGI. The Registrant, through
HBSGI, is engaged in the business of providing medical billing services to
healthcare providers in the United States.
The
Company is a medical billing service provider that for over fourteen years
has
assisted various healthcare providers to successfully enhance their billing
function. The Company has a diversified market base with headquartered in
Upland, California. The Company has developed a proprietary medical billing
software system named AutoMed™. The Company has installed, and is currently
ready to market and install, AutoMed™ at some of the Company’s existing medical
billing clients. The Company expects that after this software is launched,
revenues will grow substantially over the next three to five years extending
its
billing model into the technology era.
RESULTS
OF OPERATIONS
THREE
MONTH PERIOD ENDED MARCH 31, 2007 COMPARED TO THREE MONTH PERIOD ENDED MARCH
31,
2006
Revenue
for the three month period ended March 31, 2007 were $ 284,434 compared to
$
314,809 for the same period in 2006. The decrease in revenues was due to
reduction in collections from the customers and hence decrease in commissions
earned during the three month period ended March 31, 2007 as compared to
same
period in 2006. The Company expects to earn higher revenues in future since
it
has hired more marketing representatives. The revenues are recognized on
accrual
basis of accounting.
General
& administrative (“G&A”) expense for the three month period ended March
31, 2007 was $ 258,612 compared to $ 326,838 for the same period in 2006.
The
decrease in G&A expenses in 2007 was due to decrease in costs incurred by
the Company in marketing the company’s business as well as legal fees paid
against settlement of various litigations.
Depreciation
and amortization was $ 23,960 for the three month period ended March 31,
2007 as
compared to $ 19,607 for the same period in 2006. The depreciation and
amortization expense is consistent with the prior year since the assets are
being depreciated straight line over the life.
Interest
expense and financing costs for the three month period ended March 31, 2007
was
$ 27,499 compared to $ 17,755 for the same period in 2006. The increase in
interest expense and financing costs are due to $ 1,300,000 note that Company
borrowed during the year.
Net
income was $ 160,265 (or basic and diluted net income per share of $(0.00)
for
the three month period ended March 31, 2007 as compared to net loss of $
(217,341) (or basic and diluted net loss per share of $0.01) for the same
period
in 2006. The net income for the three month period ending March 31, 2007
is
because of the change in fair value of derivative liability associated with
the
$ 1,300,000 note.
LIQUIDITY
AND CAPITAL RESOURCES
The
Company had a working capital deficiency of $ 4,974,345 as of March 31, 2007.
The Company had total assets of $ 75,845 as of March 31, 2007, which consisted
of $ 52,707 of property and equipment, $ 19,489 of intangible assets from
the
Company’s website technology costs and $3,650 of deposits.
The
Company had total current liabilities of $ 4,974,345 as of March 31, 2007,
consisting of accounts payable and accrued expenses of $ 1,481,007, litigation
accrual of $ 209,000, line of credit of $92,968, note payable to third parties
of $ 1,318,938, due to officer of $ 452,402 and $ 1,415,030 in derivative
liability related to $ 1,300,000 note and 50,000,000 warrants associated
with
the note.
The
Company has two revolving lines of credit from two financial institutions
for
$50,000 and $75,000. The credit lines are unsecured and bear an annual interest
rate of 10.75% and 16.24%, respectively. The credit lines are personally
guaranteed by the CEO of the Company. The Company has borrowed $15,837 and
$
77,131 from the credit lines as of March 31, 2007.
Net
cash
provided by operating activities was $ 19,471 for the three month period
ended
March 31, 2007, as compared to net cash used in operating activities of $
139,577 during the same period in 2006.
Net
cash
used in investing activity for the three month period ended March 31, 2007
was
$16,021 as compared to no net cash used in investing activities during the
same
period in 2006.
Net
cash
used in financing activities was $ 3,450 for the three month period ended
March
31, 2007, as compared to net cash used in financing activities of $ 21,778
for
the same period in 2006.
The
Company does not have any commitments or identified sources of additional
capital from third parties or from its officers, directors or majority
shareholders. There is no assurance that additional financing will be available
on favorable terms, if at all. If the Company is unable to raise such additional
financing, it would have a materially adverse effect upon the Company's ability
to implement its business plan and may cause the Company to curtail or scale
back its current operations.
On
June
27, 2006, the Company entered into a Securities Purchase Agreement (the
“Securities Purchase Agreement”) with New Millennium Capital Partners II, LLC,
AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC
(collectively, the “Investors”). Under the terms of the Securities Purchase
Agreement, the Investors purchased an aggregate of (i) $2,000,000 in callable
convertible secured notes (the “Notes”) and (ii) warrants to purchase 50,000,000
shares of our common stock (the “Warrants”).
Pursuant
to the Securities Purchase Agreement, the Investors purchased the Notes and
Warrants in three trenches as set forth below:
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1.
|
At
closing, on July 1, 2006 (“Closing”), the Investors purchased Notes
aggregating $700,000 and warrants to purchase 17,500,000 shares
based on
the prorate shares of our common
stock;
|
|
2.
|
On
August 8, 2006 the investors purchased Notes aggregating $600,000
and
warrants to puchase 15,000,000 shares based on the prorate shares
of our
common stock and,
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3.
|
Upon
effectiveness of the Registration Statement, the Investors will
purchase
Notes aggregating $700,000. The Company has withdrawn the third
trench as
the Registration Statement was not effective to bring more funds
into the
Company.
|
The
Notes
carry an interest rate of 6% and a maturity date of June 27, 2009. The notes
are
convertible into our common shares at the Applicable Percentage of the average
of the lowest three (3) trading prices for our shares of common stock during
the
twenty (20) trading day period prior to conversion. The “Applicable Percentage”
means 50%; provided, however, that the Applicable Percentage shall be increased
to (i) 55% in the event that a Registration Statement is filed within thirty
days of the closing and (ii) 60% in the event that the Registration Statement
becomes effective within one hundred and twenty days from the Closing.
The
Company has an option to prepay the Notes in the event that no event of default
exists, there are a sufficient number of shares available for conversion
of the
Notes and the market price is at or below $.05 per share. In addition, in
the
event that the average daily price of the common stock, as reported by the
reporting service, for each day of the month ending on any determination
date is
below $.05, the Company may prepay a portion of the outstanding principal
amount
of the Notes equal to 101% of the principal amount hereof divided by thirty-six
(36) plus one month’s interest. Exercise of this option will stay all
conversions for the following month. The full principal amount of the Notes
is
due upon default under the terms of Notes. In addition, the Company has granted
the investors a security interest in substantially all of its assets and
intellectual property as well as registration rights.
The
Company simultaneously issued to the Investors seven year warrants to purchase
32,500,000 shares
of
common stock at an exercise price of $.07.
The
Investors have contractually agreed to restrict their ability to convert
the
Notes and exercise the Warrants and receive shares of the Company’s common stock
such that the number of shares of the Company’s common stock held by them and
their affiliates after such conversion or exercise does not exceed 4.99%
of the
then issued and outstanding shares of the Company’s common stock.
The
Company has received the $ 1,300,000 through March 31, 2007.
RISK
FACTORS
WE
NEED A
SUBSTANTIAL AMOUNT OF ADDITIONAL FINANCING.
In
addition to its continued medical billing operation, the Company has planned
to
begin marketing AutoMed. The Company believes that it can satisfy the current
cash requirements for Medical Billing, if the Company maintains its operations
as they are currently. The Company needs to raise $3 to $5 million of additional
financing to implement its business plan with respect to AutoMed .
The
Company intends to raise the additional capital in one or more private
placements. The Company does not have any commitments or identified sources
of
additional capital from third parties or from its officers, directors or
majority shareholders. There is no assurance that additional financing will
be
available on favorable terms, if at all. If the Company is unable to raise
such
additional financing, or accepts financing on unfavorable terms to the Company,
it could have a materially adverse effect upon the Company's ability to
implement its business plan with respect to AutoMed, and may force the Company
to curtail or scale back its current Medical Billing operations.
WE
PAY A
SUBSTANTIAL SALARY TO OUR CHIEF EXECUTIVE OFFICER AND TREASURER.
Chandana
Basu, our Chief Executive Officer and Treasurer, receives a substantial amount
of $50,000 per month (or $600,000 per year) for her services, which includes
approximately $5,000 of salary and a minimum bonus of $45,000 each month
(accrues if not paid). The amount of salary that Ms. Basu receives relative
to
the Company's revenue and other expenses reduces the likelihood that the
Company
will make a profit, and increases the possibility that the Company be forced
to
curtail or abandon its business plan in the future if the Company fails to
raise
additional capital.
WE
MAY
NOT BE SUCCESSFUL IN SELLING AUTOMED SOFTWARE
Currently
the Company is in the process of marketing the AutoMed software through
distributors. There is no revenue generated as of the date of this report
and
there’s no guarantee that the Company will be successful in selling AutoMed. The
Company need additional capital to market the software.
A
SUBSTANTIAL AMOUNT OF OUR REVENUES COME FROM FOUR MAIN CLIENTS.
The
three
major customers of the Company provided $ 216,143 or 76% of the revenues
of the
Company for for the three month period ended March 31, 2007. If the Company
were
to lose any or all of these three clients, it would have a materially adverse
effect on the Company's revenue, and if the Company is unable to gain a new
large client to take its place, of a sufficient number of smaller clients
to
take the place of the major client or clients who are lost, the Company could
be
forced to abandon or curtail its business plan.
ABOUT
OUR
ABILITY TO CONTINUE AS A GOING CONCERN.
Although
the Company had a profit of $ 160,265 for the three month period ending March
31, 2007 there is working capital deficiency of $ 4,974,345, stockholders’
deficit of $ 4,898,500, an accumulated deficit of $ 6,511,324.. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. The financial statements do not include any adjustments
that
might result from our inability to continue as a going concern. Our continuation
as a going concern is dependent upon future events, including obtaining
financing (discussed above) for expansion and to implement our business plan
with respect to AutoMed and Surgery Centers. If we are unable to continue
as a
going concern, you will lose your entire investment.
WE
RELY
ON KEY MANAGEMENT.
The
success of the Company depends upon the personal efforts and abilities of
Chandana Basu. The Company faces competition in retaining Ms. Basu and in
attracting new personnel should Ms. Basu chose to leave the Company. There
is no
assurance that the Company will be able to retain and/or continue to adequately
motivate Ms. Basu in the future. The loss of Ms. Basu or the Company's inability
to continue to adequately motivate her could have a material adverse effect
on
the Company's business and operations.
BECAUSE
MS. CHANDANA BASU OWNS 81.1% OF OUR OUTSTANDING COMMON STOCK, SHE WILL EXERCISE
CONTROL OVER CORPORATE DECISIONS THAT MAY BE ADVERSE TO OTHER MINORITY
SHAREHOLDERS.
Chandana
Basu, a Director of the Company and the Company's Chief Executive Officer
and
Treasurer, owns approximately 81.1% of the issued and outstanding shares
of our
common stock. Accordingly, she will exercise control in determining the outcome
of all corporate transactions or other matters, including mergers,
consolidations and the sale of all or substantially all of our assets, and
also
the power to prevent or cause a change in control. The interests of Ms. Basu
may
differ from the interests of the other stockholders and thus result in corporate
decisions that are adverse to other shareholders.
IF
THERE'S A MARKET FOR OUR COMMON STOCK, OUR STOCK PRICE MAY BE
VOLATILE.
If
there's a market for our common stock, we anticipate that such market would
be
subject to wide fluctuations in response to several factors, including, but
not
limited to:
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|
(1)
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actual
or anticipated variations in our results of
operations;
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(2)
|
our
ability or inability to generate new
revenues;
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(3)
|
increased
competition; and
|
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(4)
|
conditions
and trends in the medical billing
industry.
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Further,
because our common stock is traded on the NASD over the counter bulletin
board,
our stock price may be impacted by factors that are unrelated or
disproportionate to our operating performance. These market fluctuations,
as
well as general economic, political and market conditions, such as recessions,
interest rates or international currency fluctuations may adversely affect
the
market price of our common stock.
CRITICAL
ACCOUNTING POLICIES
Our
discussion and analysis of our financial condition and results of operations
is
based upon our financial statements, which have been prepared in accordance
with
accounting principals generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments
that
affect the reported amounts of assets, liabilities, revenues and expenses,
and
related disclosure of any contingent assets and liabilities. On an on-going
basis, we evaluate our estimates. We base our estimates on various assumptions
that we believe to be reasonable under the circumstances, the results of
which
form the basis for making judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may
differ from these estimates under different assumptions or
conditions.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our financial
statements:
(A)
Use of Estimates
In
preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that
affect
the reported amounts of assets, liabilities, revenues and expenses, as well
as
certain financial statements disclosures. While management believes that
the
estimates and assumptions used in the preparation of the financial statements
are appropriate, actual results could differ from those estimates.
(B)
Cash and Cash Equivalents
For
purposes of the cash flow statements, the Company considers all highly liquid
investments with original maturities of three months or less at the time
of
purchase to be cash equivalents.
(C)
Revenue Recognition
The
Company's revenue recognition policies are in compliance with Staff accounting
bulletin SAB 104. All revenue is recognized when persuasive evidence of an
arrangement exists, the service or sale is complete, the price is fixed or
determinable and collectibility is reasonably assured. Revenue is derived
from
collections of medical billing services. Revenue is recognized when the
collection process is complete which occurs when the money is collected and
recognized on a net basis.
License
Revenue - The Company recognizes revenue from license contracts when a
non-cancelable, non-contingent license agreement has been signed, the software
product has been delivered, no uncertainties exist surrounding product
acceptance, fees from the agreement are fixed and determinable and collection
is
probable. Any revenues from software arrangements with multiple elements
are
allocated to each element of the arrangement based on the relative fair values
using specific objective evidence as defined in the SOPs. If no such objective
evidence exists, revenues from the arrangements are not recognized until
the
entire arrangement is completed and accepted by the customer. Once the amount
of
the revenue for each element is determined, the Company recognizes revenues
as
each element is completed and accepted by the customer. For arrangements
that
require significant production, modification or customization of software,
the
entire arrangement is accounted for by the percentage of completion method,
in
conformity with Accounting Research Bulletin (“ARB”) No. 45 and SOP
81-1.
Services
Revenue - Revenue from consulting services is recognized as the services
are
performed for time-and-materials contracts and contract accounting is utilized
for fixed-price contracts. Revenue from training and development services
is
recognized as the services are performed. Revenue from maintenance agreements
is
recognized ratably over the term of the maintenance agreement, which in most
instances is one year.
(D)
Property and Equipment
Property
and equipment is stated at cost. Additions are capitalized and maintenance
and
repairs are charged to expense as incurred. Gains and losses on dispositions
of
equipment are reflected in operations. Depreciation is provided using the
straight-line method over the estimated useful life of the assets from three
to
seven years. Expenditures for maintenance and repairs are charged to expense
as
incurred.
(E)
Software development Costs
The
Company complied with Statement of Position 98-1 ("SOP 98-1") "Accounting
for
the Costs of Computer Software Developed or Obtained for Internal Use", as
accounting policy for internally developed computer software costs. Under
SOP
98-1, we capitalized software development costs incurred during the application
development stage.
Subsequently,
the Company decided to market the software AutoMed. Therefore the Company
is
following the guideline under SFAS 86. SFAS 86 specifies that costs incurred
internally in creating a computer software product shall be charged to expense
when incurred as research and development until technological feasibility
has
been established for the product. Thereafter, all software production costs
shall be capitalized and subsequently reported at the lower of unamortized
cost
or net realizable value.
Capitalized
costs is being amortized based on current and future revenue for the product
(AutoMed) with an annual minimum equal to the straight-line amortization
over
the remaining estimated economic life of the product.
(F)
Impairment of Long-Lived Assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS
144"), which addresses financial accounting and reporting for the impairment
or
disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for
the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations for a Disposal of a Segment of a Business." The
Company periodically evaluates the carrying value of long-lived assets to
be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. In that event,
a
loss is recognized based on the amount by which the carrying amount exceeds
the
fair market value of the long-lived assets. Loss on long-lived assets to
be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal.
(G)
Stock-based Compensation
The
Company accounts for non-cash stock-based compensation issued to non-employees
in accordance with the provisions of SFAS No. 123 and EITF No. 96-18, Accounting
for Equity Investments That Are Issued to Non-Employees for Acquiring, or
in
Conjunction with Selling Goods or Services. Common stock issued to non-employees
and consultants is based upon the value of the services received or the quoted
market price, whichever value is more readily determinable. The Company accounts
for stock options and warrants issued to employees under the intrinsic value
method. Under this method, the Company recognizes no compensation expense
for
stock options or warrants granted when the number of underlying shares is
known
and the exercise price of the option or warrant is greater than or equal
to the
fair market value of the stock on the date of grant. As of December 31, 2006,
there were no options or warrants outstanding.
In
December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based
Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock Based Compensation", to provide alternative methods
of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends
the
disclosure requirements of Statement 123 to require prominent disclosures
in
both annual and interim financial statements about the method of accounting
for
stock-based employee compensation and the effect of the method used, on reported
results. The adoption of SFAS No. 148 did not have a material affect on the
net
loss of the Company.
(H)
Basic and diluted net loss per share
Net
loss
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (SFAS No. 128), “Earnings per share”. Basic net loss per share
is based upon the weighted average number of common shares outstanding. Dilution
is computed by applying the treasury stock method. Under this method, options
and warrants are assumed to be exercised at the beginning of the period (or
at
the time of issuance, if later), and as if funds obtained thereby were used
to
purchase common stock at the average market price during the period. Weighted
average number of shares used to compute basic and diluted loss per share
is the
same since the effect of dilutive securities is anti-dilutive.
(I)
Fair Value of Financial Instruments
Statement
of Financial Accounting Standards No. 107, “Disclosures About Fair Value of
Financial Instruments” requires disclosures of information about the fair value
of certain financial instruments for which it is practicable to estimate
that
value. For purposes of this disclosure, the fair value of a financial instrument
is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation.
The carrying amounts of the Company’s accounts and other receivables, accounts
payable, accrued liabilities, factor payable, capital lease
payable and notes and loans payable approximates fair value due to the
relatively short period to maturity for these
instruments.
(J)
Concentrations of Risk
Financial
instruments which potentially subject the Company to concentrations of credit
risk are cash and accounts receivable. The Company places its cash with
financial institutions deemed by management to be of high credit quality.
The
amount on deposit in any one institution that exceeds federally insured limits
is subject to credit risk. All of the Company’s revenue and majority of its
assets are derived from operations in Unites States of America.
(K)
Reporting Segments
Statement
of financial accounting standards No. 131, Disclosures about segments of
an
enterprise and related information (SFAS No. 131), which superseded statement
of
financial accounting standards No. 14, Financial reporting for segments of
a
business enterprise, establishes standards for the way that public enterprises
report information about operating segments in annual financial statements.
Healthcare
is a medical billing service provider. Healthcare’s sister company, AutoMed, has
developed a proprietary software system. In addition, Healthcare's other
sister
company, Silver Shadow, made an investment in real estate where Healthcare
plans
to construct its first surgical center and corporate office
development.
There
has
been very insignificant activity in Automed and Silver Shadow. Hence the
Company
has determined it has only one segment.
(L)
Comprehensive Income
Statement
of financial accounting standards No. 130, Reporting comprehensive income
(SFAS
No. 130), establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined
to include all changes in equity, except those resulting from investments
by
owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in
financial statements that are displayed with the same prominence as other
financial statements.
(M)
Reclassifications
For
comparative purposes, prior years' consolidated financial statements have
been
reclassified to conform to report classifications of the current
year.
(N)
New Accounting Pronouncements
In
February 2007, FASB issued FASB Statement No. 159, The Fair Value Option
for
Financial Assets and Financial Liabilities. FAS159 is effective for fiscal
years
beginning after November 15, 2007. Early adoption is permitted subject to
specific requirements outlined in the new Statement. Therefore, calendar-year
companies may be able to adopt FAS 159 for their first quarter 2007 financial
statements.
The
new
Statement allows entities to choose, at specified election dates, to measure
eligible financial assets and liabilities at fair value that are not otherwise
required to be measured at fair value. If a company elects the fair value
option
for an eligible item, changes in that item's fair value in subsequent reporting
periods must be recognized in current earnings. FAS 159 also establishes
presentation and disclosure requirements designed to draw comparison between
entities that elect different measurement attributes for similar assets and
liabilities. The management is currently evaluating the effect of this
pronouncement on financial statements.
In
September 2006, FASB issued SFAS 158 `Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans--an amendment of FASB Statements No.
87,
88, 106, and 132(R)' This Statement improves financial reporting by requiring
an
employer to recognize the over funded or under funded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an asset
or
liability in its statement of financial position and to recognize changes
in
that funded status in the year in which the changes occur through comprehensive
income of a business entity or changes in unrestricted net assets of a
not-for-profit organization. This Statement also improves financial reporting
by
requiring an employer to measure the funded status of a plan as of the date
of
its year-end statement of financial position, with limited exceptions. An
employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan and
to
provide the required disclosures as of the end of the fiscal year ending
after
December 15, 2006. An employer without publicly traded equity securities
is
required to recognize the funded status of a defined benefit postretirement
plan
and to provide the required disclosures as of the end of the fiscal year
ending
after June 15, 2007. However, an employer without publicly traded equity
securities is required to disclose the following information in the notes
to
financial statements for a fiscal year ending after December 15, 2006, but
before June 16, 2007, unless it has applied the recognition provisions of
this
Statement in preparing those financial statements:
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1.
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A
brief description of the provisions of this Statement
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2.
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The
date that adoption is required
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3.
|
The
date the employer plans to adopt the recognition provisions of
this
Statement, if earlier.
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The
requirement to measure plan assets and benefit obligations as of the date
of the
employer's fiscal year-end statement of financial position is effective
forfiscal years ending after December 15, 2008. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements. In September 2006, FASB issued SFAS 157 `Fair Value Measurements'.
This Statement defines fair value, establishes a framework for measuring
fair
value in generally accepted accounting principles ("GAAP"), and expands
disclosures about fair value measurements. This Statement applies under other
accounting
pronouncements that require or permit fair value measurements, the Board
having
previously concluded in those accounting pronouncements that fair value is
the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. However, for some entities, the application
of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007,
and interim periods within those fiscal years. The management is currently
evaluating the effect of this pronouncement on the consolidated
financial
statements.
(a)
Evaluation of disclosure controls and procedures. Our chief executive officer
and principal financial officer, after evaluating the effectiveness of the
Company's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the
period
covered by this quarterly report (the "Evaluation Date"), has concluded that
as
of the Evaluation Date, our disclosure controls and procedures were effective
and designed to ensure that material information required to be disclosed
by the
Company in the reports that it files or submits under the Exchange Act of
1934
is 1) recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms; and 2) accumulated and
communicated to her as appropriate to allow timely decisions regarding required
disclosure.
(b)
Changes in internal control over financial reporting. There were no significant
changes in our internal control over financial reporting during our most
recent
fiscal quarter that materially affected, or were reasonably likely to materially
affect, our internal control over financial reporting.
ITEM
1. LEGAL PROCEEDINGS
The
Company is currently plaintiff to two and defendant to two law suits. The
Company filed claims for non payment of fees by former clients due to clients
diverted funds billed by company and did not pay Billing fees. The Company
has
accrued $ 209,000 in the accompanying financials and has recorded them as
a
liability
1.
On
July 12, 2004, Nimish Shah, M.D. d/b/a New Horizon Medical, Inc. ("New Horizon")
initiated a lawsuit against the Company in the Superior Court of California,
County of Los Angeles, Case No. VC 042695, styled New Horizon Medical, Inc.
v.
HBSGI, et al. In connection with arbitration, the Company has claimed against
New Horizon the compensatory damages in the amount of $75,000 (subject to
amendment), prejudgment interest, costs and attorneys' fees in an unspecified
amount. New Horizon has not submitted a cross-complaint against the Company
for
the breach of contract alleging that there is substantial discrepancy between
the amounts of bills provided by New Horizon to the Company, for the purpose
of
securing payment from various insurance companies, and the funds actually
received from the Company. This matter was dismissed by arbitrator for non
payment of arbitrator's fee.
2
In
January 2004, Claimant Leonard J. Soloniuk, MD initiated an arbitration against
HBSGI with the American Arbitration Association, Case No. 72 193 00102 04
TMS,
styled Leonard J. Soloniuk, MD v. HBSGI
In
a
decision dated April 5, 2006, the arbitrator awarded HBSGI nothing against
Soloniuk. The arbitrator further awarded Soloniuk $ 275,000 against the HBSGI
as
well as interest accruing from June 1, 2006, at the rate of ten percent per
annum on the unpaid balance. The arbitrator further ordered HBSGI to reimburse
Soloniuk costs in the amount of $ 1,875. Company argues that of this $275,000,
$210,000 was already paid to Soloniuk since November 4, 2002, last date of
payment were considered by arbitrator and therefore the judgment should be
reduced accordingly. The Company can provide no assurances that it will be
successful in this argument.
3.
Company recently filed new legal actions against Solonuik for fraud, deception,
and intentional non disclosure of money received from HBSGI collection to
the
arbitration hearing to gain advantage. Company also filed an application
of
injunction to prevent Solonuik to use HBSGI billing method. Hearing is set
for
May 10, 2007. Company is suing Solonuik for $750,000 plus cost of
lawsuit.
4.
On
September 20, 1999, Mohammad Tariq, MD was granted a default judgment in
the
District Court of Collin County, Texas, 380th Judicial District in the amount
of
$280,835.10, plus prejudgment and post-judgment interest against Healthcare
Business Services Group, Inc., d/b/a/ Peacock Healthcare. Kamran Ghadimi
bought the Tariq judgment in April 28, 2006 and pursuing collection in
California.
This
matter was settled on November 8, 2006 for $185,000. The Company paid $140,000
out of $185,000 and making payments monthly for $3000.00. As of filing this
report company owes 15 months of payment equal to $45,000. Case was dismissed
in
2007.
From
time
to time, we may become party to litigation or other legal proceedings that
we
consider to be a part of the ordinary course of our business. Other than
the
legal proceedings listed below, we are not currently involved in legal
proceedings that could reasonably be expected to have a material adverse
effect
on our business, prospects, financial condition or results of operations.
However, we may become involved in material legal proceedings in the
future.
Healthcare
filed a collection action against Frank Zondlo, and Zondlo also filed
across-complaint against Healthcare. The matter is now in the discovery
and law and motion stage.
ITEM
2. CHANGES IN SECURITIES
The
Company increased its authorized capital to 750,000,000 shares from 50,000,000
shares of common stock $0.001 par value as of March 31, 2007.
The
Company did not issue any stock during the three month period ended March
31,
2007.
The
Company recorded $ 1,750 as officer compensation for 250,000 shares to be
issued
pursuant to the employment agreement. The officer is entitled to 1,000,000
shares every year pursuant to the employment agreement. The value of the
stock
is based on the market at March 31, 2007.
The
Company did not issue any stock during the three month period ended March
31,
2006.
The
Company recorded $ 16,250 as officer compensation for 250,000 shares to be
issued pursuant to the employment agreement. The officer is entitled to
1,000,000 shares every year pursuant to the employment agreement. The value
of
the stock is based on the market at March 31, 2006.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM
5. OTHER INFORMATION
None
ITEM
6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
Exhibits
|
Exhibit
No.*
|
Description
|
|
|
|
|
31.1
|
Certificate
of the Chief Executive Officer and Principal Financial Officer
pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
|
|
|
32.1
|
Certificate
of the Chief Executive Officer and Principal Financial Officer
pursuant to
Section 906 of the Sarbanes- Oxley Act of
2002*
|
*
Filed
Herein.
(b)
Reports on Form 8-K
The
Company filed no Reports on Form 8-K during the fiscal quarter ended March
31,
2007.
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Healthcare Business Services Group, Inc.
Dated:
May 19, 2007
By:
/s/
Chandana Basu
Chandana
Basu,
Chief
Executive Officer and
Principal
Financial Officer