10KSB 1 healthcare10ksb123105.txt HEALTHCARE BUSINESS SERVICES GROUPS, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 2005 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- ------------- Commission file number: 000-50014 HEALTHCARE BUSINESS SERVICES GROUPS, INC. --------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) NEVADA 33-0643091 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1126 West Foothill Blvd, Suite 105, Upland, CA 91786 ------------------------------------------------- (Address of principal executive offices) (909) 608-2035 ------------------------------- (Registrant's telephone number) Securities registered under Section 12(b) of the Exchange Act: NONE Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, $.001 PAR VALUE PER SHARE Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The issuer's revenues for the most recent fiscal year ended December 31, 2005 were $1,565,262. The aggregate market value of the issuer's voting and non-voting common equity held by non-affiliates computed by reference to the average bid and ask price of such common equity as of April 11, 2006, was approximately $2,207,410. As of April 11, 2006 the issuer had 33,960,150 shares of common stock, $.001 par value per share outstanding ("Common Stock"). Documents Incorporated by Reference: NONE Transitional Small Business Disclosure Format: Yes [ ] No [X] HEALTHCARE BUSINESS SERVICES GROUPS, INC. FORM 10-KSB YEAR ENDED December 31, 2005 INDEX Part I Item 1. Description of Business 4 Item 2. Description of Property 7 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Security Holders 9 Part II Item 5. Market for Common Equity and Related Stockholder Matters 10 Item 6. Management's Discussion and Analysis or Plan of Operation 11 Item 7. Financial Statements 17 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 19 Item 8A. Controls and Procedures 19 Part III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 19 Item 10. Executive Compensation 21 Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 22 Item 12. Certain Relationships and Related Transactions 22 Item 13. Exhibits and Reports on Form 8-K (a) Exhibits 23 (b) Reports on Form 8-K 24 Item 14. Principal Accountant Fees and Services 25 PART I ITEM 1. DESCRIPTION OF BUSINESS SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this Annual Report on Form 10-KSB (this "Form 10 KSB"), including statements under "Item 1. Description of Business," and "Item 6. Management's Discussion and Analysis", constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 (collectively, the "Reform Act"). Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "should", or "anticipates", or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Healthcare Business Services Groups, Inc. (the Company", "we", "us" or "our") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. References in this form 10-KSB, unless another date is stated, are to December 31, 2005. BUSINESS DEVELOPMENT The Company was incorporated in the State of Nevada on May 2, 2000, as Winfield Capital Group, Inc. On June 6, 2001, the Company filed a Certificate of Amendment to its Articles of Incorporation to affect a name change to "Winfield Financial Group, Inc." On April 23, 2004, the Company acquired 100% of the equity interest of Healthcare Business Services Groups, Inc. ("Healthcare"). As part of the same transaction, the Company acquired 100% of the equity interest of AutoMed Software Corp. ("AutoMed") and Silver Shadow Properties, LLC ("Silver Shadow") on May 7, 2004. Prior to the Acquisition (defined below), the Company was a business broker, primarily representing sellers and offering its clients' businesses for sale. As a result of the acquisition, the Company changed its business focus to medical billing. On January 7, 2005, the Company filed a Certificate of Amendment to its Articles of Incorporation, with the Nevada Secretary of State and changed its name to "Healthcare Business Services Groups, Inc." On April 23, 2004, the Company 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 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." The Company acquired Healthcare, AutoMed, and Silver Shadow from Chandana Basu, the sole owner, in exchange for 25,150,000 newly issued treasury shares of the Company's Common Stock. As a result of the Acquisition, the Company has changed its business focus. The term "Company" shall include a reference to Healthcare Business Services Groups, Inc. (the "Company"), Healthcare, AutoMed and Silver Shadow unless otherwise stated in this report on Form 10-KSB. Healthcare, AutoMed and Silver Shadow are sometimes collectively referred to herein as "HBSGI." During the year, the Company transferred the real estate and construction with historical cost of $ 488,137 and the loan associated with the real estate worth $ 250,000 with accrued interest of $ 12,500 to the officer of the Company. 4 On June 21, 2004, the Company entered into an agreement with Robert Burley (former Director, President and Chief Executive Officer of the Company) and Linda Burley (former Director and Secretary of the Company) whereby the Company agreed to transfer certain assets owned by the Company 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 Company's common stock. The Company 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 Company's business operations immediately prior to the change in control whether or not such intangible property was accounted for in the Company's financial statements. After the issuance of shares to Ms. Basu and the cancellation of 2,640,000 shares of Mr. and Mrs. Burley's Common Stock, there were 29,774,650 shares of the Company's Common Stock outstanding. As a result of these transactions, control of the Company shifted to Ms. Basu. Ms. Basu currently owns 25,750,000 shares (or approximately 75.8%) out of 33,960,150 shares of the Company's issued and outstanding Common Stock. The Company is a holding company for HBSGI. The business operations discussed herein are conducted by HBSGI. The Company, through HBSGI, is engaged in the business of providing medical billing services to health care providers in the United States. DESCRIPTION OF THE COMPANY'S FORMER BUSINESS OPERATIONS Prior to the Acquisition of Healthcare, AutoMed, and Silver Shadow (described above), the Company operated as a business broker, primarily representing sellers and offering its clients' businesses for sale. The Company limited its business to asset sale transactions and not transactions in which businesses are sold through the sale of stock. DESCRIPTION OF THE COMPANY'S CURRENT BUSINESS OPERATIONS As a result of the Acquisition, discussed above, the Company operates as a medical billing service provider which attempts to assist various health care providers to enhance their billing functions. The Company has a diversified market base with customers in Texas, California, Florida, New York and Washington. The Company has developed a proprietary medical billing software system named AutoMed. The Company has beta tested AutoMed, is currently using AutoMed in-house for its billing services, and plans to market AutoMed commercially in 2006. The Company expects that after AutoMed is launched, the Company's revenues will grow over the next three to five years, as the Company extends its billing model into the technology era, however, the Company can give no assurances that it will see increases in revenue, when AutoMed is launched, if ever. In addition, the Company made an investment in real estate which the Company had rezoned for development and construction of a surgical center. During the year, the Company transferred the real estate and construction with historical cost of $ 488,137 and the loan associated with the real estate worth $ 250,000 with accrued interest of $ 12,500 to the officer of the Company. The Company, through a reimbursement account owned by its clients, bills and collects on medical billings. The Company controls the account through which all of the money is deposited. The Company retains a percentage of the collection as a fee, typically 10%, and remits the balance to the client. 5 DESCRIPTION OF THE COMPANY'S PRINCIPAL PRODUCTS AND SERVICES The Company is a medical reimbursement consulting firm dedicated to helping medical practices become more efficient and save money by allowing them to out-source their insurance processing and medical billing functions. The Company currently provides medical billing services ("Medical Billing") to various health care providers within the United States. The Company is in the process of entering into another new line of business: the research, development and marketing of its proprietary medical billing software ("AutoMed"). The Company's traditional core competency is Medical Billing. The Company conducts the Medical Billing line of business through its Delaware subsidiary, Healthcare Business Services Groups, Inc. With Medical Billing, the Company has a successful track record of assisting various health care providers to successfully enhance their billing function. The Company also continues to increase relationships with physicians and medical specialty practices around the country to provide its Medical Billing services. The Company believes that the automated AutoMed line of business will provide higher margins to the Company's overall business operations. COMPETITIVE BUSINESS CONDITIONS MEDICAL BILLING Due to today's extremely competitive healthcare industry, many healthcare providers are outsourcing their billing operations. Medical billing services exist to help healthcare providers better manage their medical practices. These services relieve medical professionals of tedious detail work, but rarely do they offer a means to substantially maximize the medical practice's bottom line. Medical billing companies generally gather patient information and billing details from a physician or clinic and submit these details to insurance carriers for payment. A billing company may also submit statements to a patient for payment of the patient's portion. The Company distinguishes itself from thousands of other billing agencies in the industry as a customized billing agency and a "one-stop shopping" service for all medical practice administrative functions. The Company considers its medical billing service to be the key to its clients getting paid efficiently and quickly by private and government administered insurance companies. The Company provides a customized medical billing service that can be fine tuned to any medical practice or specialty. The Company provides a wide range of billing services including: - Delinquent account management - Surgery center setup and management - Assessment of practice cash flow - Practice management - Health Maintenance Organization (HMO), Preferred Provider Organization (PPO) and capitation contract management - Business Auditing The medical billing business is labor intensive; however, the Company believes that its clients collect more revenue than they otherwise would collect without the Company's services. Due to this benefit to its clients, Healthcare has experienced continued growth since its inception in 1990. By outsourcing the medical billing function, the Company believes that its clients have been able to maximize their return from insurance carriers, and to allocate their office staff capacity to more crucial tasks. Electronic submission of insurance claims provides cost savings and decreases in payment time over traditional paper based submissions. These factors have made electronic submission much more appealing to clients and have sparked a growing demand. Potential users of electronic submission include family practice, internal medicine, surgeons, psychologists, chiropractors, physical therapists, podiatrists, specialists, ambulance services, medical laboratories, ambulatory surgery centers and hospitals. In order to service this growing demand, the Company has developed AutoMed (discussed below) which it has installed, and is currently beta testing, with several of its existing Medical Billing clients. 6 AUTOMED The Company initially designed AutoMed to satisfy its custom medical billing needs. The Company began implementing AutoMed in the Company's Medical Billing line of business in July 2003. The Company has been using AutoMed since October 2003 for all new medical billing. The Company intends to use AutoMed for other aspects of medical office management as well, as discussed below. The Company is currently beta testing certain aspects of AutoMed at existing medical billing clients and developing certain other aspects of AutoMed. DEPENDENCE ON ONE OR A FEW CUSTOMERS The Company has approximately 12 customers throughout the United States. Its largest customer is Dr. Grewal, an anesthesiologist and pain management specialist. The Company generates approximately 30% of its revenues from the services that it provides to such doctor, and as a result, the doctor is the Company's largest client. Dr. Grewal is currently a Director of the Company. The Company's relationship with Dr. Grewal is discussed in more detail below under the heading "Certain Relationships and Related Transactions." NEED FOR GOVERNMENTAL APPROVAL AND THE EFFECTS OF REGULATIONS The Company offers medical business services which are subject to the compliance requirements of the Health Insurance Portability and Accountability Act ("HIPPA") and the billing guidelines of the Health Care Financing Administration ("HCFA"). As a result, Medical Billing and AutoMed are subject to government regulation and government approval. The Company is also subject to various federal laws regarding the development of Surgery Centers as well as state and local zoning laws and potentially state and local laws governing the need for such facilities. RESEARCH & DEVELOPMENT OVER THE PAST TWO YEARS The Company has spent less than 10% of its time during the last two years on research and development. The Company has generated a predominate portion of its business through word of mouth. EMPLOYEES The Company has a total of 13 full-time employees, none of which are members of any union in connection with the Company's operations. The Company may hire four to five employees in the next twelve months, if the need for additional employees arises. ITEM 2. DESCRIPTION OF PROPERTY The Company currently leases office space in Upland, California;. The Upland lease is being extended through November 2006. The Company pays $3,337 per month for 3,800 square feet of office space in Upland, California. 7 ITEM 3. LEGAL PROCEEDINGS 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. As of the filing of this Report, Healthcare has not paid any money with respect to such default judgment. The default judgment relates to a contract for billing services between Healthcare and Dr. Tariq entered into in 1996. After termination of the contract, Dr. Tariq requested an accounting of the amounts collected from his patients by Healthcare in connection with the billing services. In July 1999, Healthcare sent an accounting to Dr. Tariq in the amount of $275,355 collected, $42,512 charged by Healthcare as its fee, and $222,298 paid to Dr. Tariq. On September 22, 1999, Healthcare received notice of the default judgment. Although Healthcare has not taken legal steps to defend itself against the default judgment, Healthcare claims to have not received proper notice from Dr. Tariq of a civil action. To the best of Healthcare management's knowledge, Dr. Tariq has not sought to enforce the judgment as of the filing of this Report. On July 11, 2002, Kamran Ghadimi ("Ghadimi") initiated a lawsuit against the Company and others in the Superior Court of California, County of San Bernardino, Case No. RCV 064904, styled Kamran Ghadimi v. Chandana Basu, et al. The complaint alleges that the Company, the Company's President, Ms. Basu, and Alta Vista Billing Service For Complex Medical Care, Inc., which is 100% owned by Ms. Basu improperly withheld monies from Ghadimi, and seeks in excess of 60,000 from the Company and Ms. Basu. The Complaint alleges, among others, claims for breach of contract and breach of fiduciary duty. Ghadimi seeks compensatory and punitive damages, prejudgment interest, costs and attorney's fees. The Company refutes Ghamadi's claims and has filed a counterclaim alleging, among others, claims for breach of contract and misappropriation of trade secrets. The counterclaim seeks compensatory and punitive damages, prejudgment interest, costs and attorney's fees in an unspecified amount. The trial is set for May 22, 2006. In January 2004, Leonard J. Soloniuk, M.D. ("Soloniuk") initiated an arbitration against the Company with the American Arbitration Association, Case No. 72 193 00102 04 TMS, styled Leonard J. Soloniuk, M.D. v. HBSG. The complaint alleges that the Company failed to properly bill and collect fees, intentionally miscoded bills, intentionally withheld collection proceeds due to Soloniuk, breached its billing agreement and otherwise engaged in fraudulent conduct. Soloniuk seeks damages in the range of $250,000 to $500,000. The Company refutes Soloniuk's claims and has filed a counterclaim asserting claims for breach of contract, breach of confidence, intentional misrepresentation and negligent misrepresentation. The Company seeks damages in an approximate range of $75,000 to $100,000. By agreement, the Company is supposed to receive all collections for which it billed and then pay client its share pursuant to the fee agreement. At the time of dispute the total amount of billings was approximately $1 million. The client changed addresses to insurance companies and started to receive collections directly from the insurance companies and do its own billings to patients while under contract with the Company. In addition, the client did not provide an accounting to the Company nor pay the Company its due share. Hearing in this matter was held in February 2006. Post-hearing briefs were submitted to the arbitrator in March 2006 and the closing statements were held on March 30, 2006.In decision dated April 5, 2006,the arbitrator awarded Soloniuk $ 275,000 against the Company as well as interest accruing from June 1, 2006 at rate of ten percent per annum on the unpaid balance. The arbitrator further ordered the Company to reimburse arbitration costs in amount of $ 1,875. The Company filed motion to vacate this judgement. In May 2004, Sanjiv Jain, M.D. and Shubba Jain, M.D. (the "Jains") initiated an arbitration against the Company and others with the American Arbitration Association, Case No. 72 193 00578 04 MACR, styled Sanjiv Jain, M.D., et all. v. HBSG, et. al. The complaint alleges that the Company, its president and certain affiliated companies, improperly withheld medical billing payments from Jains. The complaint alleges among other things, claims for breach of contract and conversion. The Jains seek compensatory damages of approximately $200,000, punitive damages, prejudgment interest, costs and attorneys' fees. During the period, the Company entered into the settlement. The Company has accrued $ 48,082 in the financials. The settlement provides for payment of $ 22,000. The Company recorded $ 26,082 as medical billing income on the financials. The Company has paid $ 12,000 towards the settlement as of December 31, 2005. 8 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. Chandana Basu, et al. The complaint raises a claim for breach of contract against the Company . The complaint alleges that the Company failed to remit sums due to New Horizon. On April 8, 2005, the court dismissed the action and referred it to arbitration. Since May 2005, there have been a number of telephonic conferences held with the assigned arbitrator. Each of these calls has focused on the voluntary exchange of insurance payment records by the parties. 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. New Horizon contends that the there are amounts in controversy of around $ 1,000,000. The Company has denied the allegations. The matter is in its initial stages. In November 2004, the law firm of Gibson, Dunn & Crutcher LLP ("GD&C"), initiated an arbitration action against the Company and Ms. Basu with the American Arbitration Association, Case No. 72 194 0251 04 JEWE, styled Gibson, Dunn & Crutcher v. HBSG, et. al. GD&C's demand for arbitration alleges that the Company and its president owe the firm approximately $79,000 in upaid legal fees in connection with its defense of the Ghadami matter described above. On May 5, 2005, GD&C and the Company tentatively agreed to settle all of GD&C's claims in return for a payment of $30,000 from the Company. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On November 12, 2004 the majority shareholder of the Company ("Majority Shareholder") pursuant to a written consent to action without meeting, voted to repeal the Company's current Bylaws and to adopt amended Bylaws to take its place. The action was approved by 25,150,000 shares, which at that time represented 84.5% of the Company's outstanding Common Stock, which were voted solely by the Company's Majority Shareholder. On November 12, 2004, the Majority Shareholder pursuant to a written consent to action without a meeting of the shareholders, voted to remove Dr. Thomas Guthrie as a director of the Company and to appoint Chandana Basu as a Director of the Company to fill the vacancy left on the board. On January 7, 2005, the Majority Shareholder pursuant to a written consent to action without a meeting of the shareholders, instructed the officers to take whatever action necessary to amend the Company's Articles of Incorporation to reflect a name change to "Healthcare Business Services Groups, Inc." 9 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS "Bid" and "asked" offers for the common stock are listed on the NASDAQ OTC-Bulletin Board published by the National Quotation Bureau, Inc. below are the high and low bid prices for the Company's Common Stock for the past two (2) fiscal years. Prior to January 12, 2005, the Company's trading symbol was "WFLD," however in connection with the Company's change in business focus and name change, the Company's securities began trading under the symbol "HBSV," on January 12, 2005. The following table sets forth the high and low bid prices for the Company's common stock for the periods indicated as reported by the NASDAQ OTC-Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. BID PRICES QUARTER ENDED HIGH LOW ------------- ---- --- December 31, 2005 0.20 0.17 September 30, 2005 0.13 0.11 June 30, 2005 0.15 0.11 March 31, 2005 0.07 0.06 There were 71 holders of record of the common stock as of April 11, 2006. The Company has never paid a cash dividend on its common stock and does not anticipate the payment of a cash dividend in the foreseeable future. The Company intends to reinvest in its business operations any funds that could be used to pay a cash dividend. The Company's common stock is considered a "penny stock" as defined in the Commission's rules promulgated under the Exchange Act. In general, a security which is not quoted on NASDAQ or has a market price of less than $5.00 per share where the issuer does not have in excess of $2,000,000 in net tangible assets (none of which conditions the Company meets) is considered a penny stock. The Commission's rules regarding penny stocks impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally persons with net worth in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000 jointly with their spouse). For transactions covered by the rules, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Thus the Rules affect the ability of broker-dealers to sell the Company's shares should they wish to do so because of the adverse effect that the Rules have upon liquidity of penny stocks. Unless the transaction is exempt under the Rules, under the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, broker-dealers effecting customer transactions in penny stocks are required to provide their customers with (i) a risk disclosure document; (ii) disclosure of current bid and ask quotations if any; (iii) disclosure of the compensation of the broker-dealer and its sales personnel in the transaction; and (iv) monthly account statements showing the market value of each penny stock held in the customer's account. As a result of the penny stock rules the market liquidity for the Company's securities may be severely adversely affected by limiting the ability of broker-dealers to sell the Company's securities and the ability of purchasers of the securities to resell them. RECENT SALES OF UNREGISTERED SECURITIES During the year, the Company issued 905,000 restricted Common Shares to various consultants valued at $117,255 for business consulting and advisory services. The Company has expensed $ 65,644 and has recorded the prepaid consulting expenses of $ 51,611 based on the term of the consulting agreements. The prepaid consulting expenses will be amortized over the term of the consulting contracts. During the year, the Company issued 600,000 to the officer of the Company pursuant to her employment agreement valued at $ 42,000. The Company has 400,000 shares to be issued to the officer valued at $28,500 as of December 31, 2005. 10 During the year, the Company issued 15,000 shares for cash amounting to $ 5,000. During the year, the Company entered into a settlement agreement for the payment of the note by authorizing the payment of $ 100,000 in cash and issuance of 1,500,000 restricted shares of the Company. The Company paid $ 43,500 in cash during the year. The Company valued the shares based on the market value of the shares on agreement date. The shares have been valued at $ 150,000. The Company sold 15,000 shares to an investor in consideration for $5,000 (or $0.33 per share) in the year ended December 31, 2004. While the Company has received the $5,000 in connection with the purchase of these shares, the Company has not issued the shares to the investor as of the date of this report. The Company plans to claim an exemption from registration afforded by Section 4(2) of the Act for this issuance, since the foregoing issuance will not involve a public offering, the recipient will take the shares for investment and not resale and the Company will take appropriate measures to restrict transfer. No underwriters or agents will be involved in the foregoing issuance and no underwriting discounts or commissions will be paid by the Company. In December 2004, the Company issued an aggregate of 665,500 shares of the Company's restricted Common Stock to Twenty-Eight (28) in consideration for general business and consulting services provided to the Company. The Company claims an exemption from registration for these issuances afforded by Rule 506 of the Securities Act of 1933. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION This report contains forward looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934. These forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those set forth under "Risk Factors" in this Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report. The following discussion and analysis should be read in conjunction with "Selected Financial Data" and the Company's financial statements and notes thereto included elsewhere in this report. COMPARISON OF OPERATING RESULTS FISCAL YEAR ENDED DECEMBER 31, 2005 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2004 The Company's revenues decreased $102,020, to $1,565,262 for the year ended December 31, 2005, compared to $1,667,282 for the year ended December 31, 2004. This decrease was mainly attributable to decrease in the collections from the customers. The Company's total operating expenses decreased $ 596,435 to $2,799,647 for the year ended December 31, 2005, compared to $3,396,083 for the year ended December 31, 2004. This decrease consisted of a decrease of general and administrative expenses of $ 533,845, to $1,813,102 from $2,346,946, an increase in officer compensation of $ 220,500, to $670,500 from $450,000 for the previous year, an increase in depreciation and amortization expense of $26,489, to $101,347 from $74,858 , and a decrease in consulting fees of $309,580, to $214,698 for the year ended December 31, 2005, from $524,278 for the year ended December 31, 2004. The Company had a loss from operations of $ 1,234,385 for the year ended December 31, 2005, compared to a loss from operations of $1,728,801 for the year ended December 31, 2004. The decrease in a loss from operations was due mainly to the decrease in general and administrativeexpenses and consulting fees. 11 The Company had a net increase in interest expense of $ 16,525 to $ 80,559 for the year ended December 31, 2005, from $64,034 for the year ended December 31, 2004. The Company had no beneficial conversion feature expense for the year ended December 31, 2005, compared to $83,333 for the year ended December 31, 2004. The Company recorded gain from sale of land to the officer for $ 261,863 for the year ending December 31, 2005. The Company had a loss before taxes of $ 1,026,999 for the year ended December 31, 2005 as compared to 1,876,168 for the year ended December 31, 2004 The Company had provision of income taxes of $2,400 for the years ended December 31, 2005 and 2004. The Company had a net loss of $ 1,029,399 for the year ended December 31, 2005 as compared to net loss of 1,878,568 for the year ended December 31, 2004, The decrease in net loss was mainly attributable to the Company's decrease in operating expenses And reduction in consulting expenses paid through issuance of stock. LIQUIDITY AND CAPITAL RESOURCES The Company had total assets of $ 502,534 as of December 31, 2005, which included total current assets of $307,581, consisting of cash and cash equivalents of $303,123 and due from officer of $4,458; net property and equipment of $ 63,999, consisting of office and computer equipment of $ 124,966 and furniture and fixtures of $89,869, less accumulated depreciation of $150,836; ; intangible asset, consisting of the Company's website technology costs of $127,304; and deposits of $3,650. The Company had total liabilities of $2,567,590, as of December 31, 2005, all consisting of current liabilities, which included accounts payable and accrued expenses of $1,266,994, accrued officer compensation of $ 996, litigation accrual of $675,747 in connection with the Company's pending legal proceedings (see "Item 3. Legal Proceedings," above), line of credit of $113,692, notes payable of $ 453,661, and due on settlement of loan of $ 56,500 The Company had negative working capital of $ 2,264,467 and an accumulated deficit of $ 2,925,008, as of December 31, 2005. The Company had net cash used in operating activities of $ 212,807, for the year ended December 31, 2005, consisting of net loss of ($ 1,029,399), depreciation and amortization adjustment of $ 101,347, adjustment for issuance of shares for service of $ 65,644, issuance of shares for compensation $ 70,500 gain from sale of land $ 261,863 decrease in other assets of $685, and increase in current liabilities of $ 866,361. The Company had net cash used in investing activities of $ 21,512, consisting solely of acquisition of property and equipment of 21,512, for the year ended December 31, 2005. The Company had net cash provided by financing activities of $ 293,838 for the year ended December 31, 2005, consisting of proceeds from note payable of $333,463, payment of notes payable of 43,500 and proceeds from line of credit of $ 13,357, payment of capital lease obligation of $ 10,024 and issuance of shares for cash for $ 5,000. The cash flow statements do not include the following non-cash investing and financing activities. During the year, the Company entered into a settlement agreement for the payment of the note by authorizing the payment of $ 100,000 in cash and issuance of 1,500,000 restricted shares of the Company. The Company paid $ 43,500 in cash during the year. The Company valued the shares based on the market value of the shares on agreement date. The shares have been valued at $ 150,000. In 2004, the Company issued 862,500 restricted common shares valued at $ 338,126 to consultants for providing business and advisory services; 153,000 restricted common shares to employees as bonus valued at $ 69,850; and 150,000 restricted common shares to directors for attending Board meetings valued at $ 67,500. 12 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 $40,127 and $ 73,565 from the credit lines as of December 31, 2005. In April 2004, the Company entered into a $250,000 convertible note payable for financial and business advisory services with GoPublicToday.com. The note bears interest at 4% per year and was due in April 2005. The Company failed to pay the outstanding balance before April 2005 and as a result the note is convertible at 50% of the market price of the Company's common stock when converted, however the note holder has notified the Company that it does not want to convert the note into shares of the Company's Common Stock, but would like to be paid the entire amount of the defaulted note. During the period, the Company entered into a settlement agreement for the payment of the note by authorizing the payment of $ 100,000 in cash and issuance of 1,500,000 restricted shares of the Company. The Company valued the shares based on the market value of the shares on agreement date. The Company paid $ 43,500 in cash during the period. The Company recorded gain of $ 26,082 on settlement of the note. As of December 31, 2005 the outstanding balance on cash portion of settlement was $ 56,500 In November 2004, the Company entered into a convertible promissory note with Falguni Patel, MD. The Company received $350,000 from Mrs. Patel in connection with the convertible promissory note. The note is due on November 23, 2006 and bears interest at the rate of 12% per year. The note is convertible into shares of the Company's Common Stock at the rate of $1.00 per shares and in the case of an event of default can be converted at the rate of 50% of the market value, with the conversion price of the note not to exceed $0.50 per share when in default. The payment of the note is guaranteed by the Company and Chandana Basu, who provided Mrs. Patel a security interest in all of the issued and outstanding Common Stock of the Company held by Ms. Basu. 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. The Company has an unsecured term loan of $78,414, with the outstanding principal and interest, earning 9.5% interest per year, received February 2004 and due January 31, 2005, an equipment loan of $35,271, received May 2003, with interest and principal due April 2008, which is unsecured and earns interest at the rate of 14% per year, The Company's note payable for services was entered into in April 2004, in connection with financial advisory services and is due April 2005 unless the Company receives $3,000,000 in funding at which time the note will be payable immediately. The note bears interest at 4% per year and is unsecured. The note and accrued interest are convertible into the Company's Common Stock at 75% of the market price when converted. 13 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. =.e 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 $4 to $5 million of additional financing to implement its business plan with respect to AutoMed . The Company anticipates the need for approximately $2.5 million of financing for its planned surgery center, $500,000 for Medical Billing and $1 million for the development of its 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 the 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. Ms. Basu also serves as the Chief Executive Officer and President of AutoMed, and the manager of Silver Shadow, both wholly-owned subsidiaries of the Company. The Company does not have an employment agreement with Ms. Basu; however, the Company expects to continue to pay Ms. Basu such salary or more for the foreseeable future. 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 ABLE TO COMPLETE THE DEVELOPMENT OF AUTOMED AS A STAND-ALONE, COMMERCIALLY VIABLE PRODUCT. The Company is currently developing additional features for AutoMed with the intent that the AutoMed software package will be used for medical office management. The Company intends to make the AutoMed software applications available based on what the Company calls "one-stop shopping." The Company intends for a medical practice to be able to customize AutoMed based on the particular needs of each medical specialization, office or hospital. The Company is currently using AutoMed to perform the medical billing function for some of its existing Medical Billing clients. Further development will be required before AutoMed is commercially viable as a stand-alone product for its intended use for medical office management. There is no assurance that the Company will complete the development. In the event that the Company does not complete the development of AutoMed as a stand-alone, commercially viable product, the Company will not generate revenue from AutoMed unless the Company charges an additional fee for AutoMed in connection with Medical Billing. The failure to develop AutoMed would have a materially adverse effect on the Company's potential for future revenues and as a result, the value of the Company's securities would likely decrease in value. A SUBSTANTIAL AMOUNT OF OUR REVENUES COME FROM TWO MAIN CLIENTS. For the year ended December 31, 2005, the Company received approximately 70% of its revenue, or $1,095,683, from two major clients. For the year ended December 31, 2004, the Company received approximately 56% of its revenue, or $ 1,009,438, from two major clients. 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. WE MAY NOT BE ABLE TO DEVELOP A MARKET FOR AUTOMED IN THE EVENT THAT WE ARE ABLE TO RAISE ENOUGH MONEY TO MARKET AUTOMED. Assuming that the Company completes development of the AutoMed software as a stand-alone, commercially viable product, the Company plans to market AutoMed as a "one-stop shopping" solution for medical office management. The Company plans to charge $50,000 per installation for a single user and one computer. Currently the Company generates no revenue through AutoMed. The extent to which AutoMed gains acceptance, if any, will depend, in part, on its cost effectiveness and performance as compared to conventional means of office management, as well as known or unknown alternative software packages. If conventional means of office management or alternative software packages are more cost-effective or outperform AutoMed, the demand for AutoMed may be adversely affected. Additionally, the Company anticipates the need for approximately $1 million to begin marketing AutoMed. The failure of the Company to raise an additional $1 million in financing or AutoMed to achieve and maintain meaningful levels of market acceptance would have a material adverse effect on the AutoMed line of business and the Company's overall business, financial condition and results of operations, and would likely cause the value of the Company's securities to decrease. 14 OUR AUDITORS HAVE EXPRESSED AN OPINION THAT THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. Our auditors have expressed an opinion that there is substantial doubt about our ability to continue as a going concern primarily because we have a working capital deficiency. For the year ending December 31, 2005, we had a loss of $ 1,029,399, a working capital deficiency of $ 2,264,468, stockholders' deficit of $ 2,065,056, an accumulated deficit of $ 2,925,008 and cash used in operations of $212,807The 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 MAY FACE POTENTIAL LIABILITY IN CONNECTION WITH PENDING LEGAL PROCEEDINGS AND ARBITRATION PROCEEDINGS WHICH HAVE BEEN BROUGHT AGAINST THE COMPANY. As of the filing of this report, the Company is a party to approximately five separate legal proceedings and/or arbitration matters in which former clients and a former law firm of the Company have brought claims against the Company ranging from $79,000 to $2,200,000 (see "Item 3. Legal Proceedings," above for more description of these matters).). If the Company is unable to settle or defend against claims made by former clients and a law firm, the plaintiffs in those matters may obtain judgments against the Company. If this happens Company does not have enough cash on hand to pay amount of the judgments, which may be substantial, the Company may be forced to abandon or curtail its business operations. In November 2004, the Company entered into a convertible promissory note with Falguni Patel, MD. The Company received $350,000 in connection with the promissory note, which bears interest at the rate of 12% per year and is convertible at $1.00 per share into shares of the Company's Common Stock. The promissory note is also personally secured by all of the Common Stock held by our Chief Executive Officer. If we are unable to pay the interest which accrues on the promissory note, or we default on the note, we could be forced to curtail or abandon our business operations. Additionally, if the Company were to default on the promissory note, Mrs. Patel could take voting control of the Company, since the promissory note is secured by the shares of Common Stock held by our Chief Executive Officer, Chandana Basu, who currently holds majority voting control of the Company. If Mrs. Patel were able to gain majority control of the Company she could make changes in the Company's Directors and officers and/or take the Company in a different business direction, agree to sell the assets of the Company, or effect a merger, which may make any investment in the Company worthless. 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. 15 BECAUSE MS. CHANDANA BASU OWNS 75.8% 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: (1) actual or anticipated variations in our results of operations; (2) our ability or inability to generate new revenues; (3) increased competition; and (3) conditions and trends in the medical billing industry. 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. Going Concern. As shown in the accompanying consolidated financial statements, The Company had a loss of $ 1,029,399, a working capital deficiency of $ 2,264,468, stockholders' deficit of $ 2,065,056, an accumulated deficit of $ 2,925,008 and cash used in operations of $212,807. as of December 31, 2005. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The Company's need for working capital is a key issue for management and necessary for the Company to meet its goals and objectives. The Company continues to meet its obligations and pursue additional capitalization opportunities. However, there is no assurance, that the Company will be successful in meeting its goals and objectives in the future. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements: 16 ITEM 7. FINANCIAL STATEMENTS HEALTHCARE BUSINESS SERVICES GROUPS INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2005 17 HEALTHCARE BUSINESS SERVICES GROUPS INC. AND SUBSIDIARIES (FORMERLY KNOWN AS WINFIELD FINANCIAL GROUP, INC.) CONTENTS -------- PAGE F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PAGE F-2 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2005 PAGE F-3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 PAGE F-4 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 PAGE F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 PAGES F-6 - F-22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Board of Directors of: Healthcare Business Services Groups Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of Healthcare Business Services Groups Inc. and subsidiaries as of December 31, 2005, and the related consolidated statements of operations, stockholders' deficit and cash flows for the years ended December 31, 2005 and 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Healthcare Business Services Groups Inc. and subsidiaries as of December 31, 2005 and the results of its operations and its cash flows for the years ended December 31, 2005 and 2004 in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As discussed in Note 13 to the consolidated financial statements, the Company had a loss of $ 1,029,399, a working capital deficit of $ 2,264,467, stockholders' deficit of $ 2,065,056, an accumulated deficit of $ 2,925,008 and cash used in operations of $ 212,807. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 13. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Kabani & Company, Inc. CERTIFIED PUBLIC ACCOUNTANTS Los Angeles, California March 24, 2006 F-1
HEALTHCARE BUSINESS SERVICES GROUPS INC. (formerly Winfield Financial Group, Inc.) CONSOLIDATED BALANCE SHEET December 31, 2005 ASSETS CURRENT ASSET Cash & cash equivalents $ 303,123 Receivable from officer 4,458 -------------- Total current assets 307,581 PROPERTY AND EQUIPMENT, net 63,999 INTANGIBLE ASSET, net Website technology costs, net 127,304 DEPOSITS 3,650 -------------- $ 502,534 ============== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable and accrued expenses $ 1,266,994 Litigation Accrual 675,747 Accrued officer compensation 996 Lines of credit 113,692 Notes payable 453,661 Due on settlement of loan 56,500 -------------- Total current liabilities 2,567,590 COMMITMENTS & CONTINGENCIES - STOCKHOLDERS' DEFICIT Preferred stock, $0.001 par value; Authorized shares 5,000,000, none issued and outstanding - Common stock, $0.001 par value; Authorized shares 50,000,000, 33,960,150 shares issued and outstanding 33,960 Additional paid in capital 849,103 Prepaid Consulting (51,611) Shares to be issued 28,500 Accumulated deficit (2,925,008) -------------- Total stockholders' deficit (2,065,056) -------------- Total Liabilities and stockholders' Deficit $ 502,534 ==============
The accompanying notes are an integral part of these consolidated financial statements. F-2
HEALTHCARE BUSINESS SERVICES GROUPS INC. (formerly Winfield Financial Group, Inc.) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31 2005 2004 ------------ ------------ NET REVENUES $ 1,565,262 $ 1,667,282 OPERATING EXPENSES General and administrative expenses 1,813,102 2,346,947 Officer Compensation 670,500 450,000 Depreciation and amortization 101,347 74,858 Consulting fees 214,698 524,278 ------------ ------------ Total operating expenses 2,799,647 3,396,083 ------------ ------------ LOSS FROM OPERATIONS (1,234,385) (1,728,801) Non-operating expense: Gain on sale of land 261,863 - Interest expense (80,559) (64,034) Beneficial conversion feature expense - (83,333) Other Income 26,082 - ------------ ------------ LOSS BEFORE INCOME TAXES (1,026,999) (1,876,168) Provision for income taxes 2,400 2,400 ------------ ------------ NET LOSS $(1,029,399) $(1,878,568) ============ ============ ------------ ------------ BASIC & DILUTED NET LOSS PER SHARE $ (0.03) $ (0.06) ============ ============ BASIC & DILUTED WEIGHTED AVERAGE NUMBER OF ------------ ------------ COMMON STOCK OUTSTANDING 31,559,126 29,820,184 ============ ============
* 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. The accompanying notes are an integral part of these consolidated financial statements. F-3
HEALTHCARE BUSINESS SERVICES GROUPS INC. (formerly Winfield Financial Group, Inc.) STATEMENT OF STOCKHOLDERS' DEFICIT For the Year ended December 31, 2005 Total Common Paid in Prepaid Shares Accumulated Shareholders Description Shares Amount Capital Consulting to be Issued Deficit Equity (Deficit) -------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2003 1,000 $ 1,000 $ 9,000 $ - $ - $ (4,964) $ 5,036 Recapitalization on reverse acquisition 29,773,650 28,774 (28,775) - - (12,077) (12,078) -------------------------------------------------------------------------------------------------- Balance - May 7, 2004, after recapitalization 29,774,650 29,774 (19,775) (17,041) (7,042) Issuance of shares to employees 153,000 153 69,697 - - - 69,850 Issuance of shares to directors 150,000 150 67,350 - - - 67,500 Issuance of shares to consultants 862,500 863 337,263 - - - 338,126 Beneficial conversion feature - - 83,333 - - - 83,333 Net loss - - - - - (1,878,568) (1,878,568) Balance, -------------------------------------------------------------------------------------------------- December 31, 2004 30,940,150 30,940 537,868 - - (1,895,609) (1,326,801) Issuance of shares to consultants 905,000 905 116,350 (51,611) - - 65,644 Issuance of shares to employees 600,000 600 41,400 - 28,500 - 70,500 Shares issued for settlement of the note 1,500,000 1,500 148,500 - - - 150,000 Issuance of shares for cash 15,000 15 4,985 - - - 5,000 Net loss - - - - - (1,029,399) (1,029,399) Balance, -------------------------------------------------------------------------------------------------- December 31, 2005 33,960,150 $ 33,960 $849,103 $ (51,611) $ 28,500 $(2,925,008) $(2,065,056) ==================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-4
HEALTHCARE BUSINESS SERVICES GROUPS, INC. (formerly Winfield Financial Group, Inc.) CONSOLIDATED STATEMENT OF CASH FLOWS For the years ended December 31 20005 2004 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,029,399) $(1,878,568) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 101,347 74,858 Issuance of shares for service 65,644 475,476 Issuance of note payable for service - 250,000 Beneficial conversion feature expense - 83,333 Issuance of shares for compensation 70,500 - Gain on litigation settlement (26,082) - Gain on sale of land (261,863) - (Increase) decrease in current assets: Receivables - 78,306 Other assets 685 (391) Increase in current liabilities: Accounts payable and accrued expenses 866,361 621,880 ----------- ------------ Net cash used in operating activities (212,807) (295,106) ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property & equipment (21,512) (67,699) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable 333,463 543,000 Proceeds from notes payable - officer - 125,505 Proceeds from issuance of shares for cash 5,000 Payment of notes payable (43,500) (119,665) Due from related party (4,458) Proceeds (payment) on line of credit 13,357 56,653 Payments of capital lease obligation (10,024) - ----------- ------------ Net cash provided by financing activities 293,838 605,493 ----------- ------------ NET INCREASE IN CASH & CASH EQUIVALENTS 59,519 242,688 CASH & CASH EQUIVALENTS, BEGINNING BALANCE 243,604 916 ----------- ------------ CASH & CASH EQUIVALENTS, ENDING BALANCE $ 303,123 $ 243,604 =========== ============ Supplementary Information: Cash paid during the year for: Interest $ 15,886 $ 38,370 =========== ============ Income taxes $ - $ - =========== ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 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" formerly known as Winfield Financial Group, Inc.) ("Winfield") was formed in Delaware in December 1994. On April 23, 2004, Winfield acquired 100% of the issued and outstanding shares of Healthcare, a Delaware corporation. As part of the same transaction on May 7, 2004, Winfield 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, Winfield acquired 100% of three corporations. Winfield acquired Healthcare, AutoMed, and Silver Shadow from the sole owner, in exchange for 25,150,000 newly issued treasury shares of the Winfield's common stock. Immediately after these transactions, there were 31,414,650 shares of Winfield's common stock outstanding. As a result, control of Winfield shifted to the sole owner who owns approximately 80.0% of Winfield's common stock, and the Company changed its name to Healthcare. Here in after all references to Winfield 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. The historical results for the year ended December 31, 2005 include Healthcare Business Services Groups Inc. and the Company, while the historical results for the year ended December 31, 2004 are for Healthcare Business Services Groups Inc. 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 base with operations in Providence, Rhode Island; Laredo, Texas; and Upland, California. 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. During the year, the Company transferred the real estate and construction with historical cost of $ 488,137 and the loan associated with the real estate worth $ 250,000 with accrued interest of $ 12,500 to the officer of the Company. F-6 PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Healthcare Business Services Groups Inc. 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 year ended December 31, 2005 include Healthcare Business Services Groups Inc. and the Company, while the historical results for the year ended December 31, 2004 are for Healthcare Business Services Groups Inc. (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) 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. (D) 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. 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. F-7 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. (E) PREPAID CONSULTING ------------------------ During the year, the Company issued 905,000 restricted Common Shares to various consultants valued at $117,255 for business consulting and advisory services. The Company has expensed $ 65,644 and has recorded the prepaid consulting expenses of $ 51,611 based on the term of the consulting agreements. The prepaid consulting expenses will be amortized over the term of the consulting contracts. (F) 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. (G) SOFTWARE DEVELOPMENT COSTS --------------------------------- The Company has adopted Statement of Position 98-1 ("SOP 98-1") "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", as its accounting policy for internally developed computer software costs. Under SOP 98-1, computer software costs incurred in the preliminary development stage are expensed as incurred. Computer software costs incurred during the application development stage are capitalized and amortized over the software's estimated useful life. (H) 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 F-8 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. (I) 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, 2004, 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. (J) INCOME TAXES ------------------ The Company accounts for income taxes under the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ('Statement 109"). Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (K) 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 F-9 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. (L) 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. (M) 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. (N) 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. (O) 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 F-10 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. (P) RECLASSIFICATIONS ---------------------- For comparative purposes, prior years' consolidated financial statements have been reclassified to conform to report classifications of the current year. (Q) NEW ACCOUNTING PRONOUNCEMENTS ------------------------------------ In March 2006 FASB issued SFAS 156 'Accounting for Servicing of Financial Assets' this Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement: 1. Requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract. 2. Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. 3. Permits an entity to choose 'Amortization method' or Fair value measurement method' for each class of separately recognized servicing assets and servicing liabilities: 4. At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity's exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value. 5. Requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. An entity should adopt this Statement as of the beginning of its first fiscal year that begins after September 15, 2006. Management believes that this statement will not have a significant impact on the financial statement. F-11 In February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS No. 155, permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company's first fiscal year that begins after September 15, 2006. In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections." This statement applies to all voluntary changes in accounting principle and requires retrospective application to prior periods' financial statements of changes in accounting principle, unless this would be impracticable. This statement also makes a distinction between "retrospective application" of an accounting principle and the "restatement" of financial statements to reflect the correction of an error. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. In June 2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception. The guidance in EITF 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. The company is in the process of evaluating the effect on its consolidated financial position or results of operations. In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. FAS No. 123R is effective beginning in the Company's second quarter of fiscal 2006. The company is still in the process of determining the effect of the Statement on the financials. (R) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES -------------------------------------------------------------------------------- The cash flow statements do not include the following non-cash investing and financing activities. F-12 During the year, the Company entered into a settlement agreement for the payment of the note by authorizing the payment of $ 100,000 in cash and issuance of 1,500,000 restricted shares of the Company. The Company paid $ 43,500 in cash during the year. The Company valued the shares based on the market value of the shares on agreement date. The shares have been valued at $ 150,000. In 2004, the Company issued 862,500 restricted common shares valued at $ 338,126 to consultants for providing business and advisory services; 153,000 restricted common shares to employees as bonus valued at $ 69,850; and 150,000 restricted common shares to directors for attending Board meetings valued at $ 67,500. NOTE 2 REVERSE ACQUISITION ------- ------------------- On April 23, 2004, Winfield acquired 100% of the issued and outstanding shares of Healthcare. As part of the same transaction on May 7, 2004, Winfield acquired 100% of the issued and outstanding shares of AutoMed and 100% of the membership interests of Silver Shadow. The transactions are collectively referred to herein as the "Acquisition." As a result of the Acquisition, Winfield acquired 100% of two corporations and one limited liability Company and has changed its business focus. Winfield acquired Healthcare, AutoMed, and Silver Shadow from the sole owner, in exchange for 25,150,000 newly issued treasury shares of Winfield's common stock. Immediately after these transactions, there were 31,414,650 shares of Winfield's common stock outstanding. As a result, control of Winfield shifted to the sole owner who owned approximately 80.0% of Winfield's common stock immediately after the Acquisition. On January 7, 2005, the Company changed its name to Healthcare. Due to cancellations and additional issuances, the sole owner currently owns 25,750,000 shares out of 33,960,150 shares of common stock of Winfield (or approximately 76%). The Company has $4,458 due from officer of the Company. This amount is unsecured, non-interest bearing and due on demand. NOTE 3 PROPERTY AND EQUIPMENT ------ ------------------------ Property and equipment at December 31, 2005 consisted of the following: Office and computer equipment $ 124,966 Furniture and fixtures 89,869 -------------- 214,835 Less accumulated depreciation (150,836) -------------- $ 63,999 ============== The Company purchased land in November 2003 for $390,000 and has incurred $98,137 through the end of the period towards the construction of the building. F-13 During the period, the Company transferred the land and construction with historical cost of $ 488,137 and the loan associated with the land worth $ 250,000 with accrued interest of $ 12,500 to the officer of the Company. The officer of the Company owes $ 15,155 to the Company as a result of this transfer. The company booked a gain of $261,863 on the transaction. Depreciation expense for the year ended December 31, 2005 and 2004 was $ 32,392 and $ 27,936, respectively. NOTE 4 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 $ 68,955 in the accompanying financial statements at December 31, 2005. The balance at December 31, 2005 amounts to $127,304. The following is the amortization schedule for next five years: 2005 $12,538 2006 50,152 2007 50,152 2008 14,462 2009 - ---------- Total $127,304 ========== NOTE5 ACCOUNTS PAYABLE AND ACCRUED EXPENSES ----- ----------------------------------------- Accounts payable, accrued expenses and litigation accrual consist of the following: Trade payable $ 86,052 Payable to clients 969,877 Accrued interest 67,781 Income tax payable 7,955 Accrued payroll 23,461 Accrued payroll tax 6,588 Accrued expenses 43,135 Accrued vacation and sick time 11,614 Equipment payable 6,856 Other payable 43,675 Litigation accrual 675,747 ------------ Total accounts payable and accrued expenses $ 1,942,741 ============ NOTE 6 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 $40,127 and $ 73,565 from the credit lines as of December 31, 2005. F-14 NOTE 7 NOTES PAYABLE ------ -------------- Notes payable are summarized as follows: The following is a summary of principal maturities of notes payable:
2005 ------------- Equipment loan: May 2003 due April 2008; payable in monthly $ 25,247 installments of $1,030; annual interest of 14%; secured by equipment Note payable: November 2004 due November 2006; interest only 350,000 payments of $3,500 monthly; annual interest of 12%; secured by personal guaranty of the CEO and all of the issued and outstanding stock of the Company, convertible at $1.00 per share at the option of the holder Note payable: August 2004 due August 2005; interest only 78,414 payments of $1,188 monthly; annual interest of 9.5%; unsecured ------------- 453,661 Less current portion (453,661) Notes payable, net of current portion $ - ------------- The following is a summary of principal maturities of notes payable: 2006 $ 453,161 ------------- $ 453,161 =============
F-15 The Company recorded interest expense of $ 45,905 and $ 42,794 for the years ended December 31, 2005 and 2004 respectively. NOTE 8 CONVERTIBLE NOTE PAYABLE FOR SERVICES & DUE ON SETTLEMENT OF ------- -------------------------------------------------------------------- LOAN ---- In connection with a consulting agreement, Healthcare agreed to pay $250,000 for financial and business advisory services. The payment is in the form of a convertible note payable. The note was entered into in April 2004 and was due in April 2005 unless Healthcare received $3,000,000 in funding at which time the note was payable immediately. The note bears interest of 4% and is unsecured. The note is in default and is immediately payable. The note and accrued interest are convertible into the Company's common stock at 75% of the market price when converted. If the Company defaults on the note, the note is convertible at 50% of the market price when converted. When the note was issued, the market value of the stock was $0.04. The Company recorded beneficial conversion feature expense of $83,333 associated with the note for the year ended December 31, 2004. During the period, the Company entered into a settlement agreement for the payment of the note by authorizing the payment of $ 100,000 in cash and issuance of 1,500,000 restricted shares of the Company. The Company valued the shares based on the market value of the shares on agreement date. The Company paid $ 43,500 in cash during the period. The Company recorded gain of $ 26,082 on settlement of the note. As of December 31, 2005 the outstanding balance on cash portion of settlement was $ 56,500. NOTE 9 STOCKHOLDERS' DEFICIENCY ------ ------------------------- COMMON STOCK The Company is presently authorized to issue 50,000,000 shares of $0.001 par value Common Stock. The Company currently has 33,960,150 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. F-16 Healthcare acquired the Company from the sole owner, in exchange for 25,150,000 newly issued treasury shares of Healthcare's common stock. On July 27, 2004, the Company cancelled 2,640,000 shares of common stock in exchange for right to the name "Winfield Financial Group, Inc." and the transfer of any contracts, agreements, rights or other intangible property owned by Winfield Financial Group, Inc. (WFLD) that relate to the business operations of WFLD prior to the change in control whether or not accounted for in WFLD's financial statements. These shares have been included as part of recapitalization on reverse acquisition of the Company. The Company issued 1,000,000 shares to consultant as consideration for work done in recapitalization of the Company. These shares have been included as part of recapitalization on reverse acquisition of the Company. During the year, the Company issued 905,000 restricted Common Shares to various consultants valued at $117,255 for business consulting and advisory services. The Company has expensed $ 65,644 and has recorded the prepaid consulting expenses of $ 51,611 based on the term of the consulting agreements. The prepaid consulting expenses will be amortized over the term of the consulting contracts. During the year, the Company issued 600,000 shares to the officer of the Company pursuant to her employment agreement valued at $ 42,000. The Company has 400,000 shares to be issued to the officer valued at $28,500 as of December 31, 2005. During the year, the Company issued 15,000 shares for cash amounting to $ 5,000. During the year, the Company entered into a settlement agreement for the payment of the note by authorizing the payment of $ 100,000 in cash and issuance of 1,500,000 restricted shares of the Company. The Company paid $ 43,500 in cash during the year. The Company valued the shares based on the market value of the shares on agreement date. The shares have been valued at $ 150,000. In 2004, the Company issued 862,500 restricted common shares valued at $ 338,126 to consultants for providing business and advisory services; 153,000 restricted common shares to employees as bonus valued at $ 69,850; and 150,000 restricted common shares to directors for attending Board meetings valued at $ 67,500. The common shares were valued at the then trading price of the common shares on the date of issuance. The Company recorded $67,500 and $0 as compensation expense for the years ended December 31, 2004 and 2003, respectively. F-17 CLASS B PREFERRED STOCK The Company's Articles of Incorporation (Articles") authorize the issuance of 50,000,000 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 10 COMMITMENTS -------- ----------- During 2005, the Company leased its corporate offices space in Upland, California and in Lincoln, Rhode Island under operating lease agreements. The Upland facility lease calls for a monthly rent of $3,387. The Upland facility's operating lease expires in November 2006 and has renewal options. The Company closed the Rhode Island offices during the year. Rent expense under operating leases for the year ended December 31, 2005 was $ 48,629. Future minimum lease payments are as follows: Year Amount ---- ------ 2006 $37,257 NOTE 11 INCOME TAXES -------- ------------- Income tax expense (benefit) for the year ended December 31, 2005 is summarized as follows:
2005 ----------- Current: $ - Federal State 2,400 ----------- $ 2,400 =========== Defererd: Federal $ 318,312 State 90,788 ----------- 409,100 Valuation allowance (409,100) =========== $ - ===========
F-18 The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Consolidated Statements of Operations:
December 31, December 31, 2005 2004 ----------- ----------- Tax expense (credit) at statutory rate-federal (34)% (34)% State tax expense net of federal tax (6) (6) Changes in valuation allowance (40) (40) ----------- ----------- Tax expense at actual rate - - =========== ===========
The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31, 2005 are as follows:
Deferred tax assets: Net operating loss carry forward $ 2,925,000 ------------ Total gross deferred tax assets 2,925,000 Less valuation allowance (2,925,000) ------------ Net deferred tax assets $ - ============
At December 31, 2005, the Company had net operating loss carry forwards of approximately $2,925,000 for U.S. federal income tax purposes available to offset future taxable income expiring on various dates through 2020. NOTE 12 CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS ------- ------------------------------------------------- The two major customers of the Company provided $1,095,683 or 70% of the revenues of the Company for the year ended December 31, 2005. The three major customers of the Company provided $1,009,438 or 56% of the revenues of the Company for the year ended December 31, 2004. There are no accounts receivable to any of the major customers as of December 31, 2005. NOTE 13 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. The Company had a loss of $ 1,029,399, a working capital deficiency of $ 2,264,468, stockholders' deficit of $ 2,065,056, an accumulated deficit of $ 2,925,008 and cash used in operations of $ 212,807. 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 F-19 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 14 LITIGATION -------- ---------- The Company is defendant in multiple lawsuits initiated by the clients of the Company. The complaints allege that the Company and its officers improperly withheld monies from the clients. The complaints allege, among others, claims for breach of contract and breach of fiduciary duty. The plaintiff seeks compensatory and punitive damages, prejudgment interest, costs and attorney fees. The parties have conducted discovery and permission to take additional discovery is being sought. The Company has accrued $675,747 in the accompanying financials and has recorded them as a liability. 1. On July 12, 2004, Plaintiff Nimish Shah, MD. d/b/a New Horizon Medical, Inc. initiated a lawsuit against HBSG and Chandana Basu, CEO of the Company in the Superior Court of California, County of Los Angeles, Case No. VC042695, styled New Horizon Medcial, Inc. v. Chandana Basu, et al. The complaint asserted a claim for breach of contract against HBSG and Ms. Basu. Specifically, the complaint alleged that HBSG and Ms. Basu failed to remit sums due to New Horizon. On April 8, 2005, on HBSG's motion, the court dismissed the action and referred it to arbitration. In connection with the arbitration, HBSG claims against New Horizon seek compensatory damages in the range of $ 75000, prejudgment interest, costs and attorney's fees in an unspecified amount. New Horizon contends that the 'amount in controversy is approx. $ 1,000,000". HBSG has answered New Horizon's claim and denied the allegations and filed counter claim. This matter is in initial stages. Because the outcome of the actions turns upon disputed issues of fact and law, management believes that the outcome of this lawsuit will not be unfavorable to the Company. 2. On July 11, 2002, Plaintiff Kamran Ghadimi initiated a lawsuit against HBSG and others in the Superior Court of California, County of San Bernardino, Case No. RCV 064904, styled Karman Ghadimi v. Chandana Basu, et al. The complaint alleges that HBSG, its president and certain affiliated companies, improperly withheld approx. $ 400,000 from Ghadimi. The complaint alleges, among others, claims for breach of contract and breach of fiduciary duty. Plaintiff seeks compensatory and punitive damages, prejudgment interest, costs and attorney's fees. F-20 HBSG refutes Ghadimi's claim and denied the allegations and filed counter claim. Discovery in this matter has closed and trial is set forth for May 15, 2006. The Company has accrued $400,000 as litigation expense as of May 22, 2006 3. In January 2004, Claimant Leonard J. Soloniuk, MD initiated an arbitration against HBSG with the American Arbitration Association, Case No. 72 193 00102 04 TMS, styled Leonard J. Soloniuk, MD v. HBSG The complaint alleges that HBSG failed to properly bill and collect fees, intentionally miscoded bills, intentionally withheld collection proceeds due to Soloniuk, breached its billings agreement, and otherwise engaged in fraudulent conduct. HBSG refutes Soloniuk's claims and has filed a counter claim. In a decision dated April 5, 2006, the arbitrator awarded HBSG nothing against Soloniuk. The arbitrator further awarded Soloniuk $ 275,000 against the HBSG 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 HBSG to reimburse Soloniuk costs in the amount of $ 1,875. The Company has accrued $275,000 as litigation expense as of December 31, 2005. HBSG intends to ask the arbitrator to reconsider his award. 4. In May 2004, Claimants Sanjiv Jain, MD and Shubba Jain, MD initiated an arbitration against HBSG and others with the American Arbitration Association, Case No. 72 193 00578 04 MACR, styled Sanjiv Jain, MD., et al. v. HBSG, et al. The complaint alleged that HBSG, its president and certain affiliated companies, improperly withheld medical billing payments from the Jains. Plaintiff sought compensatory damages of approx. $ 200,000, punitive damages, prejudgment interest, costs and attorney's fees. This matter settled in mid - 2005 for $22,000. In November 2004, a law firm initiated action against the Company and its officers. The demand for arbitration alleges that the Company and its officer owes firm approximately $79,000 in unpaid legal fees. In 2005, the parties agreed to settle all the claims in return for payment of $30,000 from the Company. During the period, the Company paid $30,000 to settle all the claims. F-21 NOTE 15 RELATED PARTY TRANSACTIONS -------- ---------------------------- During the period, the Company transferred the land and construction with historical cost of $ 488,137 and the loan associated with the land worth $ 250,000 with accrued interest of $ 12,500 to the officer of the Company. The officer of the Company owes $ 15,155 to the Company as a result of this transfer. The company booked a gain of $261,863 on the transaction. During the period, the Company issued 600,000 shares to the officer of the Company pursuant to her employment agreement valued at $ 42,000. The Company has 400,000 shares to be issued to the officer valued at $28,500 as of December 31, 2005. During the period, the Company issued 75,000 restricted Common Shares to consultants related to the officer of the Company valued at $11,250 for business consulting and advisory services. The Company has $4,458 due from officer of the Company. This amount is unsecured, non-interest bearing and due on demand. F-22 ITEM 8. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. The Company's 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 annual report (the "Evaluation Date"), have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and designed to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities. (b) Changes in internal control over financial reporting. There were no significant changes in the Company's internal control over financial reporting during the fourth fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT DIRECTORS AND OFFICERS The Directors and Officers of the Company are as follows: NAME AGE POSITION ------ --- -------- Chandana Basu 50 Chief Executive Officer, Treasurer, and Director Narinder Grewal, M.D. 53 Director Bharati Shah, M.D. 59 Director CHANDANA BASU Chandana Basu, age 50, has served as the Company's Chief Executive Officer and Treasurer since May 2004, after the Company acquired Healthcare Business Services Group, Inc. ("HBSGI"), a full-service medical billing agency and a wholly-owned subsidiary of the Company. She has served as a Director of the Company since November 12, 2004. Ms. Basu incorporated HBSGI in December 1994. Ms. Basu has operated HBSGI for the past fourteen (14) years. Ms. Basu has been successful in growing HBSGI from a core client base of doctors and hospitals in California, Florida, Washington state and Texas without the use of consistent marketing or advertising. Ms. Basu has over 14 years of experience in medical bill collecting from insurance companies. Ms. Basu also has over 14 years of experience in computer design and programming. Ms. Basu is the CEO and President of AutoMed Software Corp. and the Manager of Silver Shadow Properties, LLC, both wholly-owned subsidiaries of the Company. Ms. Basu received a Bachelors Degree with majors in Math, Physics and Chemistry from Bethune College in 1975. She attended the Computer Learning Center during 1978. She also received specialized education in medical billing, anesthesia billing and attended various pain management conferences. Ms. Basu is a Technical Exhibitor for the American Association of Anesthesiology. 19 NARINDER GREWAL, M.D. Narinder Grewal, M.D., age 53, an anesthesiologist, pain management specialist, has been a self-employed Medical Doctor for the last fifteen years. He also owns and operates a surgery center. Dr. Grewal has concurrently served as a Director of the Company since May 2004. Dr Grewal brings experience with surgical center development and management from a medical and administrative perspective. Dr. Grewal has an eight year relationship with the Company and is the Company's largest client as well. The Company generates approximately 30% of its revenues from the services that it provides to Dr. Grewal, and as a result, Dr. Grewal is the Company's largest client. Dr. Grewal is licensed to practice medicine in the State of California. Dr. Grewal received a degree in medicine from Patiala University in Punjab, India. BHARATI SHAH, M.D. Bharati Shah, M.D., age 59, anesthesiologist and pain management specialist, is currently the President of her own medical practice, B. Shah, M.D., Inc., doing business as Comprehensive Pain Medical Clinic. Dr. Shah has operated her own medical practice since 1980. Dr. Shah has concurrently served as a Director of the Company since May 2004. Dr. Shah will be an ambassador for the Company in the medical community and a credible marketing tool at conferences and association meetings. Dr Shah will provide vital physician input about new services and products to be explored by the Company. Dr. Shah is licensed to practice medicine in the State of California. Dr. Shah received her MB BS degrees from Bombay University in 1971. She has received specialized education in anesthesiology and pain management. Dr. Shah is a member of the American College of Advancement in Medicine. The Company also provides services to Bharati Shah, MD, a Director of the Company. The Company receives less than 5% of its revenue from Dr. Shah. All directors of the Company will hold office until the next annual meeting of the shareholders, and until their successors have been elected and qualified. Officers of the Company are elected by the Board of Directors and hold office at the pleasure of the Board. Dr. Shah, Chandana Basu and Dr. Grewal have not been named to any committees of the Company's Board of Directors, and any committees of the Company's Board of Directors to which Dr. Shah, Ms. Basu or Dr. Grewal may be named have not been determined, as of the filing of this Report. CHANGES IN OFFICERS AND DIRECTORS On November 10, 2004, Mark D. Johnson resigned as a Director of the Company. On November 12, 2004, the Majority Shareholder, via unanimous written consent, removed Dr. Thomas Guthrie as a Director of the Company. On November 12, 2004, the Majority Shareholder, via unanimous written consent, appointed Chandana Basu as a Director of the Company. 20 SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the securities Exchange Act of 1934, as amended, requires the Company's directors, executive officers and persons who own more than 10% of a class of the Company's equity securities which are registered under the Exchange Act to file with the Securities and Exchange Commission initial reports of ownership and reports of changes of ownership of such registered securities. Such executive officers, directors and greater than 10% beneficial owners are required by Commission regulation to furnish the Company with copies of all Section 16(a) forms filed by such reporting persons. Based on stockholder filings with the SEC, Chandana Basu, Christopher Madero, Narinder Grewal, MD and Bharati Shah, MD are subject to Section 16(a) filing requirements. Bharati Shah failed to file a report on Form 3 after becoming a director of the Company during the Company's most recent fiscal year. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and on representations that no other reports were required, no person (other than Bharati Shah) required to file such a report failed to file on a timely basis during the Company's most recent fiscal year. ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION Other All Annual Restricted LTIP Other Name & Principal Compen- Stock Options Payouts Compen- Position Year Salary ($) Bonus ($) sation Awards SARs ($) sation Chandana Basu (1) 2005 $60,000 $540,000 Chief Executive Officer, Treasurer and Director * Does not include perquisites and other personal benefits in amounts less than 10% of the total annual salary and other compensation. (1) Chandana Basu receives as salary of $5,000 per month and a minimum bonus of $45,000 per month pursuant to an employment agreement with Healthcare. Ms. Basu loaned $201,024 to the Company and loaned $146,000 to Silver Shadow, LLC which offset officer's compensation.
21 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth information as of April 11, 2005, with respect to the beneficial ownership of the common stock by (i) each director and officer of the Company, (ii) all directors and officers as a group and (iii) each person known by the Company to own beneficially 5% or more of the common stock:
Shares of Common Stock Beneficially Owned (1) Name and Address --------------------------------------------- of Beneficial Owners Number Percent -------------------- ------ ------- Chandana Basu (2) 25,750,000 75.8% Narinder Grewal, MD (2) 100,000 0.3% Bharati Shah, MD (2) 50,000 0.2% All officers and directors 25,900,000 76.3% as a group (3 people) (1) The number of shares of common stock owned are those "beneficially owned" as determined under the rules of the SEC, including any shares of common stock as to which a person has sole or shared voting or investment power and any shares of common stock which the person has the right to acquire within 60 days through the exercise of any option, warrant or right. As of April 11, 2005, there were 33,960,150 shares of Common Stock outstanding, (2) The business address of the Company's officers and directors is 1126 West Foothill Blvd, Suite 105, Upland, California 91786.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On April 1, 2004, Ms. Basu entered into an employment agreement with Healthcare Business Services Groups, Inc., a Delaware corporation ("Healthcare"), and the Company's wholly owned subsidiary, pursuant to which Ms. Basu serves as the Chief Executive Officer, Vice President, Chief Operation Officer and Treasurer of Healthcare. Pursuant to the employment agreement, Ms. Basu receives compensation of $5,000 per month, a bonus of 25% of the gross receipts of Healthcare payable monthly with a minimum bonus of $45,000 per month, six weeks of paid vacation, and an S500 Mercedes Benz (or equivalent type) car allowance covering all automobile related expenses, and annual equity based compensation of a minimum of one (1) million shares of common stock of Healthcare. Narinder Grewal, MD, a Director of the Company, is the Company's largest client. Dr. Grewal is an anesthesiologist and pain management specialist. He also operates a surgery center that is not otherwise affiliated with the Company or the Company's Surgery Center line of business. The Company provides Dr. Grewal with medical billing and other administrative services. The Company generates approximately 30% of its revenues from the services that it provides to Dr. Grewal, and as a result, Dr. Grewal is the Company's largest client. The Company has had a relationship with Dr. Grewal for eight years. The Company also provides services to Bharati Shah, MD, a Director of the Company. The Company receives less than 5% of its revenue from Dr. Shah. On January 13, 2005, the Company's majority shareholder and Chief Executive Officer, Chandana Basu voted her shares to adopt the Company's Amended 2004 Stock Option Plan ("Option Plan"). Pursuant to the Option Plan, Ms. Basu is eligible to receive 1,250,000 shares of the Company's Common Stock in connection with that Option Plan. 22 The Company uses a California Company, Alta Vista Billing Service For Complex Medical Care, Inc. ("Alta Vista"), to deposit money for its clients. Alta Vista is 100% owned by the Company's Chief Executive Officer, Chandana Basu and serves only as a reimbursement account to keep the client's deposits in a separate account for which it receives no compensation. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Exhibit No. Description of Exhibit ---------- ---------------------- 2.1(1) Exchange Agreement 2.2(1) Addendum to Common Stock Purchase Agreement 3.1(2) Certificate of Amendment 3.2(3) Amended Bylaws 10.1(4) Employment Agreement with Chandana Basu 10.2* Subsidiaries 31.1* Certificate of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1* Certificate of the Chief Executive Officer of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1) Filed as Exhibits 2.1 and 2.2, respectively, to the Form 8-K filed with the Commission on May 17, 2004, and incorporated herein by reference. (2) Filed as Exhibit 3.1 to the Company's Form 8-K filed January 13, 2005, and incorporated herein by reference. (3) Filed as Exhibit 3.2, to the Company's Form 8-K, filed December 8, 2004, and incorporated herein by reference. (4) Filed as Exhibit 10.1 to the Company's Form 8-K, filed November 5, 2004, and incorporated herein by reference. (5) Filed as Exhibit 16.1 to the Company's Form 8-K filed with the Commission on November 24, 2004, and incorporated herein by reference. (6) Filed as Exhibit 16.2 to the Company's Form 8-K filed with the Commission on December 8, 2004, and incorporated herein by reference. * Filed herein 23 (b) REPORTS ON FORM 8-K The Company filed the following reports on Form 8-K during the last quarter of the fiscal period covered by this report: The Company filed a report on Form 8-K/A, on November 5, 2004, to amend the Company's previous Form 8-K in connection with the Acquisition of HBSGI, to include audited financials and pro forma information for HBSGI, to report the election of new directors, and to clarify the previous filing. The Company filed a report on Form 8-K, on November 23, 2004, to report that the Company had filed a press release in connection with the Company entering into a compliance and consulting agreement with Public Company Management Corporation. The Company filed a report on Form 8-K, on November 23, 2004, to report that the Company had filed a press release in connection with Public Company Management Corporation presenting at the National Investment Banker's Association (NIBA) conference. The Company filed a report on Form 8-K on November 14, 2004, to report that Effective October 28, 2004, the client auditor relationship between Winfield Financial group, Inc. (the "Company") and Malone & Bailey, PC ("Malone") ceased as the former accountant was dismissed. Effective November 6, 2004, the Company engaged Kabani & Company, Inc., Certified Public Accountants ("Kabani") as its principal independent public accountant for the fiscal year ended December 31, 2004. Additionally, the Company reported changes in the Company's Board of Directors. The Company filed a report on Form 8-K/A on December 8, 2004, to amend the Company's Form 8-K filed on November 24, 2004, to disclose that a disagreement between the Registrant and its predecessor independent accountant was resolved, the date on which the disagreement was resolved, and the actions taken to resolve the disagreement. The Company filed the following reports on Form 8-K subsequent to the last quarter of the fiscal period covered by this report: The Company filed a report on Form 8-K on January 13, 2005, to report that the Company had filed a Certificate of Amendment with the Nevada Secretary of State to change the Company's name, increase the Company's authorized shares and to report the adoption of Amended Bylaws. 24 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES AUDIT FEES The aggregate fees billed for each of the years ended December 31, 2005 and 2004 for professional services rendered by the principal accountant for the audit of the Company's annual financial statements was $22,500 and $46,300, respectively. The aggregate fees billed for each of the fiscal years ended December 31, 2005 and 2004 for professional services rendered by the principal accountant for review of the financial statements included in the registrant's Form 10-QSB or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was $12,200 and $0, respectively. AUDIT RELATED FEES None. TAX FEES None. ALL OTHER FEES The aggregate fees billed for each of the years ended December 31, 2005 and 2004 for products and services provided by the principal accountant, other than the services reported above was $0 and $0, respectively. SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HEALTHCARE BUSINESS SERVICES GROUPS, INC. DATED: April 15, 2006 By: /s/ Chandana Basu --- ------------------------ Chandana Basu Chief Executive Officer In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. NAME TITLE DATE /s/ Chandana Basu Chief Executive Officer, April 15, 2006 ---------------------- Chief Financial Officer, ---------- Chandana Basu and Director 25