<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended July 31, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from ________________ to ___________________
Commission file number 1-14382
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SUNSTAR HEALTHCARE, INC.
(Name of small business issuer in its charter)
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DELAWARE 59-3361076
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
521 East State Road 434, Longwood, Florida 32750
(Address of principal executive offices/Zip Code)
(407)339-4997
(Issuer's telephone number)
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock NASDAQ-Small-Cap Market and Boston
Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the 90 past days.
YES X NO
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [ ]
<PAGE>
State issuer's revenues for its most recent fiscal year $5,080,850
The aggregate market value of voting stock of the Registrant held by non-
affiliates of the Registrant on October 15, 1996, was $4,937,231 (based on
the average closing bid and asked prices of the Registrant's Class A Common
Stock on October 15, 1996 of $3.625 and $4.25 respectively).
As of September 30, 1996, 2,395,000 shares of the Registrant's Common
Stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format (check one): YES NO X
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<PAGE>
Part I
Item 1. Business.
SunStar Healthcare, Inc. and its wholly owned subsidiaries, Brevard Medical
Centers, Inc., First Health, Inc. and SunStar Health Plan, Inc. (hereinafter
collectively referred to as the "Company") provide managed healthcare services
through seven (7) primary care centers located in central Florida. Medical
services are delivered by thirteen (13) board certified or board eligible
primary care physicians employed by the Company. The Company's healthcare
operations consist primarily of medical treatment and care typically furnished
in a family practitioner's office. The Company also arranges for clinical
laboratory services and engages physicians specializing in various medical
practices to complement the Company's primary care operations.
The Company currently offers health care services on a contractual and a
fee-for-services basis. The Company has provider agreements with third-party
payors, such as Humana Health Care Plans, CAC/United Healthcare Plans of
Florida, Inc. and Blue Cross Blue Shield of Florida, which are health
maintenance organizations operating in the State of Florida. Pursuant to such
agreements, the Company receives a fixed amount, or "capitated" fee, for each
participating enrollee per month, regardless of utilization. The Company also
has a prepaid cost reimbursement contract with the Health Care Financing
Administration of the federal government ("HCFA"), pursuant to which the Company
also provides prescribed primary care to Medicare beneficiaries who enrolled
directly with the Company prior to January 1, 1996. For the year ended July 31,
1996, medical services provided under the Company's contracts with HCFA, HMOs
and on a fee-for-service basis accounted for approximately 39%, 31% and 27%,
respectively, of the Company's revenues.
The Company's operating plan incorporates a strategy of aggressive growth
and a plan to deliver managed healthcare services through the establishment of a
commercial health maintenance organization ("HMO"). On September 4, 1996, the
Company completed and filed an application with the Florida Department of
Insurance to do business as an HMO. The applicant is SunStar Health Plan, Inc.,
formerly known as "Boro Medical Corp.", a wholly-owned subsidiary of the
Company.
During the next twelve (12) months, the Company intends to shift its focus
from the provision of primary care services under agreements with third-party
payors to the establishment of commercial HMO operations in Brevard County. The
Company has established affiliations with three hospital providers located in
Brevard County: Holmes Regional Hospital, Cape Canaveral Hospital and Palm Bay
Community Hospital. Provided that the Company is successful in obtaining
required government approvals, the Company expects that it will commence HMO
operations and enroll members by early 1997. The Company also intends to
continue to provide primary care services on a fee-for-service basis pursuant to
existing
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arrangements with third-party payors and, will evaluate the feasibility of
continuing to do so independently of commercial HMO operations in Brevard
County.
The Company's objective is to establish relationships with qualified
physicians, hospitals and other healthcare providers who are willing to provide
medical services to members of managed care organizations at a reasonable cost.
The Company believes that these efforts will enable it to provide a variety of
low-cost managed healthcare products to attract individuals and small employer
groups willing to enroll in the Company's HMO and to otherwise determine the
viability and potential of its proposed HMO operations. The Company believes
that, if it is successful in meeting this objective, its primary care physician
network will be a significant competitive factor in the marketing of managed
healthcare products.
As part of the Company's long-term strategy, the Company intends to expand
its HMO target market to include additional counties in central and northern
Florida. The Company will also seek to further serve the Medicare-eligible
population in such market by offering comprehensive health care coverage through
a contract with the Health Care Financing Administration ("HCFA").
In addition to establishing its own HMO (the application for which was
filed with the Florida Department of Insurance in September, 1996), the Company
will seek to capitalize on opportunities arising from the growing trend toward
managed healthcare by focusing its efforts on expanding its primary care
operations.
The Company was incorporated under the laws of the State of Delaware in
December 1995 by National Home Health Care Corp., a publicly-held Delaware
corporation ("National"), to hold the capital stock of Brevard Medical Center,
Inc. ("Brevard") and First Health, Inc. ("First Health"), which previously were
direct, wholly-owned subsidiaries of National. In January 1996, National
contributed to the Company all of the issued and outstanding shares of capital
stock of Brevard and First Health held by it, and Brevard and First Health
became direct, wholly-owned subsidiaries of the Company.
On May 15, 1996 (the "Effective Date"), the Company completed a public
offering (the "Offering") pursuant to the Securities Act of 1933, as amended,
which resulted in the issuance of 1,300,000 shares of Common Stock, par value
$.001 (the "Common Stock"). The Offering yielded net proceeds to the Company of
$5,230,372. On June 7, 1996, the underwriters in the Offering exercised their
over-allotment option in full to purchase additional shares of Common Stock,
resulting in the Company's sale of an additional 195,000 shares of Common Stock,
par value $.001, and realization of $853,125 in net proceeds.
As of October 15, 1996, proceeds from the IPO have primarily been used as
working capital to finance the HMO development effort and to pay HMO application
fees.
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Although the Company has filed an application for HMO status, the
application is subject to review by governmental agencies. The Company's
success will be largely dependent upon the Company's ability to obtain
governmental approvals to operate as a commercial HMO; to establish satisfactory
relationships with specialty and acute care physician groups and provider
networks (including hospitals); to provide a variety of low-cost managed care
healthcare products suitable for individuals and employer groups; and to enroll
significant numbers of members.
The Company's strategy and preliminary and future expansion plans may be
subject to change as a result of numerous factors, including progress or delays
in the Company's expansion efforts, changes in market conditions, new or
different opportunities which may become available to the Company in the future
and competitive conditions.
Primary Healthcare Operations.
The Company currently employs thirteen (13) board certified or board
eligible primary care physicians. These family practitioners, pediatricians and
general internists are responsible for providing and coordinating healthcare
services to patients and are required to maintain local hospital admitting
privileges in order to provide continuity of medical care. The Company's
physicians provide medical services in accordance with quality assurance
standards established by the American Medical Association and are continually
monitored in accordance with the Company's quality improvement programs. The
Company also employs one family nurse practitioner and one physician's assistant
in its primary care operations.
The Company has entered into a one-year employment agreement with each of
its physicians and other practitioners which is automatically renewable, subject
to early termination upon three months' prior written notice. The agreements
require physicians to devote their full time to the Company's business, to
obtain and maintain professional malpractice insurance and licenses and include
provisions which prohibit the employee from competing and soliciting and from
disclosing proprietary information. The agreements also provide for guaranteed
annual salaries plus incentive performance bonuses.
In addition, the Company has arrangements with approximately twelve
physicians specializing in various medical practices, such as cardiology,
gastroenterology, podiatry, urology, ear, nose and throat and general and
vascular surgery, to complement the Company's primary care operations. These
arrangements permit the Company to provide physician consultations both at the
Company's offices and at the physician's office, as well as acute care in the
hospital for advanced diagnostic testing and surgery. These physicians are
available to provide services as required and are paid primarily on an hourly
basis.
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The Company also arranges for clinical laboratory services pursuant to an
agreement with SmithKline Beecham Clinical Laboratories. The Company pays
SmithKline a fixed annual fee of approximately $70,500 to provide these
services.
Revenue Sources and Reimbursement.
The Company currently offers healthcare services on a contractual and fee-
for-service basis. The following table sets forth for the periods indicated the
approximate revenues and percentages of revenues derived from the Company's
various revenue sources.
<TABLE>
<CAPTION>
Fiscal Years Ended July 31,
1995 1996
<S> <C> <C> <C> <C>
HCFA 1,728,918 33.7% 1,993,889 39.2%
HMO 1,573,394 30.7% 1,561,283 30.8%
Fee-For-Service 1,649,268 32.2% 1,393,892 27.4%
Prepaid Health Clinic 175,992 3.4% 131,786 2.6%
---------- ---- --------- ----
$5,127,572 100% 5,080,850 100%
</TABLE>
HCFA Agreement.
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Pursuant to the terms of the agreement with HCFA, the Company is paid a
monthly premium in advance for each Medicare beneficiary enrolled by the
Company. Payments under the agreement are based on costs incurred in connection
with medical services and are subject to year-end adjustments. The Company is
subject to governmental audit to ensure the basis of medical costs incurred. To
date, no adjustments have been made under the HCFA contract and the Company has
never been subject to audit.
The Company's agreement with HCFA is automatically renewable on a yearly
basis unless either party elects not to renew. HCFA may terminate the agreement
at any time in the event that the Company fails to perform its obligations under
the agreement or fails to comply with applicable laws and regulations or
undergoes a change of ownership. HCFA may audit the Company to determine the
quality of medical care and compliance by the Company under the terms of the
agreement and applicable law.
Pursuant to recent amendments to the Social Security Act, effective January
1, 1996, the Company is prohibited from enrolling Medicare beneficiaries who are
not members of employer groups or unions under its agreement with HCFA until it
establishes Medicare HMO operations. Such limitation may prevent the Company
from enrolling certain new Medicare beneficiaries and increasing revenues under
its contract with the HCFA in the foreseeable future.
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Agreements with Health Maintenance Organizations.
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The Company also has provider agreements with Humana Healthcare Plans,
United Healthcare Corporation and Blue Cross Blue Shield of Florida, pursuant to
which the Company provides primary care services for approximately 11,000 HMO
enrollees. Under such agreements, the Company generally receives a fixed amount,
or "capitated" fee, for each participating enrollee per month, regardless of
utilization. Under certain circumstances, the Company is entitled to collect
coinsurance obligations and deductibles from HMO enrollees, and is entitled to
bill enrollees for medical services not provided by contract. Agreements with
HMOs are generally short-term and contain short-term cancellation provisions.
Fee-for-Service.
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The Company offers healthcare services on a fee-for-service basis, pursuant
to which the Company receives payments for medical services from individuals,
private insurance companies, workers' compensation programs, municipalities,
other self-insured groups and government assistance programs such as Medicare
and Medicaid.
Medicare is a federally funded and administered program that provides
healthcare payments for most persons who are 65 years of age or older and
entitled to retirement benefits. Medicare payments are based on a standard fee
schedule used by HCFA. For the year ended July 31, 1996, the Company provided
medical services on a fee-for-service basis to Medicare beneficiaries through
its seven primary care facilities, which accounted for approximately 3% of the
Company's revenues.
Medicaid is funded jointly by the federal and state governments and covers
indigent patients. The Company has entered into an agreement with the Florida
Agency for Health Care Administration ("AHCA") to provide primary care services
to Medicaid patients. The Company must accept reimbursement from Medicaid as
payment in full for medical services provided. For the year ended July 31, 1996,
the Company provided medical services to Medicaid patients through its seven
primary care centers which are qualified under state law to receive
reimbursement under federal and state Medicaid guidelines. During such year,
Medicaid services accounted for approximately 1% of the Company's revenues.
Prepaid Health Clinic.
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The Company also provides medical services to subscribers pursuant to a
prepaid health clinic license issued by the Florida Department of Insurance.
This license permits the Company to provide certain primary healthcare coverage
to individuals for a fixed monthly premium. For the year ended July 31, 1996,
through its five centers in Brevard County, the Company had approximately 1,300
subscribers participating in the prepaid health clinic operations. The Company
has filed an application with the Accreditation Association for Ambulatory
Healthcare
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("AAAHC") for accreditation of its prepaid health clinic operations. Although
the Company has received a consultative survey by the AAAHC and was found to be
in substantial compliance with such survey, and also received a favorable
external quality assurance assessment, there can be no assurance that such
accreditation will be obtained. Failure to receive such accreditation may result
in the suspension of the Company's ability to enroll new members for its prepaid
health clinic operations.
Competition.
The managed healthcare industry is highly competitive. The Company
currently competes with other providers of primary healthcare services,
including primary care centers, regional hospitals and physician practice
groups. Many of such competitors offer a broader range of primary healthcare
services than the Company and have extensive relationships with group specialty
practices. The Company currently competes primarily on the basis of reputation,
quality of care and physician support.
The managed healthcare industry has experienced significant changes in
recent years, primarily due to rising healthcare costs. Employer groups have
demanded a variety of health care options, such as traditional indemnity
insurance, HMOs, point of service plans and preferred provider options, offered
either through third parties or by self-funding. The Company's proposed HMO
operations will compete with providers of all of these products, including CAC/
United Healthcare Plans of Florida Inc., Humana Healthcare, Blue Cross/Blue
Shield of Florida and PCA Health Plan, most of which have substantially greater
financial, management, personnel and other resources than the Company. The
Company also will be required to respond to various competitive factors
affecting the healthcare industry generally, including new medical technologies
which may be introduced, general trends relating to demand for healthcare
services, regulatory, economic and political factors, changes in patient
demographics and competitive pricing strategies by health maintenance
organizations and other healthcare plans. The Company will be subject to
significant competition in any new geographic areas it may enter, with respect
to any products it may offer and with respect to any commercial and governmental
health care programs developed. There can be no assurance that the Company will
be able to compete successfully.
Insurance.
The Company and its physicians may be exposed to potential professional
liability claims by patients as a result of the negligence or other acts of
physicians. Claims of this nature, if successful, could result in substantial
damage awards to claimants which may exceed the limits of any applicable
insurance coverage. The Company could become liable for the negligent acts of
physicians, as well as negligence in recruiting and selecting physicians. The
Company currently maintains malpractice liability insurance with limits of
$3,000,000 in the aggregate and $1,000,000 per occurrence and requires
physicians to maintain malpractice liability insurance in
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amounts which it deems adequate for the types of medical services provided.
There can be no assurance, however, that such insurance will be sufficient to
cover potential claims or that adequate levels of coverage will be available in
the future at a reasonable cost. In the event of a partially or completely
uninsured successful claim against the Company, the Company's business and
financial condition would be materially adversely affected.
Government Regulation.
The health care industry and physician medical practices are subject to
extensive, stringent and frequently changing federal, state and local
regulation, which is interpreted by regulatory authorities with broad
discretion. The extensive regulatory framework applicable to physicians'
practices imposes significant compliance burdens and risks on the Company.
Various federal and state laws regulate the relationship between providers
of healthcare services and physicians, including employment or service
contracts, and investment relationships. These laws include the fraud and abuse
provisions of the Medicare and Medicaid and similar state statutes ("fraud and
abuse laws"), which prohibit the payment, receipt, solicitation or offering of
any direct or indirect remuneration intended to induce the referral of Medicare
or Medicaid patients or for the ordering or providing of Medicare or Medicaid
covered services, items or equipment. Violations of these provisions may result
in civil and criminal penalties and/or exclusion from participation in the
Medicare and Medicaid programs and from state programs containing similar
provisions relating to referrals of privately insured patients. These laws have
been interpreted broadly to include the payment of anything of value to
influence the referral of Medicare or Medicaid business. These regulations set
forth certain "safe harbors," representing business relationships and payments
that can safely be undertaken without violation of the fraud and abuse laws.
The "Stark" amendments of the Social Security Act provide, with certain
exceptions, that if a physician has a "financial interest" in an entity (which
may consist of either an ownership interest or a compensation arrangement), the
physician is prohibited from making a referral to the entity for the provision
of certain "designated health services" for which payment may be made by
Medicare or Medicaid. In April 1992, the State of Florida adopted the Patient
Self-Referral Act of 1992, which prohibits referrals for certain designated
health services by a health care provider to a facility in which such provider
has an ownership interest. This law prohibits any claim for payment for services
furnished pursuant to a prohibited referral, and requires a refund if an
unlawful payment was made. Florida legislation also imposes, with certain
exceptions, a cap on the fees charged by all providers of designated health
services.
In addition, state laws, although varied, generally prohibit a commercial
enterprise, such as the Company, from engaging in the practice of medicine or
otherwise exercising control or influencing the medical judgments or decisions
of physicians, and prohibit physicians from "fee-splitting" with non-physicians.
Florida law does not currently contain such a prohibition.
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The federal government and the State of Florida have each enacted statutes
extensively regulating the activities of health maintenance organizations that
are applicable to the Company's proposed operations. Among the areas regulated
are the scope of benefits required to be made available to members, the manner
in which member rates are structured, procedures for review of quality
assurance, enrollment requirements, composition of policy making bodies to
assure member representation, the interrelationship between health maintenance
organizations and their healthcare providers, licensure and financial condition.
Under federal regulations, services to members must be provided substantially on
a fixed prepaid basis, without regard to the actual degree of utilization of
services. Although premiums established by a health maintenance organization may
vary from account to account through composite rate factors and special
treatment of certain broad classes of enrollees, traditional experience rating
of accounts (i.e., setting premiums for a group account based on that group's
part use of healthcare services) is not permitted under federal regulations. In
Florida, health maintenance organizations must also comply with certain other
provisions of state health and insurance laws, including the licensing of
salespersons and maintenance of a minimum statutory net worth requirement
(liquid tangible assets less liabilities). The Company must file periodic
reports with, and will be subject to periodic review by, the federal and state
licensing authorities which regulate the Company.
The Company currently holds a Certificate of Authority issued by the
Florida Department of Insurance to provide prepaid health clinic services. The
Company also holds a Health Care Provider Certificate issued by the Florida
Agency for Health Care Administration in connection with its prepaid health
clinic operations. Most states, including Florida, require a health maintenance
organization to be licensed prior to commencing operations.
The Company believes, based on advice of counsel, that it is in compliance
with all federal, state and local laws, rules and regulations applicable to its
operations and has obtained all licenses necessary to conduct its business.
Amendments to existing statutes and regulations, adoption of new statutes and
regulations and the Company's expansion into new operations and jurisdictions
could require the Company to obtain additional licenses, modify its arrangements
with physicians or otherwise alter methods of operations at costs that could be
substantial. There can be no assurance that the Company will be able, for
financial or other reasons, to comply with applicable laws and regulations and
licensing requirements. Failure to comply with applicable laws and regulations
and licensing requirements would subject the Company and its physicians to civil
remedies, including significant fines, penalties, injunctions and expulsion from
participation in Medicare and Medicaid programs, as well as possible criminal
sanctions, which would have a material adverse effect on the Company.
Several proposals have recently been made by federal and state government
officials that may lead to substantial healthcare reforms, including the
implementation of a government-directed national healthcare system and stringent
healthcare cost-containment measures. Adoption of such a system or cost controls
could further limit reimbursement for medical services. Past congressional
actions have resulted in changes in Medicare and Medicaid
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reimbursement rates, and the Company believes that it is likely that Congress
will, over the next several years, substantially limit the growth of Medicare
and Medicaid expenditures. Significant uncertainty exists as to the status of
reimbursement and there can be no assurance that healthcare insurers and other
third-party payors will continue to cover certain medical services or reimburse
such services at current levels. Any significant reduction of healthcare
insurance coverage for medical services could have a material adverse effect on
the Company's business and prospects.
Employees.
The Company currently employs 78 persons, including 4 executive officers,
13 physicians, 1 nurse practitioner, 1 physician's assistant, 21 medical
assistants and 38 other persons engaged in operations management,
administrative, and clerical capacities. None of the Company's employees are
represented by a union. The Company believes that its employee relations are
good.
Item 2. Property.
The Company occupies its principal executive offices and primary care
centers under third-party lease agreements. In July, 1996, the Company opened
an additional executive office in Longwood, Florida. The following table sets
forth the location, approximate annual rent, use of each location and expiration
date of each lease:
<TABLE>
<CAPTION>
Lease
Approx. Approx. Expiration
Location Sq. Feet Rent Use Date
-------- -------- ---- --- ----------
<S> <C> <C> <C> <C>
Deltona, FL 2,500 $44,000 Primary Care Center April 30, 1998
South Daytona, FL 2,500 26,000 Primary Care Center November 30, 1996
Melbourne, FL 1,600 14,000 Executive Office October 31, 1996
Melbourne, FL 2,900 50,000 Primary Care Center July 31, 1997
Longwood, FL 4,400 52,000 Executive Office July 19, 1999
Palm Bay, FL 2,800 40,000 Primary Care Center January 31, 1997
Merritt Island, FL 2,680 27,000 Primary Care Center October 31, 1996
Satellite Beach, FL 2,580 45,000 Primary Care Center October 31, 1996
Titusville, FL 3,200 58,000 Primary Care Center October 31, 1996
</TABLE>
Although the Company believes that such centers are adequate for its
existing operations, the Company regularly evaluates the adequacy of each
primary care center. Each lease which expires in fiscal 1997 contains a renewal
provision giving the Company the option to renew the subject lease. The Company
expects to renew, or find other suitable locations for, all leases which will
expire during fiscal 1997.
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Item 3. Legal Proceedings.
There are no pending material legal proceedings to which the Company is a
party or to which any of its properties is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to the Company's shareholders for approval during
the fourth quarter of the fiscal year covered by this report.
Part II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters.
Market Information.
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The company's Common Stock is traded on the NASDAQ Small-Cap Market
under the symbol "SUNS". Quarterly information on the high and low closing bid
prices for the Company's Common Stock is not available since the Company has
been listed on the NASDAQ Small-Cap Market only since mid-May, 1996. However,
following are the high and low closing bid prices as provided by NASDAQ for the
period May 15, 1996 to July 31, 1996.
Period High Low
- ------ ---- ---
May 15, 1996 - July 31, 1996 8 1/2 4 3/8
The quotations represent prices between dealers in securities, they do
not include retail mark-ups, mark-downs, or commissions, and do not necessarily
represent actual transactions.
Holders.
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The approximate number of holders of record of the Company's Common Stock
at September 27, 1996 is 13. However, the Company estimates that there were 974
beneficial owners of the Company's Common Stock as of that date.
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Dividends.
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No cash dividends have been declared by the Company. The Company currently
anticipates that all of its earnings will be retained for development of the
Company's business, and does not anticipate paying any cash dividends in the
foreseeable future. Future cash dividends, if any, will be at the discretion of
the Company's Board of Directors and will depend upon, among other things, the
Company's future operations and earnings, capital requirements and surplus,
general financial condition, contractual restrictions, and such other factors as
the Board of Directors may deem relevant.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following analysis of the Company's financial condition as of July 31,
1996 and the Company's results of operations for the years ended July 31, 1996
and 1995 should be read in conjunction with the Company's financial statements
and notes thereto included elsewhere in this report.
General Financial Information.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
--------------------------
1995 1996
---- ----
<S> <C> <C>
Patient service revenue $5,127,572 $5,080,850
Income (loss) from continuing
operations 55,431 (222,468)
Income (loss) from continuing
operations per common share .05 (1) (.15) (2)
Total Assets 1,280,702 7,499,487
Long term obligations 11,580 16,540
</TABLE>
(1) Gives effect to the issuance by the Company of (i) 900,000 shares of
Common Stock to National and (ii) the shares of Common Stock issuable upon
the exercise of certain options, as if such issuances occurred as of the
beginning of the periods presented.
(2) Gives effect to weighted average Common Stock and weighted incremental
shares relating to Common Stock equivalents (options granted and warrants
exercised) at July 31, 1996. (See sections entitled "Employment
Agreements" and "Stock Option Plan".)
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The Company recognizes fee-for-service revenues based on net realizable
amounts due from patients and third-party payors at the time medical services
are rendered. Capitation revenues from HMOs that contract with the Company are
recognized on a monthly basis. Reimbursement under the Company's contract with
HCFA are based on costs incurred in connection with medical services provided
and are subject to audit and retrospective adjustment.
Results of Operations.
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Year ended July 31, 1996 ("fiscal 1996") compared to year ended July 31, 1995
("fiscal 1995").
For the year ended July 31, 1996, the Company incurred a loss of
$(222,468), primarily as a result of a non-cash charge of approximately $211,000
relating to compensation expense in connection with the issuance of options to
certain officers, directors and a consultant to the Company to purchase an
aggregate of 325,000 shares of Common Stock. An additional $195,000 in
compensation expense relating to these options will be incurred over the next
three (3) years and will affect operating results accordingly.
Net income decreased by $278,000 to $(222,000) in fiscal 1996 from $56,000
in fiscal 1995. This decrease resulted from (i) a $211,000 non-cash charge
representing amortization of stock options; (ii) decrease of approximately
$47,000 in patient service revenues; (iii) a net increase in operating expenses
of approximately $84,000; (iv) increased interest income of $50,000; and (v) a
decrease in income tax provision of $14,000.
Patient service revenue decreased by approximately $47,000, to $5,081,000
in fiscal 1996 from $5,128,000 in fiscal 1995. This decrease is primarily a
result of two factors. First, the company had a decrease in fee-for-service
revenue. Management believes that this decrease in revenue is a trend reflective
of the shift within the healthcare industry from fee-for-service based business
toward managed care. Second, the decline in revenue is also attributable to the
closing of a non-profitable medical center in the first quarter of fiscal 1996.
Costs of revenue decreased by $136,000 to $3,371,000 in fiscal 1996 from
$3,507,000 in fiscal 1995. Costs of revenue as percentage of total income
decreased to 66% in fiscal 1996 compared to 68% in fiscal 1995. The decrease in
the expense level is due to management's efforts at improved cost control and
expense reduction, combined with closing of a non-profitable medical center in
the first quarter of fiscal 1996.
General and administrative expenses of $1,705,000 in fiscal 1996, increased
by $233,000 or 7% during fiscal 1996, over $1,472,000 of such expenses in fiscal
1995. The increase represents: (i) an increase in bad debt expense of $93,000
caused by an increased provision for doubtful accounts and additional write-offs
to collection (which increased expenses for bad debts are estimated by
management to be non-recurring); (ii) settlement of litigation, with a net
charge to the Company of $66,000; (iii) additional salaries of $129,000 related
to executive officers and other significant employees which are ongoing and were
incurred primarily in connection with start-up and
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development of the proposed HMO entity. These increases in general and
administrative expenses were partially offset by a net decrease of $55,000 in
other administrative expenses resulting from an office closing and other
reductions to expense.
Liquidity.
- ----------
At July 31, 1996, the Company had working capital of $5,898,000 as compared
to working capital of $285,000 at July 31, 1995. The Company has historically
financed its working capital requirements through cash flow from operating
activities. The substantial increase in working capital at July 31, 1996 is
attributable primarily to proceeds received from a public offering of the
Company's Common Stock in May, 1996.
Net cash provided by operating activities was $300,000 for fiscal 1996, as
compared to net cash provided by operating activities of $39,000 for fiscal
1995. This increase in cash provided by operating activities was primarily
attributable to a net increase in accounts payable and accrued expenses.
Net cash used in investing activities for fiscal 1996 was approximately
$285,000, primarily reflecting a purchase of a $250,000 Certificate of Deposit
to satisfy the Florida Department of Insurance net worth requirement for the
Company's Prepaid Health Clinic license, compared to $47,000 in fiscal 1995,
reflecting the Company's purchase of property and equipment during fiscal 1995.
Net cash provided by financing activities for fiscal 1996 was $5,762,000 as
compared to net cash used in financing activities of $324,000 for fiscal 1995.
Cash provided by financing activities primarily represents proceeds received
from the public offering of the Company's Common Stock on May 15, 1996. Cash
used in financing activities during fiscal 1995 primarily reflects distributions
to National.
Humana Health Care Plans, a health maintenance organization with which the
Company has a capitated service agreement, has announced its intention to
terminate its operation in Brevard County effective January 1, 1997. Management
estimates that capitation revenue will decrease by approximately $170,000 in
fiscal 1997 from fiscal 1996 as a result of a net loss of capitated members.
During the next fiscal year, the Company's liquidity will be affected by
the proposed HMO establishment and operation. As an HMO, SunStar Health Plan,
Inc. will initially be required to maintain $1,500,000 in minimum capital
surplus pursuant to Section 641 of the Florida Insurance Code. At September 13,
1996, SunStar Health Plan, Inc.'s audited financial statements (which were
prepared as part of its pending application for an HMO Certificate of Authority
in the State of Florida) reflect an actual surplus of $2,684,000 which is
currently maintained as a cash equivalent of a Money Market Trust Fund which
invests in securities issued or guaranteed by the U.S. Treasury and repurchase
agreements relating to such securities.
13
<PAGE>
HMO development costs will be incurred by SunStar Health Plan, Inc. in
fiscal 1997 to establish arrangements with physicians, hospitals, and other
health care providers as well as develop marketing materials and strategies
necessary to operate and maintain HMO operations in accordance with statutory
requirements (which shall include the costs of key employees' salaries and
expenses). Additionally, SunStar Healthcare, Inc. will incur expenditures to
develop and/or acquire up to five additional primary care centers outside of
Brevard County and to relocate the Company's existing medical centers to larger
facilities.
Although the Company is unable to predict with any degree of certainty the
effect on the Company of its proposed shift of business focus (e.g., from the
provision of primary care services under provider agreements to the
establishment of commercial HMO operations in Brevard County, Florida), it is
possible that the Company's proposed HMO operations could result in increased
competition with HMOs operating in the State of Florida. As a result of such
competition, it is possible that certain HMOs may terminate provider agreements
with the Company, which could result in a significant decline in revenues. In
addition, the Company's operating expenses can be expected to increase
significantly in connection with the Company's proposed expansion, which will
require the Company to make significant up-front expenditures to relocate,
develop and/or acquire primary care centers and physician practices and pay
salaries for additional personnel. The Company anticipates that it will make
capital expenditures associated with, among other things, leasehold improvements
and office equipment (including telephone and management information systems and
software). The Company expects to pay salaries for additional financial,
marketing and other personnel to augment the Company's efforts to successfully
manage anticipated growth. There can be no assurance that the foregoing factors
will not adversely affect the Company's future operating results.
The Company conducted an initial public offering in May, 1996 to provide
funds for its expansion plans, and it is anticipated that the net proceeds from
such offering, approximating $6,000,000, will be used to implement such
expansion. The Company anticipates, based on currently proposed plans and
assumptions relating to its operations (including the costs associated with, and
the timetable for, its proposed expansion), that such offering proceeds,
together with projected cash flow from operations, will be sufficient to satisfy
its contemplated cash requirements through the end of its current fiscal year.
There can be no assurance that the offering proceeds will be sufficient to
permit the Company to meet its objective of providing low-cost managed
healthcare products to individuals and employers and to otherwise determine the
viability and potential of proposed HMO operations. In the event that the
Company's plans change, its assumptions change or prove to be inaccurate or if
the proceeds of the public offering prove to be insufficient (due to
unanticipated expenses, difficulties, problems or otherwise), the Company may be
required to seek additional financing. There can be no assurance that
additional financing will be available to the Company on acceptable terms, or at
all. To the extent that the Company's available cash resources are insufficient
to allow the Company to engage in operations sufficient to generate meaningful
revenues or achieve profitable operations, the inability to obtain additional
financing will have a material adverse effect on the Company.
14
<PAGE>
Item 7. Financial Statements.
Filed as part of this report are audited financial statements for the years
ended July 31, 1995 and 1996, commencing at Page F-2.
Item 8. Changes in Accountants.
Richard A. Eisner & Company, LLP, was previously the principal accountant
for the Company. On August 27, 1996, that firm's appointment as principal
accountant was terminated and KPMG Peat Marwick, LLP, was engaged as principal
accountant. The decision to change accountants was approved by the Board of
Directors.
In connection with the audits of the two fiscal years ended July 31, 1994
and July 31, 1995, and the subsequent interim period through August 27, 1996,
there were no disagreements with Richard A. Eisner & Company, LLP, on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements if not resolved to its
satisfaction would have caused it to make reference in connection with its
opinion to the subject matter of the disagreement.
The audit report of Richard A. Eisner & Company, LLP, on the consolidated
financial statements of the Company and subsidiaries as of and for the years
ended July 31, 1995 and 1994, did not contain any adverse opinion or disclaimer
of opinion, nor were they qualified or modified as to uncertainty, audit scope,
or accounting principles.
Part III
Item 9. Directors, Executive Officers and Significant Employees.
The directors, executive officers and significant employees of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Warren D. Stowell 44 President, Chief Exec. Officer & Chairman of
Board of
Directors
David Jesse 47 Exec. Vice President, Chief Operating Officer
& Director
Michael Landau 38 Vice President of Operations
Lisa Tomei 35 Controller and Chief Accounting Officer
Frederick H. Fialkow 65 Director
Steven Fialkow 37 Director
Bernard Levine, M.D. 67 Director
Dean L. Sloane 50 Director
Richard Seidelman, M.D. 38 Director
</TABLE>
15
<PAGE>
Warren D. Stowell has been President and Chief Executive Officer of
the Company since December 1995, Chairman of the Board of Directors of the
Company since March 1996, and President and Chief Executive Officer of each of
Brevard and First Health since November 1, 1995. From July 1993 through
November 1995, Mr. Stowell served as Chief Operating Officer, Insurance
Division, for Ramsay HMO, Inc., an HMO operating in the State of Florida. From
June 1991 until July 1993, Mr. Stowell was President and Chief Executive Officer
of Care Florida, Inc. From May 1988 to May 1991, Mr. Stowell served as
President and Chief Executive Officer of H.I.P. Network of Florida.
David Jesse has been Executive Vice President, Chief Operating Officer
and a director of the Company since January 1996. Prior to his association with
the Company, Mr. Jesse had been a principal of Masters & Jesse Co., LPA, a legal
professional association, commencing March 1, 1993. From May 1992 to February
1993, he was Vice President and General Counsel of Care Florida, Inc., a health
maintenance organization based in Miami, Florida. From 1988 to 1992, Mr. Jesse
was an associate with the law firm of Climaco, Climaco, Seminiatore, Lefkowitz &
Garofoli in its health care law department. Prior thereto, from 1984 to 1987,
Mr. Jesse was the Vice President and General Counsel of HealthAmerica
Corporation of Ohio, a health maintenance organization based in Cleveland, Ohio.
Michael Landau has been Vice President of Operations of the Company
since December 1995. Mr. Landau has been employed by Brevard since January 1988
and has served as Vice President of Operations of Brevard since January 1989 and
as Vice President of Operations of First Health since May 1994. Mr. Landau is
the stepson of Frederick H. Fialkow.
Lisa Tomei has been employed as Controller and Chief Accounting
Officer of the Company since June 1996. From October 1995 to February 1996, Ms.
Tomei was employed by United Healthcare Corporation as Assistant Treasurer for
the MetraHealth Care Networks. From May 1990 to September 1995, Ms. Tomei was
Accounting Manager for MetLife Healthcare Networks employed by MetraHealth and
Metropolitan Life Insurance Companies. From 1986 to 1990, Ms. Tomei was
employed by Deloitte and Touche, LLP, as Senior Accountant. Ms. Tomei is a
Certified Public Accountant.
Frederick H. Fialkow has been a director of the Company since December
1995. Mr. Fialkow has been Chairman of the Board, President and Chief Executive
Officer of National since February 1988. Mr. Fialkow is the father of Steven
Fialkow and the stepfather of Michael Landau.
Steven Fialkow has been a director of the Company since December 1995.
Mr. Fialkow has served as Secretary of National since September 1995, as
Executive Vice President of New England Home Care, Inc. since August 1995 and as
a director of National since December 1991. Prior thereto he served as Executive
Vice President of Health Acquisition Corp. from May 1994 to August 1995. He has
served as President of National HMO (New York), Inc. from April 1989
16
<PAGE>
to April 1994 and Vice President of National HMO (New York) Inc. from August
1984 to March 1989. Steven Fialkow is a certified public accountant. He is the
son of Frederick H. Fialkow.
Bernard Levine, M.D. has been a director of the Company since December
1995. Dr. Levine is a private investor, primarily in the healthcare industry.
Since 1962, he has been a Professor of Internal Medicine at New York University
School of Medicine with a sub-specialty in allergy and immunology. Dr. Levine
also serves as a director of National and Cypros Pharmaceutical Corp.
Dean L. Sloane has been a director of the Company since February 1996.
Mr. Sloane has served as Chairman of the Board, President, Chief Executive
Officer and a director of Community Medical Transport, Inc. since December 1988.
From 1973 to 1988, Mr. Sloane served as Chief Executive Officer of Prime Medical
Services Inc. (formerly known as C.P. Rehab. Corp.), a public specialty medical
management service company. Mr. Sloane co-founded and served as Chairman of the
Board of National from 1983 to 1986. Mr. Sloane also served as a director of
EPIC Health Group, Inc., a public mail order pharmaceutical company, from 1984
to 1986.
Richard Seidelman, M.D. has been a director of the Company since
February 1996. Since June 1989, Dr. Seidelman has been a pulmonary care
physician in private practice in South Florida. Dr. Seidelman is a graduate of
the University of Pennsylvania and received his M.D. degree from Hahnemann
University. He completed his residency in internal medicine at Georgetown
University/VA Medical Center and his fellowship in pulmonary medicine at George
Washington University.
All directors of the Company hold office until the next annual meeting
of the stockholders and until their successors have been elected and qualified.
The officers of the Company are elected by the Board of Directors at the first
meeting after each annual meeting of the Company's stockholders, and hold office
until their death, resignation or removal from office.
The Company obtained "key-man" insurance covering the life of Warren
D. Stowell in the amount of $1,000,000 prior to the consummation of the
Company's initial public offering. The Company is the sole beneficiary under
this policy. The Company also has obtained directors and officers liability
insurance in the amount of $2,000,000.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
(10) percent of the Company's Common Stock, to file with the SEC and NASDAQ
initial reports of beneficial ownership and reports of changes in beneficial
ownership of Common Stock of the Company. Such persons are also required by SEC
regulations to furnish the Company with copies of all such Section 16(a) forms
they file. Based solely on a review of the copies of such reports furnished to
the Company,
17
<PAGE>
the initial reports of beneficial ownership for National and Messrs. Jesse,
Stowell, Seidelman, Sloane, Levine, F. Fialkow and S. Fialkow were
inadvertently filed late.
Item 10. Executive Compensation.
Compensation Summary.
No executive officer of the Company received compensation in excess of
$100,000 during fiscal 1995 or 1996 in connection with services rendered to or
on behalf of the Company. Except as set forth in the table below, no bonuses or
other compensation was paid during the fiscal year ended July 31, 1996. The
summary compensation for the Company's Chief Executive Officers is as follows:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Comp. Long Term Comp.
------------ ---------------
Fiscal Restricted
Year Other Stock LTIP
Ended Annual Awards Options/ Payouts
Name and Position 07/31 Salary Bonus Comp. ($) SARs (#) ($)
- ----------------- ----- ------ ----- ----- --- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Warren D. Stowell 1996 $95,193 $--- $--- $--- 250,000(3) $---
President, CEO (1) 1995 --- --- --- --- --- ---
1994 --- --- --- --- --- ---
Gerald Kline 1996 $49,140 $--- $--- $--- $--- $---
President, CEO (2) 1995 98,280 --- --- --- --- ---
1994 93,600 --- --- --- --- ---
</TABLE>
(1) Mr. Stowell is President and CEO of SunStar Healthcare, Inc., and its
subsidiaries, Brevard Medical Centers, Inc., First Health, Inc., and
SunStar Health Plan, Inc., effective November 1, 1996.
(2) Mr. Kline received such compensation as the President and CEO of
Brevard and First Health. He resigned from those offices in October
1995.
(3) Granted pursuant to Mr. Stowell's employment agreement. One-fourth of
the options are exercisable immediately, and shall be exercisable as
to one-fourth of the remaining shares thereby on each of three (3)
successive anniversaries of the date of grant, subject to Mr.
Stowell's employment by the Company. (See section entitled
"Employment Agreement".)
18
<PAGE>
Stock Options.
The following table sets forth information concerning options granted
during the fiscal year ended July 31, 1996 to those persons named in the
preceding Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Numbers of % of Total
Securities Options Granted
Underlying to Employees in Exercise Price Expiration
Name Options Granted Fiscal Year ($ per share) Date
- ---- --------------- ----------- ------------- ----
<S> <C> <C> <C> <C>
Warren D. Stowell 250,000(1)(3) 71.43% $.25 none(2)
</TABLE>
(1) This represents a non-qualified stock option granted exclusive of the
Company's 1996 Stock Option Plan.
(2) Subject to conditions of employment with the Company.
(3) Granted pursuant to Mr. Stowell's employment agreement. One-fourth of
the options are exercisable immediately, and shall be exercisable as
to one-fourth of the remaining shares thereby on each of three (3)
successive anniversaries of the date of grant, subject to Mr.
Stowell's employment by the Company. (See section entitled
"Employment Agreement".)
The following table sets forth information concerning the value of
unexercised stock options at July 31, 1996 for those persons named in the
Summary Compensation Table:
AGGREGATED OPTIONS IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at Fiscal Year End at Fiscal Year End
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
<S> <C> <C>
Warren D. Stowell 62,500/187,500 $278,320/$834,961
</TABLE>
Director Compensation.
Directors who are employees of the Company do not receive compensation
for serving as directors. Each director who is not an employee of the Company
will receive a fee of $2,500 for
19
<PAGE>
attendance at each Board of Directors meeting. All directors will be reimbursed
for their reasonable out-of-pocket expenses incurred in connection with
attending meetings of the Board of Directors and for other expenses incurred in
their capacity as directors of the Company.
In accordance with the Company's 1996 Stock Option Plan, each non-employee
director of the Company has been granted nonqualified stock options to purchase
7,500 shares of Common Stock exercisable at a price equal to the fair market
value of the Common Stock on the date of grant. (See "Stock Option Plan.")
Employment Agreements.
The Company entered into an employment agreement, effective as of May 15,
1996, with Warren D. Stowell pursuant to which he is employed full-time as the
Company's President and Chief Executive Officer. The agreement expires on the
second anniversary of the date of May 15, 1996, provided that the agreement may
be renewed for successive one (1) year periods unless, thirty (30) days prior to
the expiration of the agreement, either party notifies the other of its election
not to renew the agreement. The agreement also provides that for so long as Mr.
Stowell remains employed by the Company, he shall serve as a member of the
Company's Board of Directors and shall have the right to designate one (1)
additional member to the Board of Directors. David Jesse is Mr. Stowell's
current designee. The agreement provides for an annual salary of $125,000,
payable commencing May 15, 1996, increasing to $150,000 per annum on May 15,
1997. Mr. Stowell's employment agreement contains a confidentiality provision
and a covenant not to compete with the Company for a period of six (6) months
following termination of employment.
In addition, the Company granted to Mr. Stowell options to purchase an
aggregate of 250,000 shares of Common Stock at an exercise price equal to $.25
per share. The options are currently exercisable as to one-fourth of the shares
covered thereby and shall be exercisable as to an additional one-fourth of the
shares covered thereby on each of the first, second and third anniversaries of
January 28, 1996, provided that Mr. Stowell is employed by the Company on such
dates. Commencing two (2) years after May 15, 1996, the Company has agreed to
use its best efforts to file a registration statement under the Securities Act
to register the shares of Common Stock issuable to Mr. Stowell pursuant to the
exercise of such options. No options have been exercised as of July 31, 1996.
The Company entered into an employment agreement, effective as of May 15,
1996, with David Jesse pursuant to which he is employed full-time as the
Company's Executive Vice President and Chief Operating Officer. The agreement
expires on May 15, 1998, provided that the agreement may be renewed for
successive one (1) year periods unless, at least thirty (30) days prior to the
expiration of the agreement, either party notifies the other of its election not
to renew the agreement. The agreement provides for an annual salary of
$100,000, payable commencing on May 15, 1996, increasing to $135,000 per annum
on May 15, 1997. Mr. Jesse's employment
20
<PAGE>
agreement contains a confidentiality provision and a covenant not to compete
with the Company for a period of six (6) months following termination of
employment.
In addition, the Company granted to Mr. Jesse options to purchase an
aggregate of 75,000 shares of Common Stock. Options to purchase 25,000 shares
of Common Stock, at an exercise price of $.25 per share are currently
exercisable. The remaining 50,000 options, which have been granted pursuant to
the Company's 1996 Stock Option Plan and which have an exercise price per share
equal to the initial public offering price, shall be exercisable as to one-
fourth of the shares covered thereby on each of the first four (4) anniversaries
of the date May 15, 1996, provided that Mr. Jesse is employed by the Company on
such dates. Commencing two (2) years after May 15, 1996, the Company has agreed
to use its best efforts to file a registration statement under the Securities
Act to register the shares of Common Stock issuable to Mr. Jesse pursuant to the
exercise of such options. No options have been exercised as of July 31, 1996.
The Company entered into an employment agreement, effective as of May 15,
1996, with Michael Landau pursuant to which he is employed full-time as the
Company's Vice President of Operations. The agreement expires on the first
anniversary of May 15, 1996, provided that the agreement may be renewed for
successive one (1) year periods unless, within thirty (30) days of the
expiration of the agreement, either party notifies the other of its election not
to renew the agreement. The agreement provides for an annual salary of $75,000,
payable commencing on May 15, 1996. Mr. Landau's employment agreement contains
a confidentiality provision and a covenant not to compete with the Company for a
period of six (6) months following termination of employment.
In addition, the Company granted to Mr. Landau options to purchase an
aggregate of 25,000 shares of Common Stock. The options, which were granted
pursuant to the Company's 1996 Stock Option Plan and which have an exercise
price of $5.00 per share are exercisable as to one-fourth of the shares covered
thereby on each of the first four (4) anniversaries of May 15, 1996, provided
that Mr. Landau is employed by the Company on such dates. No options have been
exercised as of July 31, 1996.
Stock Option Plan.
In February 1996, the Board of Directors of the Company adopted, and
National (the Company's sole stockholder at that time) approved, the Company's
1996 Stock Option Plan (the "Option Plan") pursuant to which 200,000 shares of
Common Stock currently are reserved for issuance upon the exercise of options
designated as either (i) options intended to constitute incentive stock options
("ISOs") under the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) nonqualified options. ISOs may be granted under the Option Plan to
employees and officers of the Company. Non-qualified options may be granted to
consultants, directors (whether or not they are employees), employees or
officers of the Company.
21
<PAGE>
The Option Plan is intended to qualify under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and is
administered by a committee of the Board of Directors, provided that the full
Board of Directors currently is administering the Option Plan. The Board of
Directors or the committee, as the case may be, within the limitations of the
Option Plan, determines the persons to whom options will be granted, the number
of shares to be covered by each option, whether the options granted are intended
to be ISOs, the duration and rate of exercise of each option, the exercise price
per share and the manner of exercise and the time, manner and form of payment
upon exercise of an option. Unless sooner terminated, the Option Plan will
expire on February 13, 2006.
ISOs granted under the Option Plan may not be granted at a price less than
the fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
the Company). The aggregate fair market value of shares for which ISOs granted
to any employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company) may not exceed
$100,000 and options to purchase no more than 50,000 shares may be granted under
the Option Plan to any single optionee in any calendar year. Non-qualified
options granted under the Option Plan may not be granted at a price less than
90% of the fair market value of the Common Stock on the date of grant. Options
granted under the Option Plan will expire not more than ten (10) years from the
date of grant (five [5] years in the case of ISOs granted to persons holding 10%
or more of the voting stock of the Company). All options granted under the
Option Plan are not transferable during an optionee's lifetime but are
transferable at death by will or by the laws of descent and distribution. In
general, upon termination of employment of an optionee, all options granted to
such person which are not exercisable on the date of such termination
immediately terminate, and any options that are exercisable terminate ninety
(90) days following termination of employment.
The Option Plan contains anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to options
which expire without being exercised or which are canceled as a result of
cessation of employment are available for further grants. No shares of Common
Stock may be issued to any optionee until the full exercise price has been paid.
The Board of Directors or the committee, as the case may be, may grant
individual options under the Option Plan with more stringent provisions than
those specified in the Option Plan.
The Option Plan provides that each non-employee director automatically
receives, upon first becoming a non-employee director, a grant of an option to
purchase 7,500 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock. Each non-employee director option expires
five (5) years from the date of grant.
The Company has granted options to purchase an aggregate of 75,000 shares
under the Option Plan, exclusive of non-employee director options to purchase an
additional 37,500 shares granted as of May 15, 1996, none of which options has
been exercised.
22
<PAGE>
The Company has agreed that for a period of one (1) year from May 15, 1996,
the Company will not grant any options under the Option Plan without the prior
written consent of the Underwriter, which consent shall not be unreasonably
withheld.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of September 30,
1996, regarding beneficial ownership of the Company's Common Stock by: (i) each
director and executive officer of the Company, (ii) all directors and executive
officers as a group, and (iii) all persons known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock. Unless
otherwise noted, all persons named in the table have sole voting and dispositive
power with respect to Common Stock beneficially owned.
<TABLE>
<CAPTION>
Percentage of
Amount and Nature of Outstanding
Name of Beneficial Owners Beneficial Ownership Shares Owned
- ------------------------- -------------------- ------------
<S> <C> <C>
National Home Health Care Corp 900,000 37.6%
700 White Plains Rd.,
Scarsdale, NY 10583
Bernard Levine, M.D.(1) 188,600(3) 7.9%
Frederick H. Fialkow(1) 42,500(4) 1.8%
Warren D. Stowell(1) 62,500(2) 2.6%
David Jesse(1) 25,000(2) 1.0%
Dean Sloane(1) 27,500(4) 1.1%
Steven Fialkow(1) 7,500(2) *
Richard Seidelman, M.D.(1) 12,500(5) *
All directors and executive officers
as a group (7 persons) 366,100(2)-(5) 15.3%
Underwriters 130,000(6) 5.4%
</TABLE>
* Less than 1%
(1) Other than National, the address of each of these persons is care of
the Company, 521 East State Road 434, Longwood, Florida 32750.
(2) Consists of shares issuable under immediately-exercisable stock
options.
(3) Includes 7,500 shares of Common Stock issuable pursuant to immediately
exercisable stock options.
(4) Includes 7,500 shares of Common Stock issuable pursuant to immediately
exercisable stock options.
(5) Includes 7,500 shares of Common Stock issuable pursuant to immediately
exercisable stock options.
23
<PAGE>
(6) Represents Common Stock issuable pursuant to currently exercisable
warrants.
Item 12. Certain Relationships and Related Transactions.
On January 29, 1996, National made a capital contribution to the Company of
all of its shares of capital stock of Brevard and First Health, constituting all
of the issued and outstanding capital stock of each of Brevard and First Health.
Upon consummation of the initial public offering on May 15, 1996, National
continued to own 37.6% of the outstanding Common Stock of the Company. Certain
directors of the Company are also officers, directors and/or principal
stockholders of National and, consequently, may be able, through National, to
direct the election of the Company's directors, effect significant corporate
events and generally direct the affairs of the Company. The Company does not
intend to enter into any transactions with National or its affiliates in the
future unless such transaction is fair and reasonable to the Company and is
approved by a majority of the independent and disinterested members of the Board
of Directors and, to the extent deemed necessary or appropriate by the Board of
Directors, the Company will obtain a fairness opinion and stockholder approval
in connection with any such transaction.
The Company has granted to Warren D. Stowell (the President, Chief
Executive Officer and a director of the Company) and David Jesse (the Executive
Vice President, Chief Operating Officer and a director of the Company) options
to purchase 250,000 and 25,000 shares, respectively, of Common Stock at an
exercise price per share of $.25 in connection with their respective employment
by the Company. Mr. Stowell's options are currently exercisable as to one-
fourth of the shares covered thereby and shall be exercisable as to one-fourth
of the shares covered thereby on each of the first, second and third
anniversaries of January 28, 1996, provided that Mr. Stowell is employed by the
Company on such dates. Mr. Jesse's options are currently exercisable.
Commencing two years after May 15, 1996, the Company has agreed to use its best
efforts to file a registration statement under the Securities Act to register
the shares of Common Stock issuable to Mr. Stowell and Mr. Jesse pursuant to
exercise of such options.
The Company has agreed to use its best efforts to include 83,000 shares of
Common Stock held by National in a registration statement to be filed under the
Securities Act two years after May 15, 1996.
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Filed as part of this 10-K annual report are audited financial statements
for the years ended July 31, 1995 and 1996.
24
<PAGE>
On August 27, 1996, the Company filed a Form 8-K to report the Company's
termination of Richard A. Eisner and Company, LLP, as principal accountant and
the concurrent engagement of KPMG Peat Marwick, LLP, as principal accountant.
25
<PAGE>
Exhibits required to be filed by Item 601 of Regulation SB are included in
Exhibits to this Report as follows:
Exhibit Exhibit Description
- ------- -------------------
3.1 Certificate of Incorporation*
3.2 By-Laws*
4.1 Specimen Certificate of the Company's Common Stock**
4.2 Form of Warrant Agreement (including Form of Underwriter's
common Stock Purchase Warrant*
4.3 1996 Stock Option Plan*
4.4 Form of 1996 Stock Option Contract**
10.1 Form of Agreement with Humana Health Care Plans*
10.2 Form of Agreement with CAC/United Healthcare Plans of Florida, Inc.*
10.3 Form of Agreement with Blue Cross Blue Shield of Florida*
10.4 Agreement for Health Care Prepayment Plan, dated September 30,
1992, between the Health Care Financing Administration and Boro
Medical Corporation*
10.5 Certificate from State of Florida, Agency for Health Care Administra-
tion certifying Boro Medical Corporation a Healthcare Provider*
10.6 Form of Employment Agreement, dated as of November 1, 1995,
between the Company and Warren D. Stowell*
10.7 Form of Employment Agreement, dated as of January 10, 1996,
between the Company and David Jesse*
10.8 Form of Employment Agreement, dated as of January 10, 1996,
between the Company and Michael Landau *
10.9 Form of First Amendment to Employment Agreement, dated as of
April 17, 1996 between the Company and Warren D. Stowell**
26
<PAGE>
Exhibit Exhibit Description
- ------- -------------------
10.10 Form of First Amendment to Employment Agreement, dated as of
April 17, 1996 between the Company and David Jesse**
10.11 Lease, dated June 27, 1996, between the Company and Ronald
D. Nutt***
11. Statement of Per Share Earnings (included in Consolidated Financial
Statements attached to this report)
16.1 Letter on Change in Certifying Accountant***
21.1 List of Subsidiaries*
- -----------
* Filed as same exhibit reference to
Form SB-2 Registration Statement, filed on February 26, 1996, File No. 333-1650
** Filed as same exhibit reference to Amendment No. 2 to Form SB-2 Registration
Statement, filed on May 9, 1996, File No. 333-1650.
*** Filed herewith.
27
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Financial Statements
July 31, 1995 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
July 31, 1995 and 1996
Table of Contents
-----------------
Independent Auditors' Report
Page
----
Consolidated Balance Sheet at July 31, 1996 2
Consolidated Statements of Operations for the years ended July 31,
1995 and 1996 3
Consolidated Statement of Changes in Shareholders' Equity for the
cumulative period from August 1, 1994 to July 31, 1996 4
Consolidated Statements of Cash Flows for the years ended July 31,
1995 and 1996 5
Notes to Consolidated Financial Statements 6 - 20
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
SunStar Healthcare, Inc.:
We have audited the accompanying consolidated balance sheet of SunStar
Healthcare, Inc. (the Company) as of July 31, 1996, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The accompanying consolidated
financial statements of SunStar Healthcare, Inc. for the year ended July 31,
1995, were audited by other auditors whose report thereon dated October 6, 1995,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SunStar
Healthcare, Inc. as of July 31, 1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Jacksonville, Florida
September 20, 1996
-1-
<PAGE>
Report of Independent Auditors
Board of Directors
SunStar Healthcare, Inc.
We have audited the accompanying consolidated statements of operations,
changes in shareholders' equity and cash flows of SunStar Healthcare, Inc. and
subsidiaries for the year ended July 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the consolidated results of operations and cash flows
of SunStar Healthcare, Inc. and subsidiaries for the year ended July 31, 1995 in
conformity with generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
New York New York
October 6, 1995
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
July 31, 1996
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets:
Cash and cash equivalents $ 5,993,609
Patients accounts receivable, less allowance for doubtful
accounts of approximately $110,000 181,556
Due from Medicare 38,448
Prepaid expenses and other assets 150,949
Deferred taxes (note 6) 38,700
---------
Total current assets 6,403,262
Furniture, equipment and leasehold improvements, net (note 3) 229,403
Goodwill, net (note 4) 387,562
Restricted cash (note 9(c)) 280,000
Deposits and other assets 175,360
Deferred taxes (note 6) 23,900
---------
Total $ 7,499,487
=========
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
<S> <C>
Current liabilities:
Accounts payable and accrued expenses 315,894
Unearned premium - Medicare 159,521
Capital lease obligations, current (note 5) 16,144
Income taxes payable (note 6) 13,639
---------
Total current liabilities 505,198
Capital lease obligations, noncurrent (note 5) 16,540
---------
Total liabilities 521,738
---------
Shareholders' equity (note 1(a), 7 and 9):
Shareholder's net investment -
Preferred stock, par value $.001 per share, 1,000,000 shares
authorized, no shares outstanding -
Common stock, par value $.001 per share, 10,000,000 shares
authorized, 2,395,000 shares issued and outstanding 2,395
Additional paid-in capital 7,193,852
Unearned compensation from stock options (195,313)
Retained earnings (deficit) (23,185)
---------
Total shareholders' equity 6,977,749
---------
Commitments and contingencies (note 9)
Total liabilities and shareholders' equity $ 7,499,487
=========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended July 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Patient service revenue $ 5,127,572 5,080,850
------------ ------------
Cost and expenses:
Cost of patient related services 3,506,847 3,371,131
General and administrative 1,472,116 1,704,748
Compensation expense (note 9(b)) - 210,937
Amortization of intangibles 56,499 42,333
------------ ------------
Total operating expenses 5,035,462 5,329,149
------------ ------------
Income (loss) from operations 92,110 (248,299)
Interest income 5,921 54,431
------------ ------------
Income (loss) before income taxes 98,031 (193,868)
Provision for income taxes (note 6) 42,600 28,600
------------ ------------
Net income (loss) $ 55,431 (222,468)
============ ============
Net income (loss) per share (note 1(d)) $.05 $(.15)
Weighted average shares
outstanding (note 1(d)) 1,208,750 1,531,893
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
For the years ended July 31, 1995 and 1996
<TABLE>
<CAPTION>
Unearned
Compensation
Shareholders' From Additional
Net Common Stock Paid-in Retained
Investment Stock Capital Options Earnings Total
-------------- ------ --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1994 $ 1,187,994 - - - - 1,187,994
Net income 55,431 - - - - 55,431
Net equity transactions with
National Home Health
Care Corp. (note 7) (206,479) - - - - (206,479)
------------- ------ --------- ------------ ------- ---------
Balance, July 31, 1995 1,036,946 - - - - 1,036,946
Net loss (199,283) - - - (23,185) (222,468)
Net equity transactions with
National Home Health
Care Corp. (note 7) (131,163) - - - - (131,163)
Conversion of National Home
Health Care Corp. net
investment to
common stock (note 1(b)) (706,500) 900 705,600 - - -
Issuance of stock (note 1(a)) - 1,495 6,082,002 - - 6,083,497
Compensatory stock options
granted (note 9(b)) - - 406,250 (406,250) - -
Amortization of compensatory
stock options (note 9(b)) - - - 210,937 - 210,937
------------- ------ --------- ------------ ------- ---------
Balance, July 31, 1996 $ - 2,395 7,193,852 (195,313) (23,185) 6,977,749
============= ====== ========= ============ ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended July 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 55,431 (222,468)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 144,231 132,592
Provision for doubtful accounts 132,000 225,000
Deferred taxes (30,400) (27,700)
Noncash compensation - 210,937
Operating expenses and income taxes
funded by National Home Health Care, Corp. 98,000 165,068
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (151,552) (196,832)
Decrease (increase) in prepaid expenses
and other assets 2,162 (226,647)
(Increase) in due from Medicare - (38,448)
Increase (decrease) in accounts payable,
accrued expenses and other liabilities (210,496) 119,215
Increase in unearned premium - Medicare - 159,521
--------- ---------
Net cash provided by operating activities 39,376 300,238
--------- ---------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold
improvements (47,388) (35,377)
Purchase of certificate of deposit, restricted - (250,000)
--------- ---------
Net cash used in investing activities (47,388) (285,377)
--------- ---------
Cash flows from financing activities:
Principal payments under capital lease obligations (19,762) (24,958)
Initial public offering - 6,083,497
Shareholder distributions (304,479) (296,231)
--------- ---------
Net cash (used in) provided by financing
activities (324,241) 5,762,308
--------- ---------
Net increase (decrease) in cash and cash
equivalents (332,253) 5,777,169
Cash and cash equivalents, beginning of period 548,693 216,440
--------- ---------
Cash and cash equivalents, end of period $ 216,440 5,993,609
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 7,629 5,168
========= =========
</TABLE>
Noncash investing and financing activities (notes 1(a), 5, 7 and 9)
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
July 31, 1995 and 1996
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Organization
------------
SunStar Healthcare, Inc. (SunStar or the Company) was incorporated in
December 1995 and issued 875,000 shares (prior to a stock split
discussed below) of common stock. In January 1996, National Home Health
Care Corp. (NHHC), then the sole shareholder of the Company, contributed
to SunStar 100% of the outstanding capital stock of its wholly owned
subsidiaries, First Health, Inc. (First Health) and Brevard Medical
Center, Inc. (Brevard), which included 100% of the outstanding capital
stock of Brevard's wholly owned subsidiary, SunStar Health Plan, Inc.
(SHP) (formerly known as Boro Medical Corp.). The Company, First Health,
Brevard and SHP collectively are referred to herein as SunStar. SunStar
provides managed healthcare services pursuant to contractual
arrangements, as well as on a fee-for-service basis, through its
outpatient medical centers in central Florida.
SunStar is authorized to issue 10,000,000 shares of common stock, par
value $.001 per share, and 1,000,000 shares of preferred stock, par
value $.001 per share. The preferred stock may be issued in one or more
series, the terms of which may be determined at the time of issuance by
the Board of Directors. In April 1996, the Board of Directors approved a
1.02857 for one stock split. As a result of the stock split, NHHC holds
900,000 shares of the Company's common stock representing a 37.6%
interest. All share amounts have been retroactively adjusted for all
periods presented.
On May 15, 1996, the Company completed an initial public offering (the
Offering), pursuant to which the Company sold 1,300,000 shares of
previously unissued common stock, par value $.001. The Offering resulted
in net proceeds to the Company of $5,230,372. On June 7, 1996, the
underwriters in the Offering exercised their over-allotment option to
purchase additional shares of common stock, pursuant to which the
Company sold 195,000 shares of common stock, par value $.001, resulting
in additional net proceeds to the Company of $853,125. As of July 31,
1996, the Company had issued 2,395,000 shares of common stock.
(b) Basis of Presentation
---------------------
The formation of the Company has been accounted for as a reorganization.
Accordingly, the financial statements have been prepared using NHHC's
historical basis in the assets and liabilities of First Health and
Brevard (the Predecessor), including goodwill and other intangibles
recognized by NHHC in the acquisition of certain companies. All
significant intercompany accounts have been eliminated.
-6-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
-----------------------------------------------------
(b) Basis of Presentation, continued
--------------------------------
The financial statements reflect the results of operations, financial
condition and cash flows of the Company, from the date of its formation,
and the Predecessor, as a component of NHHC, and may not be indicative
of actual results of operations and financial position of the Company
under other ownership. The statements of operations include, in
management's opinion, a reasonable allocation of administrative costs
incurred by NHHC which benefit SunStar of $25,000 in 1995 and $18,750 in
the year ended July 31, 1996. Such allocation is based on the value of
time devoted by NHHC employees.
Shareholder's net investment represents NHHC's contribution of its net
investment after giving effect to net income (loss) of SunStar, net
equity transactions with NHHC (see note 7) and certain compensation
charges (see note 9). Effective on May 15, 1996, the balance of this net
investment was converted to common stock issued and additional paid-in
capital (see note 1(a)). The Company separately presents retained
earnings beginning on the effective date of the Offering. The
consolidated financial statements include no provision for interest on
capital of NHHC used by the Company.
(c) Revenue Recognition
-------------------
The Company recognized fee-for-service revenues based on net realizable
amounts due from patients and third-party payors at the time medical
services are rendered. The Company recognizes capitated fee arrangements
from Health Maintenance Organizations (HMOs) on a monthly basis for each
participating enrollee, regardless of utilization; health care costs
relating to capitation fee arrangements from HMOs are recognized as
services are provided. Reimbursement for the Company's participation
under a federal third-party reimbursement contract is based on cost
reimbursement principles and is subject to audit and retrospective
adjustment. The accompanying consolidated financial statements reflect
an estimated settlement for open-year cost reports subject to audit.
-7-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
-----------------------------------------------------
(d) Per Share Data
--------------
The Company has reflected in its calculations of earnings per share for
1995 and 1996 the 900,000 shares issued by SunStar to NHHC and the
common shares issuable upon the exercise of the options granted to two
employees and a consultant (see note 9) as if such shares were
considered to have been issued at the beginning of the respective
period. The earnings per share are computed to give effect to stock
options with exercise prices below the Offering price (see note 9) using
the treasury stock method. In accordance with Securities and Exchange
Commission rules, such effect is also included in a loss period where
the impact of the incremental shares is antidilutive.
(e) Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include short-term investments with original
maturities of 90 days or less.
(f) Furniture, Equipment and Leasehold Improvements
-----------------------------------------------
Furniture, equipment and leasehold improvements are stated at cost and
depreciated over estimated useful lives of five to ten years on a
straight-line basis.
(g) Goodwill
--------
Goodwill is amortized over periods of 5 to 20 years on a straight-line
basis. Goodwill is evaluated periodically, on a site-by-site basis, and
adjusted, if necessary, if events and circumstances indicate that an
other than temporary decline in value below the current unamortized
historical cost has occurred. Several factors are used to evaluate
goodwill, including but not limited to: management's plans for future
operations, recent operating results and projected undiscounted cash
flows.
-8-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
-----------------------------------------------------
(h) Income Taxes
------------
Prior to May 15, 1996, the Company's operations had been included in the
consolidated income tax returns filed by NHHC. Accordingly, the
provision for federal and state taxes and the related payments or
refunds of tax were determined on a consolidated basis. Income tax
expense in the accompanying financial statements had been estimated
assuming the Company filed separate income tax returns. Related taxes
payable for periods prior to May 15, 1996 are reflected as a
contribution to capital by NHHC.
SunStar will file separate tax returns to reflect results subsequent to
May 15, 1996. Deferred taxes result primarily from the use of
accelerated depreciation for tax purposes and from reserves for
uncollectible accounts receivable.
(i) Recently Issued Accounting Pronouncements
-----------------------------------------
In March 1995 and October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 121 (SFAS 121),
"Accounting for the Impairment of Long Lived Assets and for the Long
Lived Assets to be Disposed of," and Statement of Financial Accounting
Standard No. 123 (SFAS 123), "Accounting for Stock-Based Compensation,"
respectively. SFAS 121 is effective for the Company's fiscal year ended
July 31, 1997 and SFAS 123 has various effective and transition dates.
The Company believes adoption of SFAS 121 and SFAS 123 will not have a
material impact on its financial statements. The Company expects to
continue to account for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," using intrinsic values with appropriate
disclosures using the fair value based method. The Company does not
intend to early adopt SFAS 123.
(j) Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates. Such estimates relate primarily to
goodwill, depreciable assets and valuation reserves for accounts
receivable.
-9-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Acquisitions
------------
In 1994, the Company purchased certain assets of two companies engaged in
outpatient medical services in Volusia County, Florida for an aggregate
purchase price of $147,000. The acquisition was accounted for as a purchase,
and, accordingly, the results of operations of the acquired companies are
included in the Company's statements of operations since the dates of
acquisition. The purchase price was allocated as follows: $57,000 to
furniture and equipment, $73,000 to goodwill and $17,000 to a covenant not
to compete.
(3) Furniture, Equipment and Leasehold Improvements
-----------------------------------------------
Furniture, equipment and leasehold improvements at July 31, 1996 consist of
the following:
Furniture, equipment and fixtures $ 1,205,975
Leasehold improvements 269,760
----------
1,475,735
Less accumulated depreciation
and amortization (1,246,332)
----------
Net property and equipment $ 229,403
==========
The net book value of furniture and equipment held under capital leases was
approximately $52,000 at July 31, 1996. Depreciation expense includes
depreciation on assets held under capital leases.
-10-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Goodwill
--------
Goodwill at July 31, 1996 consists of the following:
Balance, beginning of period $ 429,895
Amortization (42,333)
---------
Balance, end of period $ 387,562
=========
(5) Capital Lease Obligations
-------------------------
At July 31, 1996, approximate future minimum lease payments under
capitalized lease obligations were as follows:
Year ended July 31 Amount
------------------ ------
1997 $ 17,544
1998 8,266
1999 8,266
2000 1,239
2001 310
-------
Total minimum lease payments 35,625
Less amounts representing interest (2,941)
Less amounts due within one year (16,144)
-------
Amounts due after one year $ 16,540
=======
During 1996, the Company acquired equipment under capital leases
for $24,204.
-11-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Income Taxes
------------
The provision for income taxes for the years ended July 31, 1995 and 1996
consists of:
1995 1996
---- ----
Current:
Federal $ 62,000 50,300
State 11,000 6,000
-------- --------
73,000 56,300
Deferred tax benefit (30,400) (27,700)
-------- --------
Total $ 42,600 28,600
======== ========
Deferred tax assets at July 31, 1996 are as follows:
Accounts receivable reserves $ 38,700
Furniture, equipment and leasehold
improvements 10,700
Goodwill and other intangible asset 13,200
-------
$ 62,600
=======
The reconciliation of the statutory tax rate to the effective rate for the
years ended July 31, 1995 and 1996 are as follows:
1995 1996
---- ----
Federal statutory rate $ 33,000 (65,900)
State taxes, net of federal tax benefit 7,000 (7,000)
Compensation expense from stock options - 79,800
Other 2,600 21,700
------- --------
$ 42,600 28,600
======= ========
The difference between the tax provision provided for the year ended July
31, 1996 and that expected from applying the U.S. statutory rate to loss
from operations before taxes is primarily attributable to the Company
recording a compensation charge for stock options to key employees which are
not currently deductible for income taxes. The realization of the tax
benefit related to these options is dependent on future market conditions
and has not been recorded.
-12-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Net Equity Transactions with NHHC
---------------------------------
1995 1996
--------- ---------
Corporate expense allocation $ 25,000 18,750
Expenses paid by NHHC on
behalf of the Company - 115,626
Income taxes 73,000 30,692
Shareholder distributions (304,479) (296,231)
-------- --------
$ (206,479) (131,163)
======== ========
(8) Concentration of Credit Risk and Major Payors
---------------------------------------------
Capitation revenue from three HMOs amounted to approximately 31% of patient
service revenue in 1995 and 1996.
In addition, approximately 34% in 1995 and 39% in 1996 of patient service
revenue was derived under a federal cost reimbursement contract.
(9) Commitments, Contingencies and Other Matters
--------------------------------------------
(a) Leases
------
The Company rents various medical and office facilities through 1999
under terms of several lease agreements which include escalation
clauses. At July 31, 1996, minimum annual rental commitments under
noncancelable operating leases are as follows:
1997 $ 174,273
1998 87,446
1999 51,612
The Company also rents various medical and office facilities pursuant
to operating leases currently subject to monthly renewals at the option
of the Company.
Rent expense amounted to approximately $387,000 and $329,000 for the
years ended July 31, 1995 and 1996, respectively.
-13-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Commitments, Contingencies and Other Matters, continued
-------------------------------------------------------
(b) Employment and Consulting Agreements
------------------------------------
In connection with the Offering, the Company agreed to retain the
underwriter as a consultant for a period of two years at a fee of
$18,500 per year.
The Company has entered into an employment agreement with the Company's
President and Chief Executive Officer. The agreement expires on the
second anniversary of the successful completion of the Offering (the
Effective Date), provided that the agreement may be renewed for
successive one-year periods unless, within thirty days of the
expiration of the agreement, either party notifies the other of its
election not to renew the agreement. The agreement also provides that
for so long as the President remains employed by the Company, he shall
serve as a member of the Company's Board of Directors and shall have
the right to appoint one additional member to the Board of Directors.
The agreement provides for an annual salary of $125,000 in the first
year and $150,000 in the second year, payable commencing on the
Effective Date. The agreement also provides for such bonuses as the
Board of Directors may determine based on performance and other
criteria. The agreement contains a confidentiality provision and a
covenant not to compete with the Company for a period of six months
following termination of employment.
In addition, in January, 1996, the Company granted options to the
President to purchase an aggregate of 250,000 shares of common stock at
an exercise price equal to $.25 per share. The options are currently
exercisable as to one-fourth of the shares covered thereby and shall be
exercisable as to an additional one-fourth of the shares covered
thereby on January 28, 1997, 1998 and 1999, respectively, provided that
the President is employed by the Company on each such date. Commencing
two years after the Effective Date, the Company has agreed to use its
best efforts to file a registration statement under the Securities Act
to register the shares of common stock issuable pursuant to the
exercise of such options.
-14-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Commitments, Contingencies and Other Matters, continued
-------------------------------------------------------
(b) Employment and Consulting Agreements, continued
-----------------------------------------------
The Company has also entered into an employment agreement with the
Company's Executive Vice President. The agreement expires on the second
anniversary of the Effective Date, provided that the agreement may be
renewed for successive one-year periods unless, within thirty days of
the expiration of the agreement, either party notifies the other of its
election not to renew the agreement. The agreement provides for an
annual salary of $100,000 in the first year and $135,000 in the second
year, payable commencing on the Effective Date. The agreement also
provides for such bonuses as the Board of Directors may determine based
on performance and other criteria. The agreement contains a
confidentiality provision and a covenant not to compete with the
Company for a period of six months following termination of employment.
In addition, the Company granted to the Executive Vice President
options to purchase an aggregate of 75,000 shares of the Company's
common stock, of which options to purchase 25,000 shares, at an
exercise price of $0.25 per share, currently are exercisable. The
remaining 50,000 options, which have been granted pursuant to the
Company's 1996 Stock Option Plan (the Plan) and which have an exercise
price of $5.00 per share, shall be exercisable as to one-fourth of the
shares covered thereby on each of the first four anniversaries of the
Effective Date, provided that the Executive Vice President is employed
by the Company on such dates. Commencing two years after the Effective
Date, the Company has agreed to use its best efforts to file a
registration statement under the Securities Act to register the shares
of common stock issuable upon exercise of such options.
The Company has entered into an employment agreement, effective on the
Effective Date, with the Company's Vice President. The agreement
expires on the first anniversary of the Effective Date, provided that
the agreement may be renewed for successive one-year periods unless,
within thirty days of the expiration of the agreement, either party
notifies the other of its election not to renew the agreement. The
agreement provides for an annual salary of $75,000, payable commencing
on the Effective Date. The agreement contains a confidentiality
provision and a covenant not to compete with the Company for a period
of six months following termination of employment.
-15-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Commitments, Contingencies and Other Matters, continued
-------------------------------------------------------
(b) Employment and Consulting Agreements, continued
-----------------------------------------------
In addition, the Company has granted to the Vice President options to
purchase an aggregate of 25,000 shares of the Company's common stock.
The options, which have been granted pursuant to the Plan and which
have an exercise price of $5.00 per share, shall be exercisable as to
one-fourth of the shares covered thereby on each of the first four
anniversaries of the Effective Date, provided that the Vice President
is employed by the Company on such dates.
The Company has entered into a consulting agreement, as of the
Effective Date, with an individual pursuant to which such individual
will provide management consulting services to the Company. The
agreement expired on July 31, 1996. As compensation for all management
consulting services performed under this agreement, the Company has
granted to this individual options to purchase an aggregate of 50,000
shares of common stock at an exercise price equal to $0.25 per share.
All of these options are currently exercisable.
The Company's granting of options relating to the above agreements
resulted in a charge to operations of approximately $211,000 in the
year ended July 31, 1996. Unearned compensation at July 31, 1996
amounts to approximately $195,000 which is presented as a reduction of
equity. Such unearned amounts will be accounted for as an expense
during the periods in which the related services are performed.
A summary of options granted (exclusive of Plan and Offering options
(see note 9(d)) through July 31, 1996 in connection with employment and
consulting agreements are as follows:
Options Outstanding
---------------------------
Number Exercise
of Price Per
Shares Share
------ -----
Employment agreements $ 275,000 $.25
Consulting agreement 50,000 $.25
--------
$ 325,000 $.25
=========
At July 31, 1996, options to purchase 137,500 shares are exercisable.
-16-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Commitments, Contingencies and Other Matters, continued
-------------------------------------------------------
(c) Regulatory Requirements
-----------------------
Restricted cash consists of funds held as collateral for certain
regulatory requirements.
(d) Stock Option and Benefit Plans
------------------------------
Through the Effective Date, employees of the Company participated in
NHHC's Employee Savings and Stock Investment Plan organized under
Section 401(k) of the Internal Revenue Code. Under the Plan, employees
may have contributed 10% of their salary into the Plan, limited to the
maximum amount allowable under federal tax regulations. The Company
matched employee contributions invested in NHHC common stock up to 5%
of the employees' salary and may also have made additional
contributions at its discretion. In addition to investing in NHHC
stock, an employee may have invested in several mutual funds. The
Company's contribution for the years ended July 31, 1995 and 1996
amounted to approximately $30,000 and $29,000, respectively.
In February 1996, the Board of Directors of SunStar adopted and
SunStar's sole shareholder at that time, NHHC, approved the Plan
pursuant to which 200,000 shares of common stock were reserved for
issuance upon the exercise of options designated as either (i) options
intended to constitute incentive stock options (ISOs) under the
Internal Revenue Code of 1986, as amended, or (ii) nonqualified
options. ISOs may be granted under the Plan to employees and officers
of the Company. Nonqualified options may be granted to consultants,
directors (whether or not they are employees), employees or officers of
the Company.
The Plan is intended to qualify under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the Exchange Act) and is administered
by a committee of the Board of Directors; provided that the full Board
of Directors currently is administering the Plan. The Board of
Directors or the committee, as the case may be, within the limitations
of the Plan, determines the persons to whom options will be granted,
the number of shares to be covered by each option, whether the options
granted are intended to be ISOs, the duration and rate of exercise of
each option, the exercise price per share and the manner of exercise
and the time, manner and form of payment upon exercise of an option.
Unless sooner terminated, the Plan will expire on February 13, 2006.
-17-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Commitments, Contingencies and Other Matters, continued
-------------------------------------------------------
(d) Stock Option and Benefit Plans, continued
-----------------------------------------
ISOs granted under the Plan may not be granted at a price less than the
fair market value of the common stock on the date of grant (or 110% of
fair market value in the case of persons holding 10% or more of the
voting stock of the Company). The aggregate fair market value of shares
for which ISOs granted to any employee are exercisable for the first
time by such employee during any calendar year (under all stock option
plans of the Company) may not exceed $100,000 and options to purchase
no more than 50,000 shares may be granted under the Plan to any single
optionee in any calendar year. Nonqualified options granted under the
Plan may not be granted at a price less than 90% of the fair market
value of the common stock on the date of grant. Options granted under
the Plan will expire not more than ten years from the date of grant
(five years in the case of ISOs granted to persons holding 10% or more
of the voting stock of the Company). All options granted under the Plan
are not transferable during an optionee's lifetime but are transferable
at death by will or by the laws of descent and distribution. In
general, upon termination of employment of an optionee, all options
granted to such person which are not exercisable on the date of such
termination immediately terminate, and any options that are exercisable
terminate 90 days following termination of employment.
The Plan contains anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of common stock subject to
options which expire without being exercised or which are canceled as a
result of cessation of employment are available for further grants. No
shares of common stock may be issued to any optionee until the full
exercise price has been paid. The Board of Directors or the committee,
as the case may be, may grant individual options under the Plan with
more stringent provisions than those specified in the Plan.
In February 1996, the Company granted options to purchase an aggregate
of 75,000 shares under the Plan which are exercisable at $5.00 per
share commencing on the first anniversary of the Effective Date.
-18-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Commitments, Contingencies and Other Matters, continued
-------------------------------------------------------
(d) Stock Option and Benefit Plans, continued
-----------------------------------------
The Plan provides that each nonemployee director automatically
receives, upon first becoming a nonemployee director, a grant of
options to purchase 7,500 shares of the Company's common stock at an
exercise price equal to the fair market value of the Company's common
stock on the date of grant. The Company granted an aggregate of 37,500
of such options to nonemployee directors on the Effective Date at $5.00
per share. Each nonemployee director option will expire five years from
the date of grant.
SunStar has agreed that for a period of one year from the Offering, it
will not grant any options under the Plan without the prior written
consent of the underwriter, which consent shall not be unreasonably
withheld.
Activity in the Plan through July 31, 1996 including 37,500 options
granted to nonemployee directors on the Effective Date is as follows:
Options Outstanding
-------------------
Number Exercise
Options of Price per
Available Shares Share
---------- ------- ---------
Options authorized 200,000
Options granted (112,500) 112,500 $5.00
-------- -------
Balance, July 31, 1996 87,500 112,500 $5.00
======== ======= =========
At July 31, 1996, none of the above options have been exercised.
-19-
<PAGE>
SUNSTAR HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Commitments, Contingencies and Other Matters, continued
-------------------------------------------------------
(e) Other
-----
Common stock reserved for future issuance at July 31, 1996 is as
follows:
Number of
Shares
---------
Options granted under employment and consulting agreements 325,000
Options granted under the Plan 112,500
Reserved for future grants under the Plan 87,500
-------
525,000
=======
(f) Settlement of Complaints
------------------------
In the July 31, 1996 financial statements, the Company included a
$66,000 charge in settlement of certain complaints in general and
administrative expenses.
(g) Malpractice
-----------
The Company insures its malpractice risks on a claims-made basis. The
Company has secured claims-made coverage from August 1, 1996 through
July 31, 1997, with retroactive coverage through July 1, 1993. No
accrual for possible losses attributable to incidents which may have
occurred and not been identified under the Company's incident reporting
system has been made, because the amount, if any, is not readily
estimable.
-20-
<PAGE>
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 on October 28, 1996.
SUNSTAR HEALTHCARE, INC.
By: /s/ Warren D. Stowell
----------------------------
Warren D. Stowell
President & 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:
Signatures Title Date
- ---------- ----- ----
/s/ Warren D. Stowell President,
- --------------------------- Chief Executive Officer October 28, 1996
Warren D. Stowell Chairman
/s/ David A. Jesse
- --------------------------- Executive Vice President October 28, 1996
David A. Jesse Chief Operating Officer,
Director
/s/ Frederick H. Fialkow
- --------------------------- Director October 25, 1996
Frederick H. Fialkow
/s/ Steven Fialkow
- --------------------------- Director October 25, 1996
Steven Fialkow
/s/ Bernard Levine, M.D.
- --------------------------- Director October 25, 1996
Bernard Levine, M.D.
/s/ Dean L. Sloane
- --------------------------- Director October 24, 1996
Dean L. Sloane
/s/ Richard Seidelman, M.D.
- --------------------------- Director October 25, 1996
Richard Seidelman, M.D.
/s/ Lisa M. Tomei
- --------------------------- Chief Accounting Officer October 28, 1996
Lisa M. Tomei
<PAGE>
<TABLE>
<CAPTION>
Exhibit Exhibit Description
- ------- -------------------
<S> <C>
10.11 Lease dated June 27, 1996, between
the Company and Ronald D. Nutt
16.1 Letter on Change in Certifying
Accountant
27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 10.11
COMMERCIAL LEASE AGREEMENT
--------------------------
LONGWOOD, FLORIDA
This Lease Agreement is made and entered into on June 27,1996 between
RONALD D. NUTT (hereinafter referred to as "Landlord") and SUNSTAR HEALTHCARE,
INC. (hereinafter collectively referred to as "Tenant").
WITNESSETH
1. Lease Premises: In consideration of the rents, terms, provisions and
covenants of this Lease, Landlord hereby leases, lets to Tenant the building,
land, personal property and fixtures located at 521 S.R. 434, Longwood, Florida
(hereinafter referred to as "Lease Premises") containing approximately Four
Thousand Three Hundred and Eighty-five (4,385) square feet.
2. Term: The term of this Lease shall commence on July 20, 1996, which
shall be the date upon which substantial completion and acceptance by Tenant of
the Tenant improvements as described herein have been made (hereinafter referred
to as the "Commencement Date") and shall terminate on July 19, 1999, or Thirty-
six (36) months following the Commencement Date. Notwithstanding the foregoing,
Tenant shall be entitled to immediate physical occupancy of temporary space as
defined in Exhibit "C" on July 1, 1996. If Landlord is unable to give
possession of the Lease Premises on the Commencement Date due to any act,
neglect, fault or omission of Landlord or any of his partners, officers,
employees, agents, representatives, contractors or trustees, or Tenant
Improvements are not completed to Tenant's satisfaction which shall not be
unreasonable, the Commencement Date shall be postponed by the number of days of
such delay. In the event of a delay in excess of thirty (30) days in the
Commencement Date, Tenant shall have the right but not the obligation to
terminate this Lease.
3. Rent:
A. Rent: Tenant agrees to pay monthly as rent during the first
twelve (12) months of this Lease, commencing on the Commencement Date, $11.00
per rentable square foot of the Lease Premises, totaling Four Thousand Nineteen
Dollars and Fifty-eight cents ($4,019.58), plus sales tax.
Commencing with the second twelve (12) months of this Lease, Tenant agrees
to pay monthly as rent $11.50 per rentable square foot for a total sum of Four
Thousand Two Hundred and Two Dollars and Twenty-nine cents ($4,202.29), plus
sales tax.
Commencing with the third twelve (12) month period of this Lease, Tenant
agrees to pay $12.00 per rentable square foot for a total sum of Four Thousand
Three Hundred Eighty-Five Dollars ($4,385.00), plus sales tax.
All rent shall be payable to Landlord at the address shown in paragraph 32, or
at any other address designated by Landlord from time to time, on the 20th day
of each and every month.
<PAGE>
4. Tenant's Tenant Improvements: Landlord has agreed, at its sole expense,
to make certain improvements in and to the Lease Premises subject to the
conditions contained herein, and to the plans and specifications in the Exhibit
"A" attached hereto and incorporated herein. Promptly after the execution of
this Lease, Landlord shall commence and thereafter complete with due diligence
its construction work and installation of fixtures in accordance with Exhibit
"A". Landlord shall furnish the Tenant all certificates and approvals with
respect to the work done by Landlord or on Tenant's behalf that may be required
from any authority for the issuance of a Certificate of Occupancy. Landlord
and/or its contractors and/or sub-contractors shall obtain and pay for all
permits, licenses, fees, and meters and shall comply with all codes, ordinances
and regulations in performing the Tenant improvements required herein. Landlord
shall require his contractors and/or sub-contractors to furnish Tenant with
evidence of insurance coverage as required by statute relative to the class of
contractors's license held. This evidence of insurance shall include Workman's
Compensation coverage required in the State of Florida. Landlord shall limit
the construction operations, offices and storage to the Lease Premises only and
shall remove all trash, rubbish and surplus material from the project at such
time to prevent trash accumulation.
5. Deposit - Upon execution of this Lease, there shall be due and payable
by Tenant a deposit in an amount equal to one month's rent in order to secure
the performance by Tenant of all covenants, conditions, obligations and
undertakings required of Tenant under the Lease. It is expressly understood
that the deposit shall not be considered an advance payment of base rental or a
measure of Landlord's damages in case of default by Tenant. Upon the occurrence
of any event of default with respect to Tenant's obligations under the Lease,
Landlord may, after having given Tenant ten (10) days written notice and without
prejudice to any other remedy, use the deposit to the extent necessary to make
good any such default caused by Tenant, or any other charges, damage, injury,
expense or liability caused to Landlord by the event of Tenant's default.
6. Repairs and Maintenance.
A. Landlord shall maintain the parking lot, roof, foundation,
including plumbing located within the foundation slab, and the structural
soundness of the exterior walls (excluding all windows, window glass, plate
glass and all doors) of the building and Lease Premises in good repair and
condition except for reasonable wear and tear. Tenant shall repair and pay for
any damage including those repairs which are the responsibility of Landlord,
caused by any negligence or intentional act or omission of Tenant or Tenant's
agents, employees and invitees. Tenant shall immediately give written notice to
Landlord of the need for repairs, which repairs shall be made by Landlord at
Landlord's cost beginning not more than fifteen (15) days after written notice
by Tenant.
1. Landlord shall, at its own expense, maintain all other parts of the
Lease Premises in good repair and condition (including all necessary
replacements), including, but not limited to, the Heating Ventilation Air
Cooling Systems ("HVAC"), downspout, fire sprinkler system and lavatories.
Tenant shall take good care of the Lease Premises and its fixtures.
<PAGE>
Should Tenant neglect to keep and maintain the Lease Premises, reasonable wear
and tear excepted, then Landlord after having given Tenant written notice and
thirty (30) days to comply, shall have the right, but not the obligation, to
have the work done and the costs shall be charged to Tenant as additional rent
and shall become payable by Tenant with the payment of Rent next due hereunder.
2. Landlord shall provide Tenant, during the term of this Lease and
any renewal hereof, with the duplicate original of a maintenance contract with a
reputable HVAC maintenance firm in the form and substance acceptable to Tenant.
Should the Landlord fail to provide Tenant with the duplicate original of
maintenance contract within forty-five (45) days from the Commencement Date,
Tenant shall have the option not the obligation, to obtain on behalf of the
Landlord, a maintenance contract. The cost of such contract shall become payable
by Landlord immediately upon notice by Tenant.
3. Tenant shall not allow any damage to be committed on any portion
of the Lease Premises. Tenant shall deliver the Lease Premises to Landlord in as
good condition as existed at the Commencement Date of this Lease, ordinary wear
and tear excepted. The cost of any repairs necessary to restore the condition of
the Lease Premises shall be borne by Tenant, and if Landlord undertakes to
restore the Lease Premises it shall have a right of reimbursement against Tenant
which right shall survive the termination of this Lease.
7. Utility Service. Landlord shall provide the normal utility service
connections into the Lease Premises. Tenant shall pay the cost of all utility
services, including all charges for gas, water and electricity and janitorial
service used in the Lease Premises.
8. Signs. Landlord shall provide a $1,000.00 allowance toward the expense
of placing a sign selected by Tenant on the Grant Street sign adjacent to the
Lease Premises, as well as in each location of the Lease Premises, whereat
Hallmark Builders currently has placed signage. The $1,000.00 allowance shall
be paid from the Advance Rent as described in Section 34 of this Lease.
9. Usage. Tenant warrants and represents to Landlord that the Lease
Premises shall be used and occupied solely for general office use.
10. Compliance With Laws, Rules and Regulations. Tenant, shall, at its
sole cost and expense, comply with all of the requirements of all municipal,
state and federal authorities now in force, or which may hereafter be in force,
pertaining to the Lease Premises, and shall faithfully observe in the use of the
Lease Premises all municipal ordinances and state and federal statutes now in
force or which may hereafter be in force. Notwithstanding the foregoing, Tenant
shall not be responsible for compliance with the American Disability Act, or any
similar laws. Landlord warrants that the Lease Premises complies with the
requirements of all municipal ordinances and State and Federal Statutes now in
force. The judgment of any court of competent jurisdiction, or the admission by
Tenant in any action or proceeding that Tenant has violated any such ordinance
or statute pertaining to the Lease Premises, shall be conclusive of that fact as
between Landlord and Tenant.
<PAGE>
11. Insurance.
A. Tenant shall not permit the Lease Premises to be used in any way
which would, in the opinion of Landlord, be extra hazardous on account of fire
or otherwise which would in any way increase or render void the fire insurance
on leasehold improvements. If at any time during the term of this Lease the Sate
Board of Insurance or other insurance authority disallows any of the Landlord's
credits or imposes an additional penalty or surcharge in Landlord's insurance
premiums because of Tenant's original or subsequent use of the Lease Premises or
any other act of Tenant, Tenant agrees to pay as additional Rents the increase
in Landlord's insurance premiums.
B. Tenant shall obtain and maintain in force throughout the term of
this Lease general public liability insurance in the amount of $100,000.00 /
$300,000.00. Said policy shall name both Landlord and Tenant as insured (with a
cross-liability endorsement), shall be issued by an insurance company or
companies authorized to do business in the State of Florida, shall be issued as
a primary policy and shall contain a provision requiring the insurer to give
Landlord at least thirty (30) calendar days prior written notice before any
termination or expiration of said policy for any reason. Prior to the
commencement of this Lease and prior to the expiration of the term of each such
policy, Tenant shall deliver to Landlord the original of such a policy or proper
certificate from the insurer.
C. Landlord shall, at all times during the term of this Lease,
maintain and pay for a policy or policies of insurance with the premiums paid in
advance, issued by and binding upon some solvent insurance company, insuring the
Lease Premises against all risk of direct physical loss in an amount Landlord
deems appropriate; provided that Landlord shall not be obligated in any way or
manner to insure any personal property (including, but not limited to, any
furniture, machinery, goods or supplies) of Tenant or which Tenant may have upon
or within the Lease Premises or any fixtures installed by or paid for by Tenant
upon or within the Lease Premises or any additional improvements which Tenant
may construct on the Lease Premises.
D. Tenant shall maintain in full force and effect on all of its
fixtures and equipment in the Lease Premises, a policy or policies of fire
insurance with extended coverage endorsement to the extent of replacement value
required to negate the effect of a co-insurance provision. Said policy shall be
issued by an insurance company or companies authorized to do business in the
State of Florida. Landlord shall have no interest in the insurance upon Tenant's
equipment and fixtures.
12. Taxes. Tenant shall pay, before they are delinquent, all taxes levied
or assessed on Tenant's fixtures, equipment and personal property in and on the
Lease Premises, whether or not affixed to the real property. If at any time
after any tax or assessment has become due or payable, Tenant neglects to pay
such tax or assessment, Landlord shall be entitled to pay the delinquent tax or
assessment at any time thereafter and such amount shall be deemed to be
additional Rent for the Lease Premises due and payable by Tenant at the time of
the next following monthly Rent payment.
<PAGE>
13. Waiver of Subrogation. Anything in this Lease to the contrary
notwithstanding, Landlord and Tenant hereby waive and release each other of and
from any and all rights of recovery, claim, action or cause of action, against
each other, their agents, officers and employees, for any loss or damage that
may occur to the Lease Premises, improvements to the Lease Premises or personal
property (building contents) within the Lease Premises, by reason of fire or the
elements regardless of cause or original, including negligence of Landlord or
Tenant and their agents, officers and employees, provided such losses are
covered by insurance. Because this paragraph will preclude the assignment of
any claim mentioned in it by way of subrogation or otherwise to an insurance
company or any other person, each party to this Lease agrees immediately to give
notice to each insurance company which has issued to it policies of insurance
covering all risk of direct physical loss, and to have the insurance policies
properly endorsed, if necessary, to prevent the invalidation of the insurance
coverage by reason of the mutual waivers contained in this paragraph.
14. Alterations and Improvements. Tenant shall not make or allow to be
made any alterations or physical additions in or to the Lease Premises without
first obtaining the written consent of Landlord, which consent shall not be
unreasonably withheld. Any alterations, physical additions or improvements to
the Lease Premises made by Tenant shall at once become property of Landlord and
shall be surrendered to Landlord upon the termination of this Lease. This
clause shall not apply to movable equipment or furniture owned by Tenant which
may be removed by Tenant at the end of the term of this Lease, if Tenant is not
then in default and if such equipment and furniture is not then subject to any
other rights, liens and interests of Landlord.
15. Mechanic's Liens. No work performed by Tenant whether in the nature
of erection, construction, alteration or repair, shall bee deemed to be for the
immediate use and benefit of Landlord. No mechanic's or other lien shall attach
to or be allowed to stand against the estate of Landlord by reason of any
improvements made by Tenant or at the request or direction of Tenant. Tenant
shall pay promptly all persons furnishing labor or materials with respect to any
work performed by Tenant or its contractor(s) in, on or about the Lease
Premises. In the event any mechanic's or other lien shall at any time be filed
against the Lease Premises or the Commercial Center by reason of work, labor,
services or materials performed or furnished, or alleged to have been performed
or furnished, to Tenant or to anyone holding the Lease Premises through or under
Tenant, Tenant shall cause the same to be discharged of record or bonded to the
satisfaction of Landlord. If Tenant shall fail to cause such lien to be so
discharged or bonded after being notified of the filing thereof, then in
addition to any other right or remedy of Landlord, Landlord may discharge the
same by paying the amount claimed to be due, and the amount so paid by Landlord
(including actual attorney's fees and expenses incurred by Landlord either
defending against such lien or in procuring the discharge of such lien),
together with interest thereon, shall be due and payable by Tenant to Landlord
as additional Base Rental. Nothing herein contained shall be construed as a
consent by Landlord for Tenant to make any alterations, improvements,
installations or additions so as to give rise to any right to any laborer or
materialman to file any mechanic's lien or any notice thereof, or any other lien
purporting to affect Landlord's property or the Commercial Center.
<PAGE>
NOTICE AND DISCLAIMER PURSUANT TO (S)713.10, FLA. STAT.
PURSUANT TO (S)713.10, FLA. STAT., THE FEE SIMPLE INTEREST OF THE LANDLORD
SHALL NOT BE SUBJECT TO LIENS FOR IMPROVEMENTS, ALTERATIONS, ADDITIONS,
REMODELING OR REPAIRS ON TO OR ABOUT THE LEASE PREMISES MADE BY TENANT OR UNDER
THE DIRECTION OR REQUEST OF TENANT. A COPY OF THIS LEASE HAS BEEN RECORDED IN
THE PUBLIC RECORDS OF ORANGE COUNTY, FLORIDA.
16. Condemnation. If, during the term (or any extension or renewal) of
this Lease, any of the Lease Premises is taken for any public or quasi-public
use under any governmental law, ordinance or regulation, or by right of eminent
domain or by purchase in lieu thereof, and the taking would prevent or
materially interfere with the use of the Lease Premises for the purpose for
which they are then being used, this Lease shall terminate and the Rent shall
stop effective on the date physical possession is taken by the condemning
authority or upon the vacating of the Lease Premises by the Tenant.
17. Fire and Casualty.
A. If the Lease Premises should be totally destroyed by fire or other
casualty, or if the Lease Premises should be so damaged so that rebuilding
cannot reasonably be completed within 60 working days after the date of the
destruction, Tenant shall have the option to terminate and the Rent and other
amounts due under this Lease shall stop effective as of the day of the
destruction.
B. If the Lease Premises should be partially damaged by fire or other
casualty, and rebuilding or repairs can reasonably be completed within 60
working days from the date of written notification by Tenant to Landlord of the
destruction, this Lease shall not terminate and Landlord will at its sole risk
and expense proceed with reasonable diligence to rebuild or repair the Lease
Premises or other improvements to substantially the same condition in which they
existed prior to the damage, provided, however, that Landlord shall have no
obligation to restore or repair any alteration(s) or improvement(s) made by
Tenant to the Lease Premises at Tenant's cost. If the Lease Premises are to be
rebuilt or repaired and are untenantable in whole or in part following the
damage, and the damage or destruction was not caused or contributed to by act of
gross negligence of Tenant, its agents, employees, invitees or those for whom
Tenant is responsible, the rent payable under this Lease during the period for
which the Lease Premises are untenantable shall be adjusted on a prorated basis.
In the event that Landlord fails to complete the necessary repairs or rebuilding
within 60 working days from the date of written notification by Tenant to
Landlord of the destruction, Tenant may at its option terminate this Lease by
delivering written notice of termination to Landlord, whereupon all rights and
obligations under this Lease shall cease to exist.
18. Hold Harmless.
<PAGE>
A. Tenant shall not be liable to Landlord or Landlord's employees,
agents, invitees, licensees or visitors, or to any other persons, for any injury
to person or damage to property on or about the Lease Premises caused by the
negligence or misconduct of Landlord, its agents, servants or employees, or
caused by the improvements located on the Lease Premises being out of repair, or
caused by leakage of gas, oil, water or steam or by electricity emanating from
the Lease Premises. Landlord agrees to indemnify and hold harmless Tenant of and
from any loss, attorney's fees, expenses or claims arising out of any such
damage or injury.
B. Landlord shall not be liable to Tenant or Tenant's employees,
agents, invitees, licensees or visitors, or to any other persons, for any injury
to person or damage to property on or about the Lease Premises caused by the
negligence or misconduct of Tenant, its agents, servants or employees, or of any
other person entering upon the Lease Premises under express or implied
invitation by Landlord. Tenant agrees to indemnify and hold harmless Landlord of
and from any loss, attorney's fees, expenses or claims arising out of any such
damage or injury.
19. Quiet Enjoyment. Landlord warrants that it has full right to execute
and to perform this Lease and to grant the estate demised and that Tenant, upon
payment of the required Rent and other amounts due hereunder and performing the
terms, conditions, covenants and agreements contained in this Lease, shall
peaceably and quietly have, hold and enjoy the Lease Premises during the full
term of this Lease as well as any extension or renewal thereof.
20. Landlord's Right of Entry.
A. Landlord shall have the right, at all reasonable business hours,
and with reasonable notice, to enter the Lease Premises for the following
reasons: inspection; cleaning, or making repairs; making alterations or
additions as Landlord may deem necessary or desirable with prior written
approval by Tenant, which shall not be unreasonably withheld.
B. Landlord shall have the right, at all reasonable business hours,
and with reasonable notice, to enter the Lease Premises during the last three
months of this Lease for the purpose of exhibiting the Lease Premises, and the
Landlord shall also have the right to post on the exterior of the Lease Premises
the usual notice and/or signs advertising the premises "For Rent" or other such
similar advertising as Landlord deems necessary.
21. Assignment or Sublease. Landlord shall have the right to transfer or
assign, in whole or in part, its rights and obligations under this Lease.
Tenant shall not assign this Lease or sublet all or any part of the Lease
Premises without the prior written consent of Landlord which consent may be in
the form of a letter to Tenant and which shall not be unreasonably withheld.
22. Default by Tenant. The following shall be deemed to be events of
default by Tenant under this Lease:
<PAGE>
A. Tenant shall fail to pay when due any installment of
Rent or any other amounts required including any grace and notice
requirements included herein, pursuant to this Lease;
B. Tenant shall fail to comply with any term, provision
or covenant of this Lease, other than the payment of Rent, and the
failure is not cured within thirty (30) days after written notice
to Tenant;
C. Tenant shall do or permit to be done any act which
results in a lien being filed against the Lease Premises, and/or
Landlord's fee simple interest of which the Lease Premises are a
part and such lien is not cured within sixty (60) days.
23. Remedies for Tenant's Default. Upon the occurrence of any event of
default set forth in this Lease, Landlord shall have the option to pursue any
one or more of the following remedies with prior written notice or demand and
provided Tenant is given at least thirty (30) days from the date of notice to
cure such default:
A. Terminate this Lease in which event Tenant shall immediately
surrender the Lease Premises to Landlord, and if Tenant fails to surrender the
Lease Premises, Landlord may, without prejudice to any other remedy which it may
have for possession or arrearages in Rent and any other amounts due hereunder,
enter upon and take possession of the Lease Premises, in accordance with the
law.
B. Enter upon and take possession of the Lease Premises in
accordance with the law.
C. Enter upon the Lease Premises, in accordance with the law, and do
whatever Tenant is obligated to do under the terms of this Lease.
D. All rights and remedies of the Landlord herein enumerated in the
event of a default, shall be cumulative and nothing herein shall exclude any
other right or remedy allowed by law.
24. Waiver of Default or Remedy. Failure of either party to declare an
event of default immediately upon its occurrence, or delay in taking any action
in connection with an event of default, shall not constitute a waiver of the
default, but either party shall have the right to declare the default at any
time and take such action as is lawful or authorized under this Lease. Pursuit
of any one or more of the remedies set forth herein shall not preclude pursuit
of any remedy provided in the Lease or constitute forfeiture or waiver of any
Rent or other amounts due hereunder or damages accruing to the non-defaulting
party by reason of the violation of any of the terms, provisions or covenants of
this Lease. Failure by either party to enforce one or more of the remedies
provided upon an event of default shall not be deemed or construed to constitute
a waiver of the default or of any other violation or breach of any of the terms,
provisions and covenants contained in this Lease.
<PAGE>
25. Landlord's Warranties. Landlord represents and warrants that it
shall, during the term of this Lease, maintain the Building and the land on
which it is located in compliance with all applicable federal, state and local
laws and regulations, as amended, including, without limitation, those relating
to hazardous materials, clean air, and people with disabilities.
Landlord hereby represents and warrants that the heating, air
conditioning, ventilating, electrical and life safety systems serving the
Premises are in working order. Landlord shall, at its own expense, maintain in
working order all such systems, and all facilities and equipment necessary for
the operation of the Building, and the land on which the Building is located
including, without limitation, the Building roof and nearby parking areas.
Landlord agrees to make all repairs that may be reasonably necessary.
Landlord shall, at its own cost and expense, comply with Americans
with Disabilities Act of 1990, as now or hereafter amended, and the rules and
regulations from time to time promulgated thereunder ("Act"). Landlord
acknowledges that Tenant shall have no responsibility with respect to the
Building for complying with the Act.
26. Force Majeure. Landlord and Tenant shall be excused for the period of
any delay in the performance of any obligation hereunder (except as to Tenant
with respect to the payment of Renter Additional Rent hereunder) when prevented
from so doing by a cause or causes beyond its control, including without
limitation all shortage of materials, civil commotion, war, warlike operations,
invasion, rebellion, hostilities, military or usurped power, sabotage,
governmental regulations or controls, fire or other casualty, inability to
obtain any material, services or financing, or through act of God (collectively,
"Force Majeure").
(A) Nothing contained in this Section or elsewhere in this Lease shall
be deemed to excuse or permit any delay in the payment of the Rent, or any delay
in the cure of any default which may be cured by the payment of money;
(B) Either party shall give the other Notice of the existence of any
Force Majeure event within five (5) days after the commencement of the Force
Majeure event.
27. Attorney's Fees. In the event that Tenant or Landlord shall incur any
expense for the enforcement of any provision of this Lease against the other,
the prevailing party (or the party not in default in the event that suit is not
filed) shall be entitled to recover from the other all costs associated with the
enforcement of any provision of this Lease, including a reasonable attorney's
fee (including at all appellate levels).
28. Rights of First Mortgages. Tenant accepts this Lease subject and
subordinate to any recorded first mortgage or deed of trust or lien presently
existing or hereafter created upon the Lease Premises. Landlord is hereby
irrevocably vested with full power and authority to subordinate Tenant's
interest under this Lease to any first mortgage or deed of trust or lien
hereafter placed on the Lease Premises, and Tenant agrees upon demand to execute
additional instruments subordinating this Lease as Landlord may require. If the
interests of Landlord under
<PAGE>
this Lease shall be transferred by reason of foreclosure or other proceedings
for enforcement of any first mortgage or deed of trust on the Lease Premises,
Tenant at its sole option, may terminate this Lease. If Tenant does not opt to
terminate the Lease, then Tenant shall be bound to the transferee (sometime
called the "Purchaser"), the option of the Purchaser, under the same terms,
covenants and conditions of this Lease for the balance of the term remaining,
and any extensions or renewals, with the same force and effect as if the
Purchaser were Landlord under this Lease, and, if requested by the Purchaser,
Tenant agrees to attorn to the Purchaser, including the first mortgagee under
any such mortgage if it be the Purchaser, as its Landlord.
29. Estoppel Certificates. Within ten (10) days after request by Landlord
or Landlord's mortgagee, Tenant agrees to furnish a statement certifying, if
applicable, that Tenant is in possession of the Lease Premises; the Lease
Premises are acceptable; the Lease is in full force and effect; the Lease is
unmodified; Tenant claims no present charge, lien, or claim of offset against
rent; the rent is paid for the current month; there is no existing default by
reason of some act of omission by Landlord; and such other matters as may be
reasonably required by Landlord or Landlord's mortgagee.
30. Successors. This Lease shall be binding upon and inure to the benefit
of Landlord and Tenant and their respective heirs, personal representatives,
successors and assignees. It is hereby covenanted and agreed that should
Landlord's interest in the Lease Premises cease to exist for any reason during
the term of this Lease, then notwithstanding the happening of such event this
Lease nevertheless shall remain unimpaired and in full force and effect and
Tenant hereunder agrees to attorn to the then owner of the Lease Premises.
31. Construction of Language. The captions appearing in this Lease are
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope of intent of such paragraph. If any provisions of this
Lease shall ever be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision of this Lease, and such
other provisions shall continue in full force and effect.
32. Notice.
A. All rent and other payments required to be made by Tenant shall
be payable to Landlord at the address set forth below, or at any other address
as Landlord may specify from time-to-time by written notice.
B. All payments required to be made by Landlord to Tenant shall be
payable to Tenant at the address set forth below, or at any other address within
the United States as Tenant may specify from time-to-time by written notice.
C. Any notice or document required or permitted to be delivered by
this Lease shall be deemed to be delivered (whether or not actually received)
when deposited in the United States Mail, postage prepaid, certified mail,
return receipt requested, addressed to the parties at the respective addresses
set out below:
<PAGE>
LANDLORD: TENANT:
RONALD D. NUTT SUNSTAR HEALTHCARE, INC.
585 S.R. 434 521 S.R. 434
Longwood, FL 32750 Longwood, FL 32750
33. Renewal Option: Tenant shall have the right and option to extend the
term of this Lease for two(2) periods of three (3) years, unless this Lease
shall be sooner terminated as provided herein. Such extended period shall
commence on the day immediately succeeding the expiration of the original or any
renewal term and shall end at midnight of the day immediately following the
third anniversary of the first day of such extended period. Tenant may
exercise each such option to extend the term of the Lease by written notice sent
by certified or registered mail, return receipt requested, to Landlord at least
ninety (90) days prior to the end of the period of the term then in effect. The
giving of such notice by the Tenant to the Landlord shall automatically extend
the term and no instrument of renewal need be executed. The rental rate for the
renewal terms shall be negotiated between the parties, but in no event, shall
such rental rate be more than 105% of the last month's rent of the term
immediately preceding the renewal term.
34. Advance Rent: Any monies paid by Tenant toward commissions,
legal fees, and signage shall be considered Advance Rent, and credited by
landlord beginning with the second month of this lease as further outlined on
Exhibit "D."
35. Free Rent: Landlord agrees to provide Tenant with the equivalent
free rent beginning July 1, 1996 and ending on the commencement date of this
lease for space as defined in Exhibit "C."
36. Furnishings/Personal Property: Landlord agrees and acknowledges
that in conjunction with the leasing of the Lease Premises to Tenant, Tenant
shall be entitled to the use of furnishings per Exhibit "A." Any of Landlord's
furnishings which are located in the space as defined in Exhibit "A" of this
lease will be removed by Landlord within 7 days of notice by Tenant.
37. Recordation: Landlord hereby consents to the recordation of this
Lease or a Memorandum of this Lease in the Public Records of Seminole County,
Florida.
Signed this 27th day of June, 1996.
LANDLORD:
By: /s/ Ronald D. Nutt
-------------------------
RONALD D. NUTT
Title:
<PAGE>
WITNESS:
/s/ Douglas T. Kinson
- -------------------------
Douglas T. Kinson
Printed Name of Witness
- -------------------------
- -------------------------
Printed Name of Witness
STATE OF FLORIDA
COUNTY OF ORANGE
I HEREBY CERTIFY that on this day before me, an officer duly
authorized to take acknowledgments and oaths personally appeared RONALD D. NUTT,
personally known to me or who produced FL License No. N300-724-34-33 as
-----------------------------
identification, and who executed the foregoing Commercial Lease, and
acknowledged before me, that he executed the same freely and voluntarily and for
the purposes therein expressed.
WITNESS, my hand and official seal of office, this 27th day of
June, 1996.
/s/ Maria M. Garcia
- -------------------------
NOTARY PUBLIC
Commission No. CC 387222
Maria M. Garcia
Bonded thru Atlantic Bonding Co., Inc.
My Commission Expires: July 17, 1998
TENANT:
By: /s/ David Jesse
-------------------------
David Jesse
Executive Vice President
<PAGE>
WITNESS:
/s/ Warren Stowell
- -------------------------
Warren Stowell
- --------------
Printed Name of Witness
/s/ Micheal Seamen
- -------------------------
Michael Seamen
- --------------
Printed Name of Witness
STATE OF FLORIDA
COUNTY OF ORANGE
I HEREBY CERTIFY that on this day before me, an officer duly
authorized to take acknowledgments and oaths personally appeared DAVID JESSE,
personally known to me or who produced __________________________________ as
- ----------------
identification, and who executed the foregoing Commercial Lease, and
acknowledged before me, that he executed the same freely and voluntarily and for
the purposes therein expressed.
WITNESS, my hand and official seal of office, this 20th day of
June, 1996.
/s/ Elaine Hoffman
- -------------------------
Elaine Hoffman
- --------------
NOTARY PUBLIC
Commission No. CC 537465
Bonded thru Atlantic Bonding Co., Inc.
My Commission Expires: March 04, 2000
- --------------------------------------------------------------------------------
(new page)
EXHIBIT "A"
-----------
Furniture to be included in this Lease shall include all existing furniture
excepting the following: (Area#'s are as designated on Exhibit "B".)
AREA # ITEMS TO BE EXCLUDED
1. All furniture and built-ins to be removed.
2. All furniture and built-ins to be removed
3. All furniture and built-ins to be removed
4. All furniture and built-ins to remain
5. All furniture and built-ins to be removed.
6. All furniture and built-ins to be removed.
<PAGE>
7. All furniture and built-ins to remain.
8. All furniture and built-ins to be removed.
Conference table to be provided.
9. All furniture and built-ins to be removed.
10. All furniture and built-ins to remain.
11. All furniture and built-ins to be removed.
12. All furniture and built-ins to be removed.
13. All furniture and built-ins to remain
14. All furniture and built-ins to be removed.
In addition to the furniture listed above, Landlord will provide 26 5-drawer
file cabinets. All file cabinets shall be moved into the attic area.
- --------------------------------------------------------------------------------
(new page)
EXHIBIT "B"
-----------
Landlord shall modify the Premises, at its sole expense, as indicated on this
plan. In addition, landlord shall complete the following items:
1. In the areas where walls are being demolished or built-ins being removed,
carpet shall be replaced and walls shall be refinished to match existing
finishes as necessary.
2. In all areas, finishes shall be repaired as necessary and carpet cleaned.
3. New door to be installed in area "2" shall be consistent in quality, style
and finish to existing doors.
[Schematic on original lease drawing of first floor interior of 521 East State
Road 434, Longwood, Florida 32750]
- --------------------------------------------------------------------------------
(new page)
EXHIBIT "C"
-----------
[Schematic on original lease drawing of first and second floors interior of 521
East State Road 434, Longwood, Florida 32750] (new page)
<PAGE>
(new page)
EXHIBIT "D"
-----------
The following payments will be made by Tenant as indicated:
1. Rent according to Section 3 of this Lease.
2. A Security Deposit of $4,019.58 shall be paid upon execution of this Lease.
3. The first month's rent of $4,019.58 plus applicable sales tax shall be paid
upon execution of this Lease.
4. Tenant shall make payments as outlined on the schedule below. All such
payments are considered to be Advanced Rent.
PAYMENT SCHEDULE
----------------
<TABLE>
<CAPTION>
Description Paid By Paid To Amount
- ----------- ------- ------- ------
<S> <C> <C> <C>
Upon Execution:
Commission Tenant Strictly Commercial $2,775.51
Legal Fees Tenant Pappas & Garcia, P.A. 500.00
Security Deposit Tenant Ronald D. Nutt 4,019.58
Rent for period
7/20/96 - 8/19/96 Tenant Ronald D. Nutt 1,000.00
Upon commencement:
Commission Tenant Pizzuti Realty Inc. 3,025.51
Commission Tenant Strictly Commercial 3,025.51
Signage Tenant Sign contractor 1,000.00
August 20, 1996 Rent for the period 8/20/96 - 9/19/96 0.00
September 20, 1996 Rent for the period 9/20/96 - 10/19/96 0.00
October 20, 1996 Rent for the period 10/20/96 - 11/19/96 2,576.32
November 20, 1996 - End of Lease As per section 3 of this Lease
</TABLE>
<PAGE>
Exhibit 16.1
October 22, 1996
Securities and Exchange Commission
Washington, DC 20549
Re: SunStar HealthCare, Inc.
(the "Company")
Ladies and Gentlemen:
We have read Item 8 of the annual report on Form 10-KSB for the
Company's fiscal year ended July 31, 1996 and are in agreement with the
statements contained therein except for matters relating to KPMG Peat Marwick,
LLP as to which we have no knowledge.
Very truly yours,
/s/ Richard A. Eisner & Company, LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SUNSTAR HEALTH CARE INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS FOR JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 5,994
<SECURITIES> 0
<RECEIVABLES> 330
<ALLOWANCES> 110
<INVENTORY> 0
<CURRENT-ASSETS> 6,403
<PP&E> 1,475
<DEPRECIATION> 1,246
<TOTAL-ASSETS> 7,499
<CURRENT-LIABILITIES> 505
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 6,975
<TOTAL-LIABILITY-AND-EQUITY> 7,499
<SALES> 5,081
<TOTAL-REVENUES> 5,081
<CGS> 3,371
<TOTAL-COSTS> 5,329
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (54)
<INCOME-PRETAX> (194)
<INCOME-TAX> 28
<INCOME-CONTINUING> (222)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (222)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> 0
</TABLE>
