<PAGE> 1
==============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
FORM 10-QSBA
QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
--------------------------------------------
COMMISSION FILE NUMBER 0-22115
--------------------------------------------
COMPLETE WELLNESS CENTERS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 52-1910135
(State or jurisdiction of Incorporation or Organization) (IRS Employer Identification Number)
</TABLE>
---------------------------------------------
1964 HOWELL BRANCH RD, SUITE 202, WINTER PARK, FL 32792
(Address of principal executive offices)
(407) 673 - 3073
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months(or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No .
-------- ----
State the number of shares outstanding of each of the issuer's classes of
common equity, at March 31, 1999: 2,949,755 shares of Common Stock.
Transitional Small Business Disclosure Format (check one) Yes No X .
---- --------
<PAGE> 2
COMPLETE WELLNESS CENTERS, INC.
FORM 10-QSB
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
Condensed Consolidated Statement of Operations
For Three Months Ended March 31, 1999 and March 31, 1998
Condensed Consolidated Statements of Cash Flows
For Three Months Ended March 31, 1999 and March 31, 1998
Notes to condensed consolidated financial statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
COMPLETE WELLNESS CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $630,706 $444,963
Patient receivables, net of allowance for
doubtful accounts of $6,502,614 and 6,915,445 5,766,369
$6,255,238
Inventory 46,943 53,405
Prepaid expenses 2,475 9,661
Other assets 45,615 49,774
-------------------------
Total current assets 7,641,184 6,324,172
Furniture and equipment, net 339,014 369,583
Deposits 31,983 31,983
-------------------------
Total assets $8,012,181 $6,725,738
=========================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY/( DEFICIT)
<S> <C> <C>
Current liabilities:
Current portion of notes
payable $569,000 $0
Accounts payable and accrued expenses 5,992,891 6,693,321
Accrued management fees and leases 4,843,301 4,020,288
-------------------------
Total current liabilities 11,405,192 10,713,609
Note payable 350,000 392,000
Stockholders' equity/(deficit):
Common Stock,$.0001665 par value per share
10,000,000 shares authorized, 2,949,755
shares issued and outstanding 490 409
Convertible Preferred Stock, $.01 par
value
per share, 8% Cumulative, 112,428
shares
currently issued and outstanding 5,153,728 5,016,620
Additional capital 6,807,307 6,119,833
Accumulated deficit (15,704,536)(15,516,733)
-------------------------
Total stockholders' deficit (3,743,011) (4,379,871)
-------------------------
Total liabilities and stockholders'
equity/(deficit) $8,012,181 $6,725,738
============================
See notes to condensed consolidated financial
statements.
</TABLE>
3
<PAGE> 4
COMPLETE WELLNESS CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
----------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue:
Integrated medical clinics $4,494,861 $4,874,139
Weight management centers 0 2,368,656
Other income 85,173 85,682
----------------------------
Total operating revenue 4,580,034 7,328,477
Direct expenses:
Salary and consulting costs 802,395 1,521,834
Management fees 3,313,922 2,626,890
Cost of revenues 7,178 469,476
Rent 41,471 508,574
Advertising and marketing 3,147 209,763
Bad debt expense 155,949 1,047,236
----------------------------
Total direct expenses 4,324,062 6,383,773
Network development cost 0 203,658
General and administrative 266,701 1,118,588
Depreciation and amortization 31,653 85,783
----------------------------
Operating income/(loss) (42,382) (463,325)
Interest expense 9,500 1,523
Interest income 1,187 21,863
Minority interest 0 7,179
----------------------------
Net income/(loss) before income taxes (50,695) (435,806)
Income taxes 0 0
----------------------------
Net income/(loss) after income taxes ($50,695) ($435,806)
============================
Income/(loss) per share - basic ($0.02) ($0.19)
============================
- diluted ($0.02) ($0.19)
============================
Weighted average common shares - basic 2,703,862 2,534,430
============================
- diluted 2,703,862 2,534,430
============================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
COMPLETE WELLNESS CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income/loss ($50,695) ($435,806)
Adjustments to reconcile net income/loss to net
Cash used in operating activities:
Minority interest 0 (7,179)
Depreciation and amortization 31,653 89,245
Provision for bad debt 155,949 1,047,236
Recognition of compensatory granting
non-qualified stock options 3,405 931
Recognition of the issuance of common
stock warrants and options 0 14,426
Changes in operating assets and
liabilities:
Accounts receivables (1,305,025) (2,238,926)
Other current assets 17,808 (713,925)
Accounts payable and other current 472,584 288,566
Liabilities
------------------------------
Net cash used in operating activities (674,321) (1,955,432)
INVESTING ACTIVITIES
Purchase of equipment (1,084) (97,729)
------------------------------
Net cash used in investing activities (1,084) (97,729)
FINANCING ACTIVITIES
Payment of notes 0 (505,006)
Proceeds from sale of stock options 684,148 0
Proceeds from sale of preferred stock 0 4,532,320
Proceeds from notes payable 177,000 0
------------------------------
Net cash provided by financing activities 861,148 4,027,314
------------------------------
Net increase in cash and cash equivalents 185,743 1,974,153
Cash and cash equivalents at beginning
Of year 444,963 804,924
------------------------------
Cash and cash equivalents at end of period $630,706 $2,779,077
==============================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
COMPLETE WELLNESS CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMETNS
(UNAUDITED)
MARCH 31, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-QSB and Article 10 of Regulation S-X. The financial statement
information was derived from unaudited financial statements unless indicated
otherwise. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included in the accompanying condensed consolidated financial statements.
Operating results for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Company's audited financial statements
included in the Company's Form 10-KSB dated March 31, 1999, for the period
ended December 31, 1998. Certain prior period amounts have been reclassified
to conform with the current period presentation.
NOTE B - NET INCOME/(LOSS) PER SHARE
The Company's net income/(loss) per share calculations are based upon
the weighted average number of shares of Common Stock outstanding. Pursuant
to the requirements of the Securities and Exchange Commission (SEC) staff
accounting bulletin No. 98, the Company considers all potentially dilutive
securities issued for nominal consideration prior to the Company's initial
public offering as outstanding for all periods presented. Other shares
issuable upon the exercise of stock options or conversion of the 8% Senior
Convertible Preferred Stock (the "Senior Convertible Preferred Stock") have
been excluded from the computation because the effect of their inclusion
would be anti-dilutive for March 31, 1998 and March 31, 1999.
In accordance with SFAS No. 128, the table below presents both basic
and dilutive income/(loss) per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31,1998
<S> <C> <C>
Net Income/(Loss) $(50,695) $(435,806)
Weighted average shares outstanding
- - Basic 2,703,862 2,534,430
Incremental shares under stock
option plans --- ---
Conversion of 8% Senior Convertible
Preferred Stock --- ---
Weighted average shares outstanding
- - diluted 2,703,862 2,534,430
Basic income/(loss) per share $(0.02) $(0.19)
Diluted income/(loss) per share $(0.02) $(0.19)
</TABLE>
6
<PAGE> 7
NOTE C - FINANCING
On January 26, 1999 the Company received $77,000 from Wexford Partners,
LLP ("Wexford") which constituted the last part of the $472,000 loan
agreement between the Company and Wexford.
On February 22, 1999 the Company received a loan of $100,000 from RVR
Consulting ("RVR"). Two of the principles of RVR are Joseph J. Raymond, Jr.,
the Chairman and CEO of the Company and Sergio Vallejo, the Chief Operating
Officer of the Company. The loan has no stated interest rate, nor does it
include a term.
On March 4, 1999 the Board of Directors modified a consulting
agreement, previously approved by the Board, between the Company and
Structure Management, Inc. ("Structure"). Structure has a consulting
agreement with the Company to provide consulting services related to
operations and financing of the Company. Under the existing consulting
agreement, Structure was granted warrants to purchase 120,000 shares of
common stock at a price of $2.00 each. The Board approved the conversion of
such warrants to options for the purchase of common stock of the Company
priced at $2.00 per share. Following the conversion, the options were
exercised and the shares have been issued. The Company received $240,000 for
the exercise of these options.
Additionally, the Board of Directors approved the establishment of a
consultants stock option plan (the "1999 Consultants Stock Option Plan"). The
Company made a grant to Jeffrey Raymond of 117,500 options to purchase common
stock in the Company, pursuant to the 1999 Consultants Stock Option Plan, at
the intraday trading low of the Company's common stock on March 9, 1999 or
$1.25. Following the grant of such options, Mr. Jeffrey Raymond exercised
those options and shares were issued. The Company received $146,875 for the
exercise of such options. Mr. Jeff Raymond is the brother of Mr. Joseph
Raymond, Jr., Chairman and CEO of the Company. The Board also made a grant of
237,500 options, from the 1999 Consultants Stock Option Plan, to purchase
common stock in the Company at the intraday low trading price on March 9,
1999 or $1.25 to John Trevisan, a principal owner of Texas International
Investment, Inc. Following the grant of such options, Mr. Trevisan exercised
his options and shares were issued. The Company received $296,875 for the
exercise of these options.
NOTE D - DISCONTINUANCE OF CERTAIN LINES OF BUSINESS
On November 13, 1998, the Company's Board of Directors voted to
sell, close and/or otherwise divest the operations of Complete Wellness
Weight Management, Inc., ("CWWM"), one of its wholly owned subsidiaries and
its operations became idle during the three months ended March 31, 1999..
On April 21, 1999 the Company's Board of Directors approved a formal
plan for CWWM to file for Chapter 7 bankruptcy proceedings. The Company
anticipates that the formal filing for such proceedings will take place prior
to the end of May 1999.
At the date of bankruptcy filing, this subsidiary will no longer be
included in the Company's consolidated financial results. The Company's
investment in this subsidiary will be adjusted to reflect those liabilities
that are guaranteed by the Company. The remaining liabilities of the
subsidiary, approximately $4,509,000, will be adjusted through changes to
additional paid in capital of the Company.
NOTE E - OTHER TRANSACTIONS
On October 1, 1998 the Company filed a registration statement
with the SEC to comply with the exercise of certain demand registration
rights by the holders of shares of its Common Stock. Such shares of Common
Stock were acquired upon conversion of shares of the Senior Convertible
Preferred Stock. Subsequent to the filing, the Company arranged for a private
sale of the Common Stock to twelve purchasers. On January 20, 1999 the
Company amended the registration statement to respond to SEC comments on the
first filing in addition to adding shares of Common Stock to the registration
statement.
On February 10, 1999 the Company asked the SEC to formally withdraw the
amended registration statement, as the Company's Board of Directors could not
reach unanimous agreement as to its filing. It is currently the Company's
plan, assuming Board of Director approval, to file a new registration
statement prior to June 30, 1999. If filed, the Senior Convertible Preferred
Stock holders and certain other Common Stock holders will be the selling
shareholders. This registration statement is expected to increase the number
of fully tradable shares, if certain warrants are exercised, by approximately
1,250,000 shares if and when declared effective.
7
<PAGE> 8
NOTE F -RESTATEMENT OF QUARTERLY INFORMATION
As a result of the discontinuation of certain contractual relationships
with Integrated Medical Centers, accruals of liabilities and certain
estimation processes utilized by the company, we have restated the quarterly
results for the period ended March 31, 1999. The restatement for the three
months ended March 31, 1999 required an increase in operating expenses,
creating a net loss of ($50,696) or ($0.02) per share. The restated results
for the three months ended March 31, 1999 are as follows and may be compared
to the previously reported quarterly results for the three months ended March
31, 1999.
<TABLE>
<CAPTION>
Restated Results Previously Reported Results
<S> <C> <C>
Net Revenue $4,580,034 $4,588,085
Net Income (Loss) $ (50,695) $ 78,304
Net Income (Loss) Per Share - $ (0.02) $ 0.03
Basic
Weighted Avg. Shares 2,703,862 2,949,755
Outstanding - Basic
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Statements included in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" Section, and in other sections
of this Report and in prior and future filings by the Company with the
Securities and Exchange Commission, in the Company's prior and future press
releases and in oral statements made with the approval of an authorized
executive which are not historical or current facts are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
presently anticipated or projected. The Company wishes to caution readers not
to place undue reliance on any such forward-looking statements, which speak
only as of the date made. There are important risk factors that in some cases
have affected and in the future could affect the Company's actual results and
could cause the Company's actual financial and operating performance to
differ materially from that expressed in any forward-looking statement. The
following discussion and analysis should be read in conjunction with the
Condensed Consolidated Financial Statements and notes appearing elsewhere in
this report.
Through March 31, 1999 the Company has directly formed 93 medical
corporations representing 122 clinics, of which 81 are in operation as of
that date. The operations of all the medical corporations are included in the
consolidated financial statements of the Company. At March 31, 1999, the
Company, as a result of its medical operations, had consolidated revenues of
$4,580,034 and a loss from operations of $50,695, without regard to certain
corporate overhead allocations.
Included in the Company's March 31, 1999 consolidated financial
statements are the results of operations of Smokenders. For the three months
ended March 31, 1999, Smokenders had revenue of $39,022 and losses from
operations of $29,007.
The closings, divestitures and spin-offs of non-profitable or unrelated
business units, such as Complete Wellness Weight Management, Inc. and
Complete Billing Inc., are expected to allow management to focus on the
Company's core business, integrating traditional and
complementary/alternative medical centers, and significantly improve the
Company's operating results in future periods. The Company anticipates that
the weight loss programs offered by CWWM will continue to be offered by its
Integrated Medical Centers after the Chapter 7 filing is completed.
RESULTS FROM OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1998
Revenue. During the three months ended March 31, 1999 the Company had
revenues of $4,580,034 as compared to $7,328,477 for the three months ended
March 31, 1998. The decrease of $2,748,443 was due primarily to Complete
Wellness Weight Management being idle in 1999. CWWM revenues for the three
month period ended March 31, 1998 were $2,368,656. Integrated Medical Center
revenues for the three months ended March 31, 1999 were $4,494,861 as
compared to $4,874,139 for the three months ended March 31, 1998. The
decrease of $379,278 was attributable to the lack of growth of the existing
81 Integrated Medical Centers. The Company had a net reduction of 4
Integrated Medical Centers after March 31, 1998. During the
8
<PAGE> 9
three months ended March 31, 1999 Smokenders had revenues of $39,022 as
compared to $45,552 for the three months ended March 31, 1998. The decrease of
$6,530 was due to a slow down in the seminar programs, which the Company
believes will be continual.
Salary and Consulting Costs. During the three months ended March 31,
1999 the Company incurred salary and consulting costs of $802,395 as compared
to $1,521,834 three months ended March 31, 1998. The decrease of $719,439 was
primarily due to Complete Wellness Weight Management being idle in 1999 and
the reduction of personnel at the corporate headquarters.
Management Fees. During the three months ended March 31, 1999 the
Company incurred management fees of $3,313,922 as compared to $2,626,890 for
the three months ended March 31, 1998. These are fees that are paid to the
affiliated chiropractors' admincorps for managing the day to day operations
of the Integrated Medical Centers. The increase of $687,033 for the three
month period ended March 31, 1999 was due primarily to reduced fees due CWC
as a result of contract changes in 22 of the existing 81 Integrated Medical
Centers.
Rent. During the three months ended March 31, 1999 the Company
incurred rent expenses of $41,471 as compared to $508,574 for the three
months ended March 31, 1998. Rent consists of amounts incurred for
administrative, medical office space and certain equipment leased by the
Company at corporate headquarters and the medical clinics. The decrease of
$467,103 was due primarily to Complete Wellness Weight Management being idle
in 1999.
Advertising and Marketing. During the three months ended March 31,
1999 the Company incurred advertising and marketing expenses of $3,147 as
compared to $209,763 for the three months ended March 31, 1998. The decrease
of $206,616 is attributable to Complete Wellness Weight Management being idle
in 1999.
Bad Debt Expense. During the three months ended March 31,1999 the
Company had bad debt expenses of $155,949 as compared to $1,047,236 for the
three months ended March 31, 1998. The decrease of $891,287 was primarily due
to the decrease in revenue of the medical clinics for the period and the
increase in collections of outstanding accounts receivable.
Network Development Costs. All network development costs relate to the
activities of Optimum Health Services, Inc. During the three months ended
March 31, 1998 the Company's OHS subsidiary experienced network development
costs of $203,658. As a result of the spin-off of OHS in November 1998 the
Company will not incur any of these costs in 1999.
General and Administrative. During the three month period ended March 31,
1999, the Company incurred general and administrative expenses of $266,701 as
compared to $1,118,588 for the three months ended March 31, 1998. The decrease
of $851,887 was due primarily to Complete Wellness Weight Management being idle
in 1999 and the reduction of corporate overhead in such categories as insurance
costs, legal and accounting costs, travel and entertainment costs and various
other corporate costs such as automobile, telephone, postage and printing and
reproduction, equipment rental, supplies, professional development, recruiting
and repairs.
Depreciation and Amortization. During the three months ended March 31,
1999, the Company incurred depreciation and amortization expense of $31,653
as compared to $85,783 for the three months ended March 31, 1998. The
decrease of $54,130 resulted from the previous write down of idle assets.
Operating Income. The consolidated operating loss of the Company was
$42,382 for the three months ended March 31, 1999 as compared to a
consolidated loss of $463,325 for the three months ended March 31, 1998. The
increase resulted from improved operations at the Company's medical centers
and benefited from the discontinuance of the operations of OHS, CWWM and CBI.
Interest Expense. During the three months ended March 31, 1999 the
Company had interest expense of $9,500 as compared to $1,523 for the three
months ended March 31, 1998. The increase of $7,977 resulted from the
interest due on notes payable.
Interest Income. During the three months ended March 31, 1999, the
Company had interest income of $1,187 as compared to $21,863 for the three
months ended March 31, 1998. The decrease of $20,676 resulted from a lower
amount of invested funds in 1999 as compared to the same periods in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced net losses, negative cash flow from
operations and an accumulated deficit since its inception. For the three
months ended March 31, 1999, the Company had net loss of $50,695 as compared
to a net loss of $435,806 for the three months ended March 31, 1998. At March
31, 1999, the Company had working capital of $(3,764,008) and an accumulated
deficit of $15,704,536. Net cash used in operations for the three months
ended March 31, 1999 was $(674,321), as compared to $(1,955,432) for the
three months ended March 31, 1998. Negative cash flows are attributable
primarily to net losses in 1998 and increases in cash flows for the three
months ended March 31, 1999 are attributable primarily to increases in
accounts receivable net of accounts payable and other current liabilities.
For the three months ended March 31,
9
<PAGE> 10
1999 the Company used in investing activities $1,084, as compared to $97,729
for the three months ended March 31,1998, for the purchase of equipment.
The Company intends to develop no fewer than 21 additional medical
clinics by December 31, 1999. The average cost to the Company to develop a
medical clinic is approximately $15,000.
The Company had previously committed to fund future working capital
requirements of Smokenders totaling $98,000 which has been totally funded
through December 31, 1998 and is reflected in the accompanying condensed
consolidated financial statements. In addition, the Company is obligated to
pay royalty fees of 5% of total revenues to Oxford Health Plan and a minimum
of $26,000 per annum to the founders of Smokenders as a result of its
acquisition of Smokenders. This obligation is payable in annual installments
over a 10 year period.
The Company has entered into employment agreements with certain key
employees which generally provide for continued employment through August 31,
2001 at an aggregate annual compensation level of $400,000. In the event the
employees subject to such agreements were terminated by the Company for
reasons other than "with cause", the employees would receive 6 to 12 months
compensation and benefits upon separation. The Company has not obtained key
man life insurance for employees subject to such employment agreements.
In addition, the Company has entered into various consulting agreements
which generally provide for payment of "finders fees" of $1,500 to $4,000 for
each chiropractic clinic identified by the consultant and integrated by the
Company subject to certain maximum amounts ranging from up to $1,000,000 per
consultant. Certain consulting agreements also provide for the Company to pay
royalties ranging from 1% to 10% of gross collections at Integrated Medical
Centers identified by the consultant for periods ranging from 5 to 25 years
after integration. One consulting contract also provides for the payment of
1% of any increases in gross cash collections over the preceding 12 month
period, at any Integrated Medical Center which the consultant provides
specific services to.
The Company and its affiliates are involved in the following material
legal proceedings:
Complete Wellness Centers, Inc. is currently involved in four material
legal proceedings. The first matter is an action brought in Sarasota Florida
in July 1997 by Jeffrey Friedlander, a medical doctor, against the Company
for alleged back wages owed him by the Company for work he performed at an
Integrated Medical Center in Florida. The case was tried by a jury in March
1999, and a verdict was entered against the Company in the amount of
$141,000, which includes $100,000 in punitive damages. The Company contests
the jury finding and has appealed the decision. The Company expects to settle
this matter on terms favorable to the Company.
The second matter is a breach of contract action brought by
Comprehensive Billing Services, Inc., a medical billing company, against the
Company and one of the Integrated Medical Centers in Tampa, Florida, in May
1998 alleging a breach of contract and seeking damages of approximately
$14,500. The Company has submitted its answer and discovery is currently
underway. The Company intends to defend the suit vigorously.
The third matter involves an action initiated by James Renegar, a
massage therapist, in Pinellas County, Florida in May 1998 against the
Company for an unspecified amount of back wages which the therapist alleges
are owed him. He has sued the Company and the Integrated Medical Center for
the wages, alleging an oral contract with the Company. The Company denies
that he was an employee of the Company and is vigorously defending the
action.
The fourth matter involves a suit by the former president, Hiam Zitman, of a
Company subsidiary, Complete Wellness Weight Management, Inc. in Federal
Court in the Southern District of New York in October 1998, alleging breach
of his employment contract by the Company. Mr. Zitman was terminated for
cause in April 1998, and filed a breach of contract action seeking damages
under the contract. The Company intends to defend the action vigorously and
has filed an answer in the matter.
In addition to the matters described above, the Company's subsidiaries
are involved in the following legal matters:
Complete Wellness Weight Management, Inc.("CWWM"), a wholly-owned
subsidiary of the Company, ceased operations in December 1998. At the time,
it vacated the various store locations which it had rented to conduct
business. In vacating the premises, CWWM had outstanding lease obligations,
which were not guaranteed by the Company. Many of the landlords of those
various locations have brought suit against CWWM seeking to recover damages
under the leases, for past and future rent and associated charges. The
Company has not opposed those collection actions, and several such suits have
proceeded to judgment against CWWM. Although no plaintiffs in such suits have
obtained judgments against the Company, any attempt by any such creditor of
CWWM to impose any liability on the Company will be promptly and vigorously
defended by the Company. Likewise, certain other creditors, including vendors
to various CWWM facilities, have brought collection actions against CWWM.
Once again, although no such suits have obtained judgments against the
Company, any attempt by any such creditor of CWWM to impose any liability on
the Company will be promptly and vigorously defended by the Company.
The Company has a number of ongoing disputes with former employees,
vendors and Integrated Medical Center doctors. The Company believes these
disputes are in the normal course of business and are not material. The
Company endeavors to settle such disputes in a timely manner.
10
<PAGE> 11
In November 1997, various facilities of the Company's operations were
searched by federal authorities pursuant to search warrants, and the
government removed various computer equipment, records and documents. During
1998, various employees of the Company and certain subsidiaries were served
with subpoenas requesting records and documents related to billing and claims
coding, clinical relationships and corporate records. The Company believes it
may be a target in this investigation. Only one employee has received a
target letter stating that the employee is a subject of the investigation.
While it is too early to predict the outcome of any of the ongoing
investigations of the Company or the initiation of any additional
investigations, were the Company to be found in violation of federal or state
laws relating to Medicare, Medicaid, CHAMPUS or similar programs, the Company
could be subject to substantial monetary fines, civil and criminal penalties
and exclusion from participation in the Medicare, Medicaid or CHAMPUS
programs and similar other reimbursement programs. Any such sanctions could
have a material adverse effect on the Company's financial position and
results of operations.
The Company is currently seeking additional financing in the form of a
private placement of up to 1,000,000 shares of its common stock, the net
proceeds of which are expected to repay current debt, fund the development of
additional Integrated Medical Centers, and to fund general corporate working
capital requirements. The Company
anticipates utilizing the services of one or more investment advisors/bankers
to assist the Company in consummating this financing.
Year 2000 Issue
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's operational equipment or internal computer software that have
time-sensitive programs may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Similar failures in the
Company's medical clinics could result in an impairment of revenue
recognition due to significant future obligations, impairment of future
services provided by the Company's subsidiaries, or potential other
liability.
The Company has been and is continuing to assess the implications on
its operations of the Year 2000 issue. At March 31, 1999, the process of
evaluation the Company's services, products and internal systems was underway
and is expected to be completed by June 30, 1999. At this time, the Company
is satisfied that all of its major vendors have or are in the process of
verifying to the Company their Year 2000 compliance. The Company's internal
systems have been updated, where appropriate, to accomplish Year 2000
compliance. Any actual impact of Year 2000 compliance on the Company's future
results of operations, capital spending, and business operations is not
expected to be material.
Net Operating Loss Carryforward
At December 31, 1998, the Company and its wholly owned subsidiaries had
combined net operating loss carryforwards for income tax purposes of
approximately $3,030,000, which expire between 2010 and 2011. The Company
files a consolidated federal tax return with its wholly owned subsidiaries.
CWC, LLC was not included in this tax return through May 1998. CWC, LLC is
treated as a partnership for tax purposes and its gains and losses are
reflected at each member's level as of that date. In addition, these
carryforwards may be significantly limited under the Internal Revenue Code of
1986, as amended, as a result of ownership changes resulting from the
Company's Preferred Stock financing and other equity offerings. A valuation
allowance of approximately $4,546,000 has been established at December 31,
1998 to offset any benefit from the net operating loss carryforwards, as it
cannot be determined when or if the Company will be able to utilize the net
operating losses. Utilization of the net operating loss carryforwards may be
significantly limited, based on changes in the Company's ownership.
Seasonality
The Company believes that the patient volumes at its Integrated Medical
Centers are not significantly affected by seasonality.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its affiliates are involved in the following material
legal proceedings:
Complete Wellness Centers, Inc. is currently involved in four material
legal proceedings. The first matter is an action brought in Sarasota Florida
in July 1997 by Jeffrey Friedlander, a medical doctor, against the Company
for alleged back wages owed him by the Company for work he performed at an
Integrated Medical Center in Florida. The case was tried by a jury in March,
1999, and a verdict was entered against the Company in the amount of
$141,000, which includes $100,000 in punitive damages. The Company contests
the jury finding and has appealed the decision. The Company expects to settle
this matter on terms favorable to the Company.
11
<PAGE> 12
The second matter is a breach of contract action brought by
Comprehensive Billing Services, Inc., a medical billing company, against the
Company and one of the Integrated Medical Centers in Tampa, Florida, in May
1998 alleging a breach of contract and seeking damages of approximately
$14,500. The Company has submitted its answer and discovery is currently
underway. The Company intends to defend the suit vigorously.
The third matter involves an action initiated by James Renegar, a
massage therapist, in Pinellas County, Florida in May 1998 against the
Company for an unspecified amount of back wages which the therapist alleges
are owed him. He has sued the Company and the Integrated Medical Center for
the wages, alleging an oral contract with the Company. The Company denies
that he was an employee of the Company and is vigorously defending the
action.
The fourth matter involves a suit by the former president, Hiam Zitman,
of a Company subsidiary, Complete Wellness Weight Management, Inc. in Federal
Court in the Southern District of New York in October 1998, alleging breach
of his employment contract by the Company. Mr. Zitman was terminated for
cause in April, 1998, and filed a breach of contract action seeking damages
under the contract. The Company intends to defend the action vigorously and
has filed an answer in the matter.
In addition to the matters described above, the Company's subsidiaries
are involved in the following legal matters:
Complete Wellness Weight Management, Inc.("CWWM"), a wholly-owned
subsidiary of the Company, ceased operations in December, 1998. At the time,
it vacated the various store locations which it had rented to conduct
business. In vacating the premises, CWWM had outstanding lease obligations,
which were not guaranteed by the Company. Many of the landlords of those
various locations have brought suit against CWWM seeking to recover damages
under the leases, for past and future rent and associated charges. The
Company has not opposed those collection actions, and several such suits have
proceeded to judgment against CWWM. Although no such suits have obtained
judgments against the Company, any attempt by any such creditor of CWWM to
impose any liability on the Company will be promptly and vigorously defended
by the Company. Likewise, certain other creditors, including vendors to
various CWWM facilities, have brought collection actions against CWWM.
Although no plaintiffs in such suits have obtained judgments against the
Company, any attempt by any such creditor of CWWM to impose any liability on
the Company will be promptly and vigorously defended by the Company.
The Company has a number of ongoing disputes with former employees,
vendors and Integrated Medical Center Doctors. The Company believes these
disputes are in the normal course of business and are not material. The
Company endeavors to settle such disputes in a timely manner.
In November 1997, various facilities of the Company's operations were
searched by federal authorities pursuant to search warrants, and the
government removed various computer equipment, records and documents. During
1998, various employees of the Company and certain subsidiaries were served
with subpoenas requesting records and documents related to billing and claims
coding, clinical relationships and corporate records. The Company believes it
may be a target in this investigation. Only one employee has received a
target letter stating that the employee is a subject of the investigation.
While it is too early to predict the outcome of any of the ongoing
investigations of the Company or the initiation of any additional
investigations, were the Company to be found in violation of federal or state
laws relating to Medicare, Medicaid, CHAMPUS or similar programs, the Company
could be subject to substantial monetary fines, civil and criminal penalties
and exclusion from participation in the Medicare, Medicaid or CHAMPUS
programs and similar other reimbursement programs. Any such sanctions could
have a material adverse effect on the Company's financial position and
results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed: None
(b) Reports on Form 8-K
3/15/99 Item 5 Change in Registrant's Certifying Accountant
Item 7 Exhibits
3/12/99 Item 5 Change in Registrant's Certifying Accountant
Item 7 Exhibits
3/09/99 Item 1 Change in Control of Registrant
Item 7 Exhibits
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Complete Wellness Centers, Inc.
Date: May 10, 2000 By /s/ Rebecca R. Irish
---------------------------
Rebecca R. Irish
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-30-1999
<CASH> 630,706
<SECURITIES> 0
<RECEIVABLES> 13,418,059
<ALLOWANCES> 6,502,614
<INVENTORY> 46,943
<CURRENT-ASSETS> 7,641,184
<PP&E> 709,324
<DEPRECIATION> 370,310
<TOTAL-ASSETS> 8,012,181
<CURRENT-LIABILITIES> 11,405,192
<BONDS> 350,000
0
5,153,728
<COMMON> 490
<OTHER-SE> (3,743,011)
<TOTAL-LIABILITY-AND-EQUITY> 8,012,181
<SALES> 4,580,034
<TOTAL-REVENUES> 4,580,034
<CGS> 4,168,113
<TOTAL-COSTS> 4,168,113
<OTHER-EXPENSES> 298,354
<LOSS-PROVISION> 155,949
<INTEREST-EXPENSE> 8,313
<INCOME-PRETAX> (50,695)
<INCOME-TAX> 0
<INCOME-CONTINUING> (50,695)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,695)
<EPS-BASIC> ($0.02)
<EPS-DILUTED> ($0.02)
</TABLE>
