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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13009
MEDICAL RESOURCES MANAGEMENT, INC.
(Name of small business issuer as specified in its charter)
NEVADA 95-4607643
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
932 GRAND CENTRAL AVENUE GLENDALE, CALIFORNIA 91201
(Address of principal executive offices) (Zip Code)
(818) 240-8250
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
par value $.001 per share
Check whether the Registrant (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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
The Registrant's revenues for the fiscal year ended October 31, 1999 were
$11,728,537.
As of February 9, 2000, the aggregate market value of the voting stock held by
non-affiliates of the Registrant (based upon the average of the closing bid and
asked prices on such date) was approximately $1,172,000.
Documents incorporated by reference: Certain responses to Part III are
incorporated herein by reference to information contained in the Registrant's
definitive proxy statement for its 2000 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission on or before February 29,
2000.
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PART I
FORWARD-LOOKING STATEMENTS
This Report on Form 10-KSB includes certain statements that may be deemed
to be "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The sections of this Report on Form 10-KSB
containing such forward-looking statements include "Description of Business,"
"Historical Background," "Growth," "Acquisitions," "Products and Services,"
"Marketing and Sales," "Markets," "Government Regulations," Potential Exposure
to Liability", "Competition" and "Transition to Year 2000" under Item 1 below,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 6 below. Statements in this Form 10-KSB which address
activities, events or developments that we expect or anticipate will or may
occur in the future, including such topics as future issuances of shares, future
capital expenditures (including the amount and nature thereof), expansion and
other development and technological trends of industry segments in which the
registrant is active, business strategy, expansion and growth of the
registrant's and its competitors' business and operations and other such matters
are forward-looking statements. Although we believe the expectations expressed
in such forward-looking statements are based on reasonable assumptions within
the bounds of our knowledge of our business, a number of factors could cause
actual results to differ materially from those expressed in any forward-looking
statements, whether oral or written, made by or on our behalf.
Our operations are subject to factors outside our control. Any one, or a
combination, of these factors could materially affect the results of our
operations. These factors include: (a) changes in levels of competition from
current competitors and potential new competition; (b) loss of some significant
customers; and (c) changes in availability or terms of working capital financing
from vendors and lending institutions. The foregoing should not be construed as
an exhaustive list of all factors that could cause actual results to differ
materially from those expressed in forward-looking statements made by us.
Forward-looking statements made by or on our behalf are based on a knowledge of
our business and the environment in which we operate, but because of the factors
listed above, actual results may differ from those anticipated results described
in these forward-looking statements. Consequently, all of the forward-looking
statements made are qualified by these cautionary statements and it is possible
that the actual results or developments anticipated by us will not be realized
or, even if substantially realized, that they will not have the expected
consequences to or effects on our business or operations.
ITEM 1. DESCRIPTION OF BUSINESS
Medical Resources Management, Inc. makes mobile laser/surgical services
available to our customers by providing this equipment on a per procedure basis
to hospitals, out patient surgery centers, and physicians' offices. We provide
these mobile lasers with technical support to ensure the lasers are working
correctly for the physicians. We also provide other medical equipment on a
rental basis to hospitals and surgery centers. This equipment is used throughout
such facilities to supplement their requirement for certain medical equipment.
The combination of mobile laser/surgical services and medical equipment rental
illustrates our overall strategy and focus on diversification.
Our laser/surgical services focus on two of the most rapidly growing areas
of the health care industry: managed care and cosmetic surgery. For managed
care, minimally invasive procedures can be performed by physicians at hospitals
who rent our laser equipment. The hospitals that are our customers find the
investment in the latest laser surgery equipment and trained technicians to be
uneconomical. For cosmetic surgery, by renting our equipment, the physicians
benefit from having a multitude of different laser technologies available to
offer to their patients without the burden of investing a significant amount of
money. In both instances, physicians and hospitals receive technical support and
expertise which is provided with the equipment, which allows the staff to
concentrate on their duties without the additional tasks of running a laser.
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We have approximately 600 active surgical service accounts in California,
Arizona, Utah, Colorado and Nevada and experience a high rate of repeat business
from the hospitals, surgery centers and doctors that we serve. The market
encompasses many disciplines including plastic/cosmetic surgery, dermatology,
orthopedic surgery, otolaryngology, urology, obstetrics, gynecology,
ophthalmology, general surgery, podiatry and dentistry. Equipment is becoming
more specialized to the medical procedures involved, and technical training of
the physician, regarding the use of equipment, is a significant part of our
business.
Physiologic Reps, Inc. ("PRI") operates as our largest wholly owned
subsidiary. Throughout this document, we are referencing our business, and our
subsidiaries, including PRI, in the historical context. We are headquartered at
932 Grand Central Ave., Glendale, California.
HISTORICAL BACKGROUND
Our largest wholly owned operating subsidiary, PRI, was incorporated in
California in 1973 and moved to its present headquarters building in 1994,
located in Glendale, California. PRI also has sales and service offices in
Stockton, CA, Dublin, CA and Phoenix, AZ. PRI produced approximately 75% and 73%
our consolidated revenues during the fiscal years ended October 31, 1999 and
1998, respectively.
We entered the hospital equipment rental market in 1974, the mobile
laser/surgical services market in 1987, cosmetic skin resurfacing in 1994 and
leg vein treatment and tattoo removal in 1997. We began to expand our mobile
laser/surgical services to the doctors' offices and their clinics in 1995. This
business is complementary to our existing laser/surgical services which we
provide to hospitals. In 1997, we made the decision to expand our cosmetic
services to include specialized lasers for treatment of vascular lesions,
pigmented lesions and tattoo removal.
During the past few years, revenue from our mobile laser/surgical services
business has exceeded revenue from our medical equipment rental business.
However, we have a large array of general medical equipment which we rent,
primarily to hospitals, and have acquired substantial additional general medical
equipment since fiscal 1997. Our inventory of medical equipment includes an
extensive variety of medical devices, serving a broad range of hospital
departments or needs. This wide array of medical rental equipment, delivered to
customers on very short notice, was our primary business until about 1987, when
we developed the mobile surgical laser business. During fiscal 1997, we began to
renew our emphasis on the rental of general medical equipment.
GROWTH
We have historically focused on providing rental and other services to our
clients on an as needed basis. As a result, we have established long-term
relationships with a number of physicians, hospitals and other medical care
providers. We believe that such relationships provide an opportunity to
introduce additional products to these customers by expanding our product lines
beyond laser/surgical services and medical equipment rentals.
Our strategic plan is to grow both (1) through internal expansion and (2)
the acquisition of other companies in the medical services and equipment rental
business to take advantage of current opportunities in the market place.
Opportunities for growth are created because a wider range of new surgical laser
equipment is coming to market with features oriented toward a wider variety of
medical specialties. This is increasing the number of surgical laser procedures
performed. Another factor favoring growth of surgical laser rentals by hospitals
is the effort by managed care to reduce costs through less invasive procedures.
The managed care effort has also reduced funds available for investment in new
equipment and training.
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ACQUISITIONS
On March 31 1997, we acquired 100% of the issued and outstanding capital
stock of Pulse Medical Products, Inc. ("Pulse"), headquartered in Boise, ID, in
exchange for 325,000 shares of our common stock. As a result, Pulse became our
wholly owned subsidiary. Pulse rents medical equipment and sells related
equipment and supplies. Pulse conducts its business in Idaho, Montana, Utah,
Colorado, Minnesota and Wyoming. Pulse has continued to operate as our wholly
owned subsidiary, with its headquarters in Boise, ID.
On June 30 1997, we acquired 100% of the issued and outstanding capital
stock of Laser Medical, Inc. ("Laser Medical"), headquartered in Murray, UT, in
exchange for 190,000 shares of our common stock. As a result, Laser Medical
became our wholly owned subsidiary. In addition, we obtained a non-compete
agreement from the principal former shareholder of Laser Medical in
consideration of the payment of $80,000 in cash. Laser Medical provides mobile
laser/surgical services to hospitals, out patient surgery centers, and
physicians' offices. Laser Medical operates its business in Utah and Colorado.
Since the date of its acquisition, Laser Medical has operated as our wholly
owned subsidiary, with its headquarters in Murray, UT.
Also on June 30, 1997, we acquired 100% of the issued and outstanding
capital stock of Med Surg Specialties, Inc. ("Med Surg"), located in Brea, CA,
in exchange for 214,667 shares of our common stock. As a result, Med Surg became
our wholly owned subsidiary. In addition, we obtained a non-compete agreement
from the principal former shareholder of Med Surg in consideration of the
payment of $138,000 in cash ($50,000 in July 1997, with the balance paid $50,000
in fiscal year 1998 and $38,000 in fiscal year 1999). Med Surg makes mobile
laser/surgical services available to hospitals, out patient surgery centers, and
physician's offices. Med Surg's operations, which were conducted primarily in
the Southern California area, were absorbed into PRI at the time of the
acquisition.
Effective November 1, 1997, we acquired 100% of the issued and outstanding
capital stock of Texas Oxygen Medical Equipment Company ("Tomec"), headquartered
in Mansfield, TX, in exchange for 40,000 shares of our own common stock. As a
result, Tomec became our wholly owned subsidiary. Tomec rents medical equipment
and provides biomedical services. Tomec conducts its business in Texas, and has
continued to operate as our wholly owned subsidiary, with its headquarters
remaining in Mansfield, TX.
We intend to selectively continue the pursuit of our strategic plan of
acquiring other companies in the medical services and equipment rental business
to take advantage of current opportunities in the market place.
PRODUCTS AND SERVICES
Our technicians deliver equipment and provide technical support to
physicians and operating room ("O.R.") personnel as needed. Once our technician
is at the customer site, he posts required warning notices outside the O.R.,
issues safety equipment to the O.R. staff, provides any disposable materials
needed, and supplies equipment certifications or documentation required for
hospital record-keeping. Our technician sets the physician's requested power
settings and maintains a laser safe environment during the surgical procedure.
Hospitals and surgery facilities, especially those with fluctuating occupancy
levels, find this outsourcing of trained technicians, on an as-needed basis, a
cost effective alternative to training and staffing their own personnel. More
than 60% of our revenue was generated from the rental of technician supported
equipment (including related disposable sales) during each of the last two
fiscal years.
Our lasers encompass the latest technology in CO2, Nd:YAG, Pulse Dye,
KTP/YAG, and Holmium YAG models. We have established an excellent working
relationship with the leading laser manufacturers and are often the first
service company to receive new laser technology in our markets. We are
constantly reviewing developments in the medical laser field to stay abreast of
the latest technology available.
We also provide our customers with disposable products and/or attachments
that are needed for a given procedure. This applies primarily to laser related
rentals requiring laser drapes, masks, fibers, tubing, etc. The customers
benefit from this added service since they save the added costs that would be
incurred if they had to purchase a large inventory of these disposable products.
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Additionally, we offer a broad spectrum of general medical equipment to the
medical market that we serve. Our inventory of equipment includes an extensive
selection of devices, serving a broad range of hospital departments and needs,
such as adult and infant ventilators, CO2 monitors, defibrillators, feeding
pumps, PCA pumps, ECG monitors, infusion pumps, neo-natal monitors, and pulse
oximeters.
Due in part to our varied inventory of equipment, we are usually capable of
offering delivery and support of rental items with only a few hours' notice.
Mobile laser/surgical services are ordered in advance and re-confirmed with the
customer the day before the procedure by the scheduling department.
MARKETING AND SALES
The principal focus of our business is providing mobile laser/surgical
services. Additionally, we are expanding our business of renting medical
equipment to hospitals, surgery centers and physicians in their offices. Our
sales efforts are supported by a direct sales force which focuses on providing
timely service and products to our customers. In addition, we sponsor
educational seminars on new laser technology, which are attended by physicians.
This allows our direct sales force to introduce new laser technology and
procedures to our customer base as soon as new lasers are offered by
manufacturers. This method has proven to be successful in developing new
business from physicians. We benefit from the physician training which occurs at
these educational seminars because the physicians can immediately implement the
new laser technology we offer.
Our sales representatives attend national and regional physician medical
seminars and trade shows to present our services and products. We also create
markets for our products and services through direct mailing of marketing
literature and promotional materials regarding our complete range of
laser/surgical services to hospitals, surgery centers and physicians.
MARKETS
Our principal markets, and percent of revenue from each, during the fiscal
years ended October 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 1998
<S> <C> <C>
Mobile laser/surgical services 44% 44%
Cosmetic mobile laser/surgical services
(primarily physician office based) 11% 9%
Medical equipment rentals 29% 30%
Disposable and equipment sales 14% 14%
Biomedical services and other revenues 2% 3%
</TABLE>
HOSPITAL MOBILE LASER/SURGICAL SERVICES
The Southern California market is a mature market place and growth is
dependent on new procedures and products. This situation does not exist in some
other parts of the country, providing us with a growth opportunity in other
geographic markets.
Mobile laser/surgical services, both hospital/surgery center based and
physician office based, provide an entry into new geographic markets with
multiple strategies. Once a facility is established in a new geographic market,
the opportunity exists to use that facility as a dispatch point for equipment
rentals and new products.
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COSMETIC MOBILE LASER/SURGICAL SERVICES
The cosmetic laser business is primarily physician office based. This
market did not emerge for us until early 1995, and has been characterized by
rapid changes in specific techniques as new technology emerges.
In recent years, skin resurfacing cosmetic laser surgery has shown
significant growth. However, price competition is emerging in this market from
smaller start up companies. In the past few years, legislation in California and
some other states restricting anesthesia in doctors' offices has redirected some
of this cosmetic surgery to hospitals and surgery centers, where we have a
strong base. As the skin rejuvenation market matures, new markets will be
emerging for the treatment of leg veins and the removal of unwanted hair.
Because of customer inquiries, we believe that recently developed laser
technology for collapsing veins so that they are no longer visible will produce
a significant increase in the number of doctors using mobile lasers. In
addition, the anticipated introduction to the market of new lasers for unwanted
hair removal will add a companion procedure to the vein procedure.
HOSPITAL MEDICAL EQUIPMENT RENTALS
We entered the hospital equipment rental market in 1974, and maintained
that business as our primary source of revenue until the mobile laser/surgical
services became predominate in 1987. That transition took place because of
competition from national medical rental companies and high demand for the newly
developed mobile laser/surgical services.
The hospital equipment rental market has been reduced to two dominant
national companies. The older and smaller of these companies is Universal
Hospital Services ("UHS"), which provides medical equipment within the hospital
on a fee for use basis. We believe that UHS does not focus on the larger portion
of that market which is supplemental equipment rentals. The larger company is
Mediq PRN ("Mediq"), which is dominant in the supplemental rental business
through contracts with large hospital management companies. We have identified
an excellent opportunity to service Mediq's customers on a second call basis (as
an alternative supplier to these customers) at reasonable prices.
We believe that we have a competitive advantage in the market, since we are
one of the few companies that provide both mobile laser/surgical services and
medical equipment rental. There are a number of synergies among the mobile
laser/surgical services and the medical equipment rental business, including:
- Shared facilities
- Shared warehouse and delivery employees
- Shared delivery vehicles
- Complimentary scheduling and booking staff
- Common management
- Shared sales staff at start up
EQUIPMENT AND DISPOSABLE SALES
We continue to evaluate several lines of disposable medical products to
introduce to our customers. As the medical rental market continues to be
challenged by smaller competitors we intend to respond by offering new products,
as well as remaining competitive on current market pricing. This is a natural
progression for us, since we have a large customer base typified by repeat
business and ongoing personal contact between our sales representatives and our
customers.
Another source of revenue is the re-marketing of used equipment. As a
result of our practice of updating laser and medical rental equipment, we
occasionally sell used equipment.
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GOVERNMENT REGULATIONS
The healthcare industry is subject to extensive federal and state
regulation. Promulgation of new laws and regulations, or changes in or
re-interpretations of existing laws or regulations, may significantly affect our
business, operating results or financial condition. We are not currently subject
to regulation. However, a court or governmental body could make a determination
that our business should be regulated. Our profitability might be negatively
impacted if we had to comply with government regulations. Furthermore, the
manufacturers of medical equipment utilized by us are subject to extensive
regulation by the Food and Drug Administration ("FDA"). Failure of such
manufacturers to comply with FDA regulations could result in the loss of
approval by the FDA of such medical equipment, which could adversely affect our
operating results or financial condition. As consolidation among physician
groups continues and provider networks continue to be created, purchasing
decisions may shift to persons with whom we have not had prior contact. We
cannot be certain that we will be able to maintain our physician, payor or
manufacturer relationships under such circumstances.
POTENTIAL EXPOSURE TO LIABILITY
Physicians, hospitals and other providers in the healthcare industry are
subject to lawsuits which may allege medical malpractice or other claims. Many
of these lawsuits result in substantial defense costs and judgments or
settlements. We do not engage in the practice of medicine, nor do we control the
practice of medicine by physicians utilizing our services or their compliance
with regulatory requirements directly applicable to such physicians or physician
groups. However, the services we provide to physicians, including actions by our
technicians, our establishment of protocols and our training programs, could
give rise to liability claims. Although we have not recently been a party to any
material litigation, including litigation relating to the practice of medicine,
we may become involved in such litigation in the future, and it is possible that
a claim or claims arising from such litigation might exceed our insurance
coverage. In addition, we may not be able to obtain such insurance coverage in
the future. See Item 3 "Legal Proceedings" below.
COMPETITION
The market for our services is highly competitive. Companies, particularly
in the laser surgery industry, compete by price, thereby impacting profit
margins. In spite of such competition, we believe that we can compete
successfully. We provide surgical laser equipment to hospitals, ambulatory
surgery centers and doctors' offices, and are able to build our business on the
interrelation of these market segments.
Our competition for mobile laser surgery equipment rental is primarily from
a number of small companies with only a few surgical lasers each. In most cases,
these competing companies are founded by technicians who have left doctors'
offices or hospitals and sell their services to a limited number of customers.
Major competitors in the hospital medical equipment rental market include
Universal Hospital Services and Mediq PRN. We believe that, as a specialist, we
can better satisfy the hospitals' needs for medical rental equipment at
satisfactory profit margins. We have no way to know whether we will be able to
successfully compete in the marketplace in the future.
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TRANSITION TO YEAR 2000
We did not experience any interruption to our business as a result of the
transition to January 1, 2000, and we are not aware of any Year 2000 related
problems associated with our internal systems or software, or with the software
and systems of our customers or suppliers. Costs incurred related to our
assessment and modification of our internal systems and software were less than
$15,000.
We expect most material Year 2000 compliance problems to have arisen on or
immediately after January 1, 2000, but cannot assure you that problems will not
emerge throughout the course of the year 2000 or even beyond. We intend to
maintain our efforts relating to internal Year 2000 compliance. However, we do
not anticipate any significant future costs with respect to this issue.
EMPLOYEES
As of October 31, 1999, we employed 98 full time persons, 57 of whom
were involved in operations activities (most of these were active as field
technicians), 22 of whom were involved in sales and marketing, and 19 of whom
were involved in administration and accounting. In addition, we employ 13
part time and occasional employees as technicians to handle overload
situations. None of these employees is represented by a union. We believe
that our relationship with our employees is good.
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ITEM 2. DESCRIPTION OF PROPERTY
We lease approximately 14,500 square feet of space for our headquarters in
Glendale, California on a lease that expires in 2001, for $10,880 per month,
with a CPI based rent escalation clause. This lease also provides an option to
rent this facility for an additional five years. We also lease about 2,000
square feet of space for our field and sales office in Dublin, California under
a lease that expires in 2001, for $2,740 per month, with a CPI based rent
escalation clause.
In addition, we lease field and sales offices in Stockton, CA, Boise, ID,
Englewood, CO, Phoenix, AZ, Mansfield, TX and Las Vegas, NV. Total combined
square footage is 21,200 for approximately $8,500 per month, expiring through
2001.
ITEM 3. LEGAL PROCEEDINGS.
Plaintiffs Hollace Panzer and Steven Panzer (collectively, "Plaintiffs")
filed their original Complaint alleging causes of action for negligence and lost
consortium on October 26, 1996. The Complaint generally alleged that Ms. Panzer
suffered personal injury on November 2, 1995 as a result of a laser facial
resurfacing procedure. The Complaint further alleged that, as a result of Ms.
Panzer's injuries, Steven Panzer (Ms. Panzer's husband) lost consortium.
In early 1998, Plaintiffs amended their Complaint to name as defendants
Medical Resources Management, Inc. ("MRM"), Med Surg Specialties, Inc. ("MSS")
and Physiologic Reps, Inc. ("PRI"). It is alleged that MRM, MSS and PRI were
responsible for renting the laser used in the facial resurfacing procedure. Both
MSS and PRI are wholly owned subsidiaries of MRM. However, PRI's defense was
assumed by its insurance carrier.
MRM and MSS answered Plaintiff's Complaint on July 27, 1998 and also
asserted cross-claims for indemnity against defendants Allan Wirtzer, Sharplan
Lasers, Inc. Sun Medical, Inc. and Stephen P. Grifka. With the exception of
Grifka, all cross-defendants have answered MRM's and MSS' Cross-Complaints.
Michael Fewer, Vice President of PRI, personally negotiated a settlement with
Grifka whereby PRI agreed to purchase the laser and dismiss MRM's and MSS'
claims against Grifka without prejudice. Sharplan has cross-complained for
equitable indemnity against MRM, MSS, Wirtzer, Grifka and Sun. In addition,
Plaintiffs have asserted claims against Grifka, Sharplan and Sun. Plaintiffs
eventually agreed to dismiss Grifka and PRI from the case.
Thereafter, the remaining parties conducted discovery. An eventual
settlement was reached whereby MRM was dismissed from the case by Plaintiffs. In
addition, for evidentiary purposes, it was agreed that MSS would bring a motion
for summary judgment in which Sun and Sharplan would join. Plaintiffs agreed not
to oppose this motion. The motion was filed and the superior court granted
summary judgment in favor of MSS and Sun and against Plaintiffs on November 8,
1999, and in favor of Sharplan and against the Plaintiffs on December 7, 1999.
We are presently awaiting the signed documents from the Court. Once the Court
provides us with those documents, the cross-complaints asserted by MSS, MRM and
Sharplan will be dismissed by agreement of the parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
Our Common Stock is traded under the symbol "MRMC" in the over-the-counter
market through the NASD's electronic OTC Bulletin Board service. The following
table sets forth the range of high and low bid prices per share of our Common
Stock for each of the periods indicated. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commissions, and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Bid Prices
------------------------
High Low
---- ---
<S> <C> <C>
Quarter ended:
January 31, 1998 $ 1.375 $ 0.625
April 30, 1998 $ 1.250 $ 0.750
July 31, 1998 $ 1.750 $ 0.719
October 31, 1998 $ 0.984 $ 0.250
January 31, 1999 $ 0.531 $ 0.125
April 30, 1999 $ 0.531 $ 0.125
July 31, 1999 $ 2.063 $ 0.125
October 31, 1999 $ 1.000 $ 0.250
</TABLE>
HOLDERS OF COMMON STOCK
As of October 31, 1999, the number of holders of record of our Common Stock
was 390, excluding approximately 15 accounts in "nominee" or "street" name.
DIVIDENDS
To date, we have not paid any cash dividends on our Common Stock and do not
anticipate paying cash dividends in the foreseeable future. We anticipate that
all earnings, if any, for the foreseeable future will be retained for
development of our business.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read together with the
financial statements and notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Statements of Income:
<TABLE>
<CAPTION>
Year ended October
31,
---------------------
1999 1998
-------- -------
<S> <C> <C>
Net revenue ................................................................ 100.0% 100.0%
Cost of revenue ............................................................ 36.5 41.1
Depreciation expense ....................................................... 14.4 12.6
----- -----
Gross profit ............................................................... 49.1 46.3
Selling expenses ........................................................... 18.8 17.7
General and administrative expenses ........................................ 19.3 17.6
----- -----
Operating income ........................................................... 11.0 11.1
Interest expense ........................................................... 10.4 8.7
----- -----
Income before income taxes ................................................. 0.6 2.4
Provision for income taxes ................................................. 0.2 1.0
----- -----
Net income ................................................................. 0.4% 1.4%
===== =====
</TABLE>
YEAR ENDED OCTOBER 31, 1999 COMPARED TO YEAR ENDED OCTOBER 31, 1998
For the year ended October 31, 1999, net revenue was $11.73 million,
compared to $11.58 million for the fiscal year ended October 31, 1998, an
increase of $150,000, or 1.3%. The increase in net revenue is principally due to
(1) an increase in laser surgical services of $226,000 and (2) an increase in
disposable and equipment sales of $129,000, both of which increases were offset
in part by (3) a decrease in biomedical service revenue of $108,000, (4) a
decrease in other revenue of $26,000 and (5) a decrease of $71,000 in medical
rental revenue, mostly as a result of milder weather in Southern California
during fiscal year 1999 (in general, more people are hospitalized during cold,
wet weather such as that experienced during the EL NINO storms in late 1997 and
early 1998).
Cost of revenue (excluding depreciation expense) for the year ended October
31, 1999 totaled $4.28 million, or 36.5% of net revenue, compared to $4.76
million, or 41.1% of net revenue, in the prior fiscal year, a decrease of
$485,000, or 10.2%. The decrease in cost of revenue is chiefly attributable to
(1) reductions in personnel and other operating costs since the second quarter
of fiscal year 1998 and (2) the reclassification of certain employees from
operations to sales in fiscal year 1999, both of which were offset in part by
costs associated with the increase in disposable and equipment sales.
Depreciation expense directly attributable to net revenue for the year
ended October 31, 1999 was $1.70 million compared to $1.45 million for fiscal
year 1998, an increase of $245,000, or 16.9%. This increase in depreciation
expense is primarily the result of the addition of equipment during the latter
part of fiscal year 1998 and the first nine months of fiscal year 1999.
Gross profit for the fiscal year ended October 31, 1999 was $5.76 million,
or 49.1% of net revenue, compared to $5.37 million, or 46.3% of net revenue, in
the year ended October 31, 1998, an increase of $390,000, or 7.3%. The increase
in gross profit is mainly the result of the factors described previously.
For the year ended October 31, 1999, selling expenses were $2.20 million,
compared to selling expenses of $2.04 million for the prior fiscal year, an
increase of $164,000, or 8.0%. This increase is primarily due to higher
compensation for sales personnel and to the reclassification of certain
employees from operations to sales. As a percentage of net revenue, selling
expenses increased to 18.8% in the year ended October 31, 1999, compared to
17.7% in the prior fiscal year.
11
<PAGE>
General and administrative ("G&A") expenses totaled $2.26 million for
the year ended October 31, 1999, compared to $2.03 million in the year ended
October 31, 1998, an increase of $230,000, or 11.3%. As a percentage of net
revenue, G&A expenses increased from 17.6% in the fiscal year 1998 to 19.3%
in the fiscal year 1999. The increase in the amount of G&A expense is chiefly
attributable to (1) a write-off of software development costs in fiscal year
1999 in the amount of $107,000 for an abandoned project, (2) an increase of
$44,000 in expenses relating to the effort to refinance debt during fiscal
year 1999, (3) certain professional fees in the amount of $66,000 relating to
consulting services and (4) the write-off of certain investments in
non-affiliates in fiscal 1999 in the amount of $38,000, all of which
increases were offset in part by an overall decrease in other G&A expenses in
the amount of $25,000.
Operating income for fiscal year 1999 was $1.29 million, or 11.0% of net
revenue, compared to $1.29 million in the year ended October 31, 1998, or
11.1% of net revenue. This lack of change in operating income in fiscal year
1999 from fiscal year 1998 is attributable to the factors previously cited
herein.
For the year ended October 31, 1999, interest expense totaled $1.22
million, compared to $1.01 million in the prior fiscal year, an increase of
$205,000, or 20.3%. This increase in interest expense is principally
attributable to an increase in debt incurred to fund the acquisition of
property and equipment during the latter part of fiscal year 1998 and the
first nine months of fiscal year 1999.
Income before income taxes was $71,000 for the year ended October 31,
1999, compared to $280,000 in the year ended October 31, 1998, a decrease of
$209,000, or 74.6%. Income before income taxes, as a percentage of revenues,
decreased from 2.4% in the year ended October 31, 1998 to 0.6% in the year
ended October 31, 1999 as a result of all of the aforementioned factors.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements arise from the funding of our working capital
needs, principally accounts receivable and inventories, as well as our capital
expenditure needs. Our primary sources for working capital have historically
been borrowings under debt facilities, leasing arrangements, trade payables and
the sale of our Common Stock.
During the year ended October 31, 1999, net cash provided by operating
activities was $1.61 million, which resulted principally from net income of
$43,000 adjusted for (a) depreciation and amortization expense of $1.88 million,
(b) a provision for doubtful accounts of $76,000 and (c) an increase in
long-term deferred income tax liabilities of $25,000, all of which were offset
in part by a net increase of approximately $412,000 in working capital items.
Net cash used in investing activities during the fiscal year ended October
31, 1999 totaled $1.44 million, which was comprised of (a) capital expenditures
in the amount of $1.37 million, (b) an increase in other assets of $54,000 and
(c) the payment of $38,000 for non-compete agreements, all of which were offset
in part by net proceeds from the sales of assets of $27,000.
Cash used in financing activities during the year ended October 31, 1999
was $267,000, consisting of (a) $60,000 in principal payments on notes payable,
(b) $2.00 million in principal payments on long-term debt and (c) $2.21 million
in principal payments on capital lease obligations, all of which were offset in
part by (d) $1.04 million of borrowings on notes payable to a bank, (e) $60,000
in borrowings on notes payable and (b) $2.90 million of borrowings on long-term
debt.
On March 31, 1999 we entered into an agreement with a bank that provides
for a $2 million term loan (Bank Term Loan) and a $2 million line of credit
(Bank Line of Credit). The proceeds from the Bank Term Loan were used to repay
in full the then-existing term loan with Merrill Lynch, as well as for working
capital purposes, including payment of past-due lease payments. The Bank Term
Loan bears interest at a rate of prime plus 1.25%, with principal due in 60
equal monthly installments commencing in May 1999. The balance on the Bank Term
Loan as of October 31, 1999 was $1.8 million.
The proceeds from the Bank Line of Credit were used for working capital
purposes. This Bank Line of Credit bears interest at a rate of prime plus 1.00%,
with borrowings based upon eligible accounts receivable as defined. The balance
outstanding under the Bank Line of Credit as of October 31, 1999 was $1.04
million.
The Bank Line of Credit and Bank Term Loan prohibit the payment of cash
dividends and require the Company to maintain certain levels of net worth and to
generate certain ratios of cash flows to debt service. As of October 31, 1999,
the Company was not in compliance with certain financial covenants of the Bank
Line of Credit and Bank Term Loan. The lender waived the covenant violations.
We had no material commitments for capital expenditures at October 31,
1999. However, although we have no present commitments or agreements to make
such capital expenditures, during the next 12 months we expect to make
substantial capital expenditures, in accordance with our historical practice.
The mobile laser/surgical services and medical equipment rental businesses are
capital intensive. We believe that funds generated from operations, together
with funds available from debt facilities, as well as possible strategic
alternatives such as additional debt or equity offerings, will be sufficient to
finance our working capital and capital expenditure requirements for the next 12
months.
ITEM 7. FINANCIAL STATEMENTS.
See financial statements included herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
13
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information contained in our Proxy Statement to be filed with the
Securities and Exchange Commission on or before February 28, 2000 with
respect to directors, officers, promoters and control persons is hereby
incorporated by reference in response to this item.
14
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The information contained in our Proxy Statement to be filed with the
Securities and Exchange Commission on or before February 28, 2000 with respect
to executive compensation and transactions is hereby incorporated by reference
in response to this item.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in our Proxy Statement to be filed with the
Securities and Exchange Commission on or before February 28, 2000 with respect
to security ownership of certain beneficial owners and management is hereby
incorporated by reference in response to this item.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Robert Stuckelman, a member of our Board of Directors, received $44,000
from us in the form of consulting fees during the fiscal year ended October 31,
1998 as a result of having provided business and marketing consulting services
to us in connection with prior acquisitions and certain other matters, and we
may continue to retain Mr. Stuckelman to render such business and marketing
consulting services to us in the future. We believe that the terms of the
consulting services provided were no less favorable to us than those that could
have been obtained in a comparable transactions with an unrelated party.
15
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Documents filed herewith as part of this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Financial Statements:
Report of Independent Auditors F-1
Consolidated Balance Sheet - October 31, 1999 F-2
Consolidated Statements of Income - Years Ended
October 31, 1999 and 1998 F-4
Consolidated Statements of Shareholders' Equity -
Years Ended October 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows - Years Ended
October 31, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
2. Exhibits:
See Exhibits Index. The exhibits listed in the accompanying
Exhibit Index are filed or incorporated by reference as part of this
report.
(b) Reports on Form 8-K:
None.
16
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Glendale, California on the 14th day of February, 2000.
MEDICAL RESOURCES MANAGEMENT, INC.
By /s/ Richard A. Whitman
----------------------------------------------------
Richard A. Whitman, President and CEO
Pursuant to the requirements of 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 indicated on the 14th day of February, 2000.
SIGNATURE TITLE
---------- -------
By /s/ Richard A. Whitman
----------------------------------------
Richard A. Whitman President and CEO
By /s/ Allen H. Bonnifield
----------------------------------------
Allen H. Bonnifield Chairman and Chief
Financial Officer
By /s/ Gregory Bonnifield
----------------------------------------
Gregory Bonnifield Director and President of
Physiologic Reps, Inc.
By /s/ Donald G. Petrie
----------------------------------------
Donald G. Petrie Director
17
<PAGE>
EXHIBITS INDEX
EXHIBIT EXHIBIT DESCRIPTION
NUMBER
3.1 Articles of Incorporation and Amendments thereto. (1)
3.2 By-Laws of the Registrant. (1)
10.1 Copy of a Warrant Agreement and Warrant issued between
November 1996 and March 1997 to investors in the Registrant's
Private Placement. (1)
10.2 Registrant's 1996 Stock Incentive Plan. (1)
10.3 Equipment Note Loan and Security Agreement dated April 24,
1997 between the Registrant and LINC Capital Management, a
division of LINC Capital, Inc. (1)
10.4 Collateral Note No. 1 dated April 28, 1997 between the
Registrant and LINC Capital, Inc. (1)
10.5 Lease Modification Agreement dated April 24, 1997 between
Pulse Medical Products, Inc. and LINC Capital Management, a
division of LINC Capital, Inc. (1)
10.6 Warrant Purchase Agreement dated April 24, 1997 between the
Registrant and LINC Capital Management, a division of LINC
Capital, Inc. (1)
10.7 Warrant to Purchase Shares of Common Stock dated April 24,
1997 between the Registrant and LINC Capital Management, a
division of LINC Capital, Inc. (1)
10.8 Amendment to Warrant Agreement - Class A Redeemable Warrant,
dated September 26, 1999. (5)
10.9 Amendment to Warrant Agreement - Class B Redeemable Warrant,
dated September 26, 1999. (5)
10.10 Loan Agreement dated March 30, 1999 between Physiologic Reps
and Santa Monica Bank. (5)
10.11 Promissory Note dated March 30, 1999 between Physiologic Reps
and Santa Monica Bank (Line of Credit). (5)
10.12 Promissory Note dated March 30,1999 between Physiologic Reps
and Santa Monica Bank (Term Loan). (5)
27.0 Financial Data Schedule. (5)
(1) Exhibit filed with Registrant's Form 10-SB on May 16, 1997 and incorporated
by reference herein.
(2) Exhibit filed with Registrant's Form 10-QSB for the quarter ended July 31,
1997 and incorporated by reference herein.
(3) Exhibit filed with Registrant's Form 10-KSB for the fiscal year ended
October 31, 1997 and incorporated by reference herein.
(4) Exhibit filed with Registrant's Form 10-QSB for the quarter ended January
31, 1998 and incorporated by reference herein.
(5) Exhibit filed herewith.
18
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Medical Resources Management, Inc.
We have audited the accompanying consolidated balance sheet of Medical Resources
Management, Inc. and subsidiaries as of October 31, 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the two years in the period ended October 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
from 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Medical
Resources Management, Inc. and subsidiaries at October 31, 1999, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended October 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
Los Angeles, California
January 20, 2000
F-1
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Consolidated Balance Sheet
October 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 45,332
Accounts receivable, less allowance of $90,000 1,638,277
Inventories 820,614
Prepaid expenses 151,886
----------------
Total current assets 2,656,109
Property and equipment:
Rental equipment 20,306,387
Transportation equipment 907,391
Office furniture and equipment 423,569
Leasehold improvements 94,323
----------------
21,731,670
Less accumulated depreciation and amortization 9,772,733
----------------
Net property and equipment 11,958,937
Other assets:
Intangible assets, net of accumulated amortization of $298,737 586,949
Deposits and other assets 338,214
----------------
Total other assets 925,163
----------------
Total assets $15,540,209
================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
October 31, 1999
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 892,591
Accrued expenses 652,085
Note payable to a bank 1,042,634
Current portion of long-term debt 737,785
Current portion of obligations under capital leases 2,225,543
----------------
Total current liabilities 5,550,638
Long-term debt, net of current portion 2,449,617
Obligations under capital leases, net of current portion 3,062,175
Deferred income taxes 1,220,016
Commitments
Shareholders' equity:
Common stock, $.001 par value:
Authorized shares - 100,000,000
Issued and outstanding shares - 7,406,927 7,407
Additional paid-in capital 1,693,805
Retained earnings 1,556,551
----------------
Total shareholders' equity 3,257,763
----------------
Total liabilities and shareholders' equity $15,540,209
================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1999 1998
------------------------------------
<S> <C> <C>
Net revenue $11,728,537 $11,578,705
Cost of revenue 4,276,953 4,762,046
Depreciation expense 1,696,356 1,451,193
------------------------------------
Gross profit 5,755,228 5,365,466
Selling expenses 2,203,848 2,040,271
General and administrative expenses 2,263,076 2,032,788
------------------------------------
Operating income 1,288,304 1,292,407
Interest expense 1,217,757 1,012,097
------------------------------------
Income before income taxes 70,547 280,310
Provision for income taxes 27,711 110,485
------------------------------------
Net income $ 42,836 $ 169,825
====================================
Net income per common share (basic and diluted) $ .01 $ .02
====================================
Weighted average common shares (basic and diluted) 7,396,283 7,384,502
====================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
SHARES AMOUNT PAID-IN CAPITAL EARNINGS TOTAL
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1997 7,345,927 $7,346 $1,639,366 $1,343,890 $2,990,602
Issuance of stock for acquisitions 40,000 40 43,960 - 44,000
Net income for year - - - 169,825 169,825
------------------------------------------------------------------------------------
Balance at October 31, 1998 7,385,927 7,386 1,683,326 1,513,715 3,204,427
Issuance of stock as compensation 21,000 21 10,479 - 10,500
Net income for year - - - 42,836 42,836
------------------------------------------------------------------------------------
Balance at October 31, 1999 7,406,927 $7,407 $1,693,805 $1,556,551 $3,257,763
====================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1999 1998
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 42,836 $ 169,825
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of property and equipment $(1,736,088 1,556,842
Amortization of intangibles 141,459 115,267
Provision for doubtful accounts 76,215 41,921
Deferred income taxes 25,111 246,409
(Gain) loss on sales of assets (2,390) 58,854
Changes in operating assets and liabilities:
Accounts receivable 201,667 (90,028)
Inventories (44,879) (132,808)
Prepaid expenses 34,374 (91,882)
Income tax receivable 20,843 34,270
Accounts payable (480,068) 432,820
Accrued expenses (141,726) 215,442
---------------------------------
Net cash provided by operating activities 1,609,530 2,556,932
INVESTING ACTIVITIES
Purchases of property and equipment (1,372,434) (583,179)
Net proceeds from sales of assets 26,900 46,251
Payments for non-compete agreements (38,000) (50,000)
Increase in deposits and other assets (54,407) (131,769)
---------------------------------
Net cash used in investing activities (1,437,941) (718,697)
FINANCING ACTIVITIES
Borrowings on bank line of credit 1,042,634 -
Borrowings on notes payable 60,000 169,887
Borrowings on long-term debt 2,899,604 105,148
Principal payments on notes payable (60,000) (215,844)
Principal payments on long-term debt (1,997,603) (490,447)
Principal payments on capital lease obligations (2,212,120) (1,330,107)
---------------------------------
Net cash used in financing activities (267,485) (1,761,363)
Net increase(decrease) in cash and cash equivalents (95,896) 76,872
Cash and cash equivalents at beginning of period 141,228 64,356
---------------------------------
Cash and cash equivalents at end of period $ 45,332 $ 141,228
=================================
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest $ 1,271,140 $ 878,140
=================================
Taxes $ 2,730 $ 2,730
=================================
Capital lease obligations entered into for equipment $ 158,850 $ 2,389,699
=================================
Common stock issued for acquired companies $ - $ 44,000
=================================
Common stock issued as compensation $ 10,500 $ -
=================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Medical Resources Management, Inc. (MRM or the Company) makes mobile
laser/surgical services available on a per procedure basis to hospitals,
outpatient surgery centers and physicians' offices, and also provides other
medical equipment on a rental basis to hospitals and surgery centers. Customers
of the Company are located throughout much of the western United States. The
financial statements include MRM, the holding company, consolidated with all of
its wholly owned subsidiaries - Physiologic Reps, Inc., Pulse Medical Products,
Inc. (Pulse), Laser Medical, Inc., Med Surg Specialties, Inc. (all acquired in
fiscal year 1997) and Texas Oxygen and Medical Equipment Company (acquired in
fiscal year 1998). All significant intercompany accounts and transactions have
been eliminated.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with maturities of three months or less when purchased to be
cash equivalents.
INVENTORIES
Inventories, consisting primarily of supplies, are stated at the lower of cost
(first-in, first-out) or market basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, which vary
from five to ten years. Capitalized leases and leasehold improvements are being
amortized using the straight-line method over the shorter of the lease term or
estimated useful lives. Amortization of capital leases is included in
depreciation expense.
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
INTANGIBLE ASSETS
Intangible assets consisting of the excess of purchase price over assets
acquired and customer lists are being amortized over a period of 12 to 15 years.
Payments for non-compete agreements are capitalized and then amortized over the
period of the non-compete agreement. The carrying value of intangible assets is
reviewed if the facts and circumstances suggest that they may be impaired. If
this review indicates that the intangible assets will not be recoverable, as
determined based on estimated undiscounted cash flows of the Company over the
remaining amortization period, the carrying value would be reduced by the
estimated shortfall of discounted cash flows.
F-7
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company utilizes the liability method to determine the provision for income
taxes. Deferred tax assets and liabilities are determined based on differences
between the tax basis of assets and liabilities and the related financial
reporting amounts using currently enacted laws and rates.
REVENUE RECOGNITION
The Company recognizes revenue at the time that the rental service is rendered
to the customer, including the providing of technical support.
STOCK-BASED COMPENSATION
The Company accounts for its stock compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees." Under APB 25, because the exercise price of the
Company's employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The Company has adopted the disclosure-only provisions of Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123).
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with banks.
Concentrations of credit risk with respect to trade receivables are limited due
to the Company's large number of customers primarily with small balances.
Management reviews these balances on a monthly basis and maintains reserves for
potential credit losses, which losses have historically been within management's
expectations. The Company generally sells on credit terms of 30 days and
requires no collateral.
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 amounts reported in the financial statements and accompanying notes.
Actual results could vary from those estimates.
F-8
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Earnings per share has been computed in accordance with Statement of Financial
Accounting Standards No. 128, "Accounting for Earnings per Share." Basic
earnings per share has been computed based on the weighted average number of
shares of common stock outstanding. Stock options and warrants for the diluted
earnings per share presentation have not been considered because the effect was
either not material or antidilutive.
LONG-LIVED ASSETS
Long-lived assets used in operations are reviewed periodically to determine
whether the carrying values are impaired. If indicators of impairment are
present, or if long-lived assets are expected to be disposed of at a loss,
impairment losses are recorded.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash, accounts receivable,
accounts payable, accrued expenses and short-term debt approximate their fair
value based on the short-term maturities of these instruments. The carrying
amount of the Company's outstanding balances under its long-term debt
instruments approximates fair value because the interest rates on outstanding
borrowings vary according to current market rates or are set to approximate
market rates.
FINANCIAL STATEMENT PRESENTATION
Certain balances from the October 31, 1998 financial statements have been
reclassified to conform to the October 31, 1999 presentation.
NEW ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). This statement requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives will be recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated a
part of a hedge transaction and, if it is, the type of hedge transaction. SFAS
133 will be effective in fiscal 2000. The Company is in the process of
determining the impact of this new standard and anticipates that it will not
have a material impact on the Company's financial results when effective.
F-9
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS
The Company acquired an approximate 22% equity interest in each of six
separate limited liability companies (LLCs). The LLCs were formed by the
Company and certain physicians for an investment by the Company of between
$5,000 and $15,000. The Company manages the LLCs and provides operating and
administrative services to the LLCs. The Company accounts for its interests
in the LLCs using the equity method of accounting. During the fiscal years
ended October 31, 1999 and 1998, the Company recognized fee revenues of
$887,851 and $257,012, respectively, relating to the operations, management
and other services provided to the LLCs. In addition, $36,001 and $13,770 was
recorded for the Company's equity interests in the profit of these LLCs
during fiscal years 1999 and 1998, respectively. Additionally, the Company is
a guarantor of certain debt of three of the LLCs in the aggregate amount of
$238,145.
3. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain equipment under capital lease obligations which
contain purchase options. Cost and accumulated depreciation of equipment under
capital leases included in equipment as of October 31, 1999 are as follows:
<TABLE>
<S> <C>
Rental equipment $8,878,181
Less accumulated depreciation 2,054,617
-----------
Net book value $6,823,564
===========
</TABLE>
The following is a schedule by year of future minimum lease payments required
under the leases, together with their present value as of October 31, 1999:
<TABLE>
<S> <C>
2000 $2,861,081
2001 2,024,373
2002 1,081,254
2003 381,721
2004 -
-----------
Total minimum lease payments 6,348,429
Less amount representing interest 1,060,711
-----------
Present value of minimum lease payments due under capital leases 5,287,718
Less current portion 2,225,543
-----------
Obligations under capital leases, net of current portion $3,062,175
===========
</TABLE>
F-10
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. DEBT
In March 1999, a subsidiary of the Company entered into a $2,000,000 revolving
credit facility ("Revolver") and a $2,000,000 term loan with a bank. The
Revolver provides for borrowings using a formula based upon eligible accounts
receivable, as defined. The Revolver bears interest at the prime rate plus 1.00%
(9.50% at October 31, 1999) and matures May 2000, subject to renewal provisions.
As of October 31, 1999, there was $1,042,634 outstanding under the Revolver, and
there was no unused borrowing capacity available.
<TABLE>
<S> <C>
Long-term debt consists of the following at October 31, 1999:
Note payable to a bank (term loan), payable in 60 monthly installments of
$33,333 plus interest at the prime rate plus 1.25% (9.75% at October 31,
1999), secured by accounts receivable, inventories, equipment and the
personal guarantee of one shareholder. $1,800,000
Notes payable to a finance company for a line of credit of
$300,206 maturing April 2001, bearing interest at a rate of
12% per annum, interest payable monthly, secured by the
accounts receivable and inventories of Pulse. 300,206
Various installment notes payable to a finance company
in monthly installments totaling $21,934 including interest
varying between 8.9% and 9.6% per annum, collateralized
by rental equipment, maturing through July 2003. 800,461
Various notes payable in monthly installments totaling $8,495
including interest varying between 7.1% and 12.5% per annum,
collateralized by trucks, vans and automobiles, maturing
through January 2004. 173,899
Other 112,836
----------
Total long-term debt 3,187,402
Less current portion 737,785
----------
Long-term debt, net of current portion $2,449,617
==========
Long-term debt matures as follows during the years ending October 31:
2000 $ 737,785
2001 1,007,486
2002 669,253
2003 566,476
2004 206,402
----------
$3,187,402
==========
</TABLE>
The Revolver and term loan prohibit the payment of cash dividends and require
the Company to maintain certain levels of net worth and to generate certain
ratios of cash flows to debt service. As of October 31, 1999, the Company was
not in compliance with certain financial covenants of its revolving credit
facility and term loan. The lender waived the covenant violations.
F-11
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. PROVISION FOR INCOME TAXES
The provisions for income taxes for the years ended October 31, 1999 and 1998
consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1999
CURRENT DEFERRED TOTAL
------------------------------------------------
<S> <C> <C> <C>
Federal $ - $22,067 $22,067
State 2,730 2,914 5,644
------------------------------------------------
$2,730 $24,981 $27,711
================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1998
CURRENT DEFERRED TOTAL
------------------------------------------------
<S> <C> <C> <C>
Federal $ - $ 88,060 $ 88,060
State 2,680 19,745 22,425
------------------------------------------------
$2,680 $107,805 $110,485
================================================
</TABLE>
Significant components of the Company's deferred tax assets and liabilities at
October 31, 1999 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,168,419
Allowance for doubtful accounts 35,352
Other 133,143
--------------
Total deferred assets 1,336,914
Deferred tax liabilities:
Depreciation (2,532,348)
Other (24,582)
--------------
Total deferred liabilities (2,556,930)
--------------
Net deferred liabilities $(1,220,016)
==============
</TABLE>
A reconciliation of the provision for income taxes with the amounts obtained by
applying the federal statutory tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1999 1998
------------------------------
<S> <C> <C>
Income tax based on federal statutory rate $23,986 $ 95,305
State tax, net of federal tax benefit 3,725 14,800
Non-deductible expenses and other - 380
------------------------------
$27,711 $110,485
==============================
</TABLE>
F-12
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. EQUITY
Between November 1, 1996 and March 31, 1997, the Company sold 291,600 Units
in a private offering. These Units consisted of 291,600 shares of common
stock, as well as 291,600 Class A warrants and 291,600 Class B warrants to
purchase, in the aggregate, 583,200 shares of common stock. The Units were
sold at $1.25 per Unit, resulting in net proceeds of $324,480 after expenses.
The Class A and Class B warrants have an exercise price of $2.50 and $4.00,
respectively. In September 1999, the Company extended the expiration date of
all Class A and Class B warrants for a period of two years from November 1,
1999 to November 1, 2001. As of October 31, 1999 no such warrants had been
exercised.
During March 1997, the Company issued an additional 202,840 Units to certain
shareholders (including the principal officer of the Company) in exchange for
$253,550 of indebtedness owed to these shareholders. These Units consisted of
202,840 shares of common stock, as well as 202,840 Class A warrants and 202,840
Class B warrants to purchase, in the aggregate, 405,680 shares of common stock.
The Units were issued at a rate of one Unit for each $1.25 of shareholder debt
forgiven. The Class A and Class B warrants have an exercise price of $2.50 and
$4.00, respectively, and expire on November 1, 2001. As of October 31, 1999, no
such warrants had been exercised.
In April 1997, in connection with a loan from a finance company, warrants were
granted to the finance company to purchase 100,000 shares of common stock at a
price of $2.00 per share, exercisable at any time during the six years following
the date of the loan.
7. BENEFIT PLAN
The Company has adopted a defined contribution retirement plan (Plan) which
qualifies under Section 401(k) of the Internal Revenue Code. The Plan covers
substantially all employees with over one year of service. The Company makes an
annual election to provide matching contributions of up to 50% of each
participant's deferral up to a maximum of 3% of compensation. The amounts of
matching contributions included in expense were $85,747 and $83,758 for the
years ended October 31, 1999 and 1998, respectively.
F-13
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. STOCK OPTIONS
In September 1996, the Company adopted the 1996 Stock Incentive Plan (Plan) to
allow officers, employees and certain non-employees to receive certain options
to purchase common stock and to receive grants of common stock subject to
certain restrictions. Under the Plan, regular salaried employees, including
directors, who are full time employees, may be granted options exercisable at
not less than 100 percent of the fair market value of the shares at the date of
grant. The exercise price of any option granted to an optionee who owns stock
possessing more than ten percent of the voting power of all classes of common
stock of the Company must be 110 percent of the fair market value of the common
stock on the date of grant, and the duration may not exceed five years. Options
generally become exercisable at a rate of one-third of the shares subject to
option on each of the first, second and third anniversary dates of the grant.
The duration of options may not exceed ten years. A maximum number of 1,500,000
shares of common stock may be issued under the Plan.
In October 1998, the Board of Directors adopted a resolution under which
employees with existing options had the choice to surrender all or part of such
options and receive new options issued by the Company. In general, the Company
agreed to issue two new options for each three options surrendered by an
employee, and employees who chose to surrender existing options lost any vesting
they previously had with respect to the options surrendered. In connection with
this plan, employees surrendered a total of 1,084,000 options (generally at an
exercise price of $1.50 per share) and received a total of 724,050 newly issued
options at an exercise price of $0.25 per share, which was the fair market price
on the day of the grant of the newly issued options.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1999 1998
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 877,854 $0.37 1,246,304 $1.44
Granted 379,500 $0.25 807,550 $0.34
Exercised - - - -
Forfeited or cancelled (119,350) $0.31 (1,176,000) $1.38
--------------- ------------ --------------- ------------
Outstanding at end of year 1,138,004 $0.34 877,854 $0.37
=============== ============ =============== ============
Options exercisable at year-end 670,504 $0.40 337,438 $0.45
=============== ============ =============== ============
</TABLE>
The weighted average fair value of options granted during the years ended
October 31, 1999 and 1998 was $0.25 and $0.34 at October 31, 1999 and 1998,
respectively. The weighted average remaining contractual life of stock
options was 6.00 years as of October 31, 1999. The range of prices of
outstanding options under the Plan at October 31, 1999 was $0.25 to $1.50.
F-14
<PAGE>
Medical Resources Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. STOCK OPTIONS (CONTINUED)
Had compensation cost for the Company's option plans been determined based on
the fair value at the grant dates for awards under those plans consistent
with SFAS 123, the Company's net income and net income per share on a pro
forma basis would have been as indicated below:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1999 1998
--------------- --------------
<S> <C> <C>
Net income as reported $ 42,836 $169,825
=============== ==============
Proforma net income (loss) $xxx,xxx $105,739
=============== ==============
Net income per common share as reported $ .01 $ .02
=============== ==============
Proforma net income (loss) per common share $ .xx $ .01
=============== ==============
</TABLE>
The Company utilized the Black-Scholes method to estimate the fair value of
options, which includes the weighted average calculation of the fair value using
the following assumptions: (i) a risk-free interest rate of 6%; (ii) an
expected life of 8 years; (iii) expected volatility of 1.40; and (iv) no
expected dividends.
9. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company leases premises under non-cancelable operating leases expiring in
various years through 2001. The lease on the corporate headquarters contains
provisions for cost of living increases and certain options to renew for a
period of five additional years. Other facilities are on a month to month basis.
Future minimum lease payments are as follows during the years ending October 31:
<TABLE>
<S> <C>
2000 $208,799
2001 112,605
2002 -
2003 -
2004 -
---------------
$321,404
===============
</TABLE>
Rent expense was $306,483 and $296,435 for the years ended October 31, 1999 and
1998, respectively.
The Company paid consulting fees to a member of the Board of Directors in the
amount of $44,000 during the fiscal year ended October 31, 1998. This consulting
arrangement was terminated effective October 1, 1998.
10. EMPLOYEE STOCK OWNERSHIP PLAN
On August 7, 1992, the Company formed an employee stock ownership plan (ESOP)
for the benefit of all employees meeting certain minimum age and length of
service requirements. Contributions are discretionary and are determined
annually by the Board of Directors. No contribution was made for either of the
years ended October 31, 1999 or 1998. This ESOP was dissolved as of October 31,
1999.
F-15
<PAGE>
EXHIBIT 10.8
AMENDMENT TO WARRANT AGREEMENT
CLASS A REDEEMABLE WARRANT
MEDICAL RESOURCES MANAGEMENT, INC.
WHEREAS, a Warrant Agreement (the "Agreement") dated as of November 1,
1996 was entered into between Medical Resources Management, Inc., a Nevada
corporation (the "Company"), and certain parties as listed in Schedule A to
the Agreement, hereinafter collectively called "Holders";
WHEREAS, in connection with a private placement of 515,540 units (the
"Units") during the period from November 1, 1996 through April 29, 1997, the
Company issued Units to each of the Holders, each Unit consisting of (i) one
share of the Company's common stock, $.001 par value (the "Common Stock"), (ii)
one Class A common stock purchase warrant (the "Class A Warrant") and (iii) one
Class B common stock purchase warrant (the "Class B Warrant");
WHEREAS, in accordance with the terms and provisions of the Agreement, the
right to exercise each Class A Warrant is scheduled to expire on November 1,
1999;
WHEREAS, the Company desires to extend the expiration date of the Class A
Warrants for a period of an additional two (2) years, until November 1, 2001;
WHEREAS, on May 11, 1999 the Company's Board of Directors voted to
extend the expiration date of the Class A Warrants until November 1, 2001;
NOW, THEREFORE, Section 2.(A) of the Agreement is hereby amended to read
in its entirety as follows:
EACH WARRANT SHALL ENTITLE THE HOLDER OF THE CERTIFICATE
REPRESENTING SUCH WARRANT TO PURCHASE UPON THE EXERCISE THEREOF ONE
SHARE OF COMMON STOCK, SUBJECT TO THE ADJUSTMENTS PROVIDED IN SECTION
5 HEREOF, AT ANY TIME UNTIL 5:00 P.M., PACIFIC TIME, ON NOVEMBER 1,
2001, UNLESS EARLIER REDEEMED PURSUANT TO SECTION 6 HEREOF.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this amendment to the
Agreement to be duly executed, effective as of September 26, 1999.
(CORPORATE SEAL)
MEDICAL RESOURCES MANAGEMENT, INC.
By:
--------------------------------
Allen Bonnifield, President
ATTEST:
- -------------------------------
Michael Fewer, Secretary
<PAGE>
EXHIBIT 10.9
AMENDMENT TO WARRANT AGREEMENT
CLASS B REDEEMABLE WARRANT
MEDICAL RESOURCES MANAGEMENT, INC.
WHEREAS, a Warrant Agreement (the "Agreement") dated as of November 1,
1996 was entered into between Medical Resources Management, Inc., a Nevada
corporation (the "Company"), and certain parties as listed in Schedule A to
the Agreement, hereinafter collectively called "Holders";
WHEREAS, in connection with a private placement of 515,540 units (the
"Units") during the period from November 1, 1996 through April 29, 1997, the
Company issued Units to each of the Holders, each Unit consisting of (i) one
share of the Company's common stock, $.001 par value (the "Common Stock"), (ii)
one Class A common stock purchase warrant (the "Class A Warrant") and (iii) one
Class B common stock purchase warrant (the "Class B Warrant");
WHEREAS, in accordance with the terms and provisions of the Agreement, the
right to exercise each Class B Warrant is scheduled to expire on November 1,
1999;
WHEREAS, the Company desires to extend the expiration date of the Class B
Warrants for a period of an additional two (2) years, until November 1, 2001;
WHEREAS, on May 11, 1999 the Company's Board of Directors voted to
extend the expiration date of the Class B Warrants until November 1, 2001;
NOW, THEREFORE, Section 2.(A) of the Agreement is hereby amended to read
in its entirety as follows:
EACH WARRANT SHALL ENTITLE THE HOLDER OF THE CERTIFICATE
REPRESENTING SUCH WARRANT TO PURCHASE UPON THE EXERCISE THEREOF ONE
SHARE OF COMMON STOCK, SUBJECT TO THE ADJUSTMENTS PROVIDED IN SECTION 5
HEREOF, AT ANY TIME UNTIL 5:00 P.M., PACIFIC TIME, ON NOVEMBER 1, 2001,
UNLESS EARLIER REDEEMED PURSUANT TO SECTION 6 HEREOF.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this amendment to the
Agreement to be duly executed, effective as of September 26, 1999.
(CORPORATE SEAL)
MEDICAL RESOURCES MANAGEMENT, INC.
By:
--------------------------------
Allen Bonnifield, President
ATTEST:
- -------------------------------
Michael Fewer, Secretary
<PAGE>
[LOGO]
LOAN AGREEMENT
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 03-30-1999 05-02-2000 200311600 KB /s/[ILLEGIBLE]
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: PHYSIOLOGIC REPS, LENDER: SANTA MONICA BANK
A CALIFORNIA CORPORATION LOAN SERVICING CENTER
(TIN: 95-2846224) 1231 4TH STREET
932 GRAND CENTRAL AVENUE SANTA MONICA, CA 90401
GLENDALE, CA 91201
===============================================================================
THIS LOAN AGREEMENT BETWEEN PHYSIOLOGIC REPS, A CALIFORNIA CORPORATION
("BORROWER") AND SANTA MONICA BANK ("LENDER") IS MADE AND EXECUTED ON THE
FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS
FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER
FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY
EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS
FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS
THE "LOAN" AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES
THAT: (a) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING
UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN
THIS AGREEMENT; (b) THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY
LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE JUDGEMENT AND
DISCRETION; AND (c) ALL SUCH LOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE
FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of MARCH 30,1999, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this
Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Loan
Agreement from time to time.
ACCOUNT. The word "Account" means a trade account, account
receivable, or other right to payment for goods sold or services
rendered owing to Borrower (or to a third party grantor acceptable
to Lender).
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
BORROWER. The word "Borrower" means PHYSIOLOGIC REPS, A CALIFORNIA
CORPORATION. The word "Borrower" also includes, as applicable, all
subsidiaries and affiliates of Borrower as provided below in the
paragraph titled "Subsidiaries and Affiliates."
BORROWING BASE. The words "Borrowing Base" mean, as determined by
Lender from time to time, the lesser of (a) $2,000,000.00; or (b)
80.000% of the aggregate amount of Eligible Accounts.
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without
limitation all property and assets granted as collateral security
for a Loan, whether real or personal property, whether granted
directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, deed
of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt,
lien, charge, lien or title retention contract, lease or consignment
intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
The word "Collateral" includes without limitation all collateral
described below in the section titled "COLLATERAL."
ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time,
all of Borrower's Accounts which contain selling terms and
conditions acceptable to Lender. The net amount of any Eligible
Account against which Borrower may borrow shall exclude all returns,
discounts, credits, and offsets of any nature. Unless otherwise
agreed to by Lender in writing, Eligible Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an
officer, an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or
its shareholders, officers, or directors.
(c) Accounts with respect to which goods are placed on
consignment, guaranteed sale, or other terms by reason of which
the payment by the Account Debtor may be conditional.
(d) Accounts with respect to which Borrower is or may
become liable to the Account Debtor for goods sold or services
rendered by the Account Debtor to Borrower.
(e) Accounts which are subject to dispute, counterclaim, or
setoff.
(f) Accounts with respect to which the goods have not been
shipped or delivered, or the services have not been rendered,
to the Account Debtor.
(g) Accounts with respect to which Lender, in its reasonable
discretion, deems the creditworthiness or financial condition
of the Account Debtor to be unsatisfactory.
(h) Accounts of any Account Debtor who has filed against it a
petition in bankruptcy or an application for relief under any
provision of any state or federal bankruptcy, insolvency, or
debtor-in-relief acts; or who has appointed a trustee,
custodian, or receiver for the assets of such Account Debtor;
or who has made an assignment for the benefit of creditors or
has become insolvent or fails generally to pay its debts
(including its payrolls) as such debts become due.
<PAGE>
03-30-1999 LOAN AGREEMENT
LOAN NO 200311600 (CONTINUED) PAGE 2
===============================================================================
(j) Accounts which have not been paid in full within 120 DAYS from
the invoice date. The entire balance of any Account of any
single Account debtor will be ineligible whenever the portion
of the Account which has not been paid within 120 DAYS from the
invoice date is in excess of 30.000% of the total amount
outstanding on the Account.
(k) That portion of the Accounts of any single Account Debtor which
exceeds 20.000% of all of Borrower's Accounts.
ERISA. The word "ERISA" means the Employee Retirement Income security
Act of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT".
EXPIRATION DATE. The words "Expiration Date" mean the date of termination
of Lender's commitment to lend under this Agreement.
GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the indebtedness, including without limitation all
Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes The indebtedness
evidenced by the Note, including all principal and interest, together
with all other indebtedness and costs and expenses for which grantor is
responsible under this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means SANTA MONICA BANK, its successors and
assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
LOAN. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations
in favor of Lender, as well as any substitute, replacement or refinancing
note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing indebtedness owed by Borrower to Lender, (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet
delinquent; (d) purchase money liens or purchase money security interests
upon or in any property acquired or held by Borrower in the ordinary
course of business to secure indebtedness outstanding on the date of this
Agreement or permitted to be incurred under the paragraph of this
Agreement titled "Indebtedness and Liens"; (e) liens and security
interests which, as of the date of this Agreement, have been disclosed to
and approved by the Lender in writing; and (f) those liens and security
interests which in the aggregate constitute an immaterial and
insignificant monetary amount, with respect to the net value of
Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a
lien, charge, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the
aggregate amount of such Advances outstanding at any time does not exceed the
Borrowing Base. Within the foregoing limits, Borrower may borrow, partially
or wholly prepay, and reborrow under this Agreement as follows.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender.
(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and delivered
by Borrower to Lender.
(b) Lender shall have received such opinions of counsel,
supplemental opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and
shall be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall
have been executed by each Guarantor, delivered to Lender, and be in
full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, books, records, and
operations, and Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then
due and payable, including without limitation the following loan
fees: 15,000.00.
(g) There shall not exist at the time of any Advance a condition
which would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
MAKING LOAN ADVANCES. Advances under the Line of Credit may be requested
either orally or in writing subject to the limitations set forth below.
Lender may, but need not, require that all oral requests be confirmed in
writing. Each Advance shall be conclusively deemed to have been made at
the request of and for the benefit of Borrower (a) when credited to any
deposit account of Borrower maintained with Lender or (b) when advanced
in accordance with the instructions of an authorized person. Lender, at
its option, may set a cutoff time, after which all requests for Advances
will be treated as having been requested on the next succeeding Business
Day.
<PAGE>
03-03-1999 LOAN AGREEMENT PAGE 3
LOAN NO 200311600 (CONTINUED)
===============================================================================
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount
of the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay
to Lender an amount equal to the difference between the outstanding
principal balance of the Advances and the Borrowing Base. On the
Expiration Date, Borrower shall pay to Lender in full the aggregate
unpaid principal amount of all Advances then outstanding and all accrued
unpaid interest, together with all other applicable fees, costs and
charges, if any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits
and credits as shall be appropriate in connection with the credit
facility. Lender shall provide Borrower with periodic statements of
Borrower's account, which statements shall be considered to be correct
and conclusively binding on Borrower unless Borrower notifies Lender to
the contrary within thirty (30) days after Borrower's receipt of any
such statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such
property and assets as Lender may require (the "Collateral"), including
without limitation Borrower's present and future Accounts and general
intangibles. Lender's Security Interests in the Collateral shall be
continuing liens and shall include the proceeds and products of the
Collateral, including without limitation the proceeds of any insurance. With
respect to the Collateral, Borrower agrees and represents and warrants to
Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such
financing statements and to take whatever other actions are requested by
Lender to perfect and continue Lender's Security Interests in the
Collateral. Upon request of Lender, Borrower will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Borrower will note Lender's Interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Contemporaneous with
the execution of this Agreement, Borrower will execute one or more UCC
financing statements and any similar statements as may be required by
applicable law, and will file such financing statements and all such
similar statements in the appropriate location or locations. Borrower
hereby appoints Lender as its irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect or to continue
any Security Interest. Lender may at any time, and without further
authorization from Borrower, file a carbon, photograph, facsimile, or
other reproduction of any financing statement for use as a financing
statement. Borrower will reimburse Lender for all expenses for the
perfection, termination, and the continuation of the perfection of
Lender's security interest in the Collateral. Borrower promptly will
notify Lender of any change in Borrower's name including any change to
the assumed business names of Borrower. Borrower also promptly will
notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender
in writing prior to any change in address or location of Borrower's
principal governance office or should Borrower merge or consolidate with
any other entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which
records shall be available to Lender or Lender's representative upon
demand for inspection and copying at any reasonable time. With respect
to the Accounts, Borrower agrees to keep and maintain such records as
Lender may require, including without limitation information concerning
Eligible Accounts and Account balances and agings. The following is an
accurate and complete list of all locations at which Borrower keeps or
maintains business records concerning Borrower's Accounts: 932 GRAND
CENTRAL AVENUE, GLENDALE, CA 91201.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of
this Agreement, Borrower shall execute and deliver to Lender a schedule
of Accounts and Eligible Accounts, in form and substance satisfactory to
the Lender. Thereafter and at such frequency as Lender shall require,
Borrower shall execute and deliver to Lender such supplemental schedules
of Eligible Accounts and such other matters and information relating to
Borrower's Accounts as Lender may request.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect, examine, and audit Borrower's records and
to confirm with Account Debtors the accuracy of such Accounts.
ADDITIONAL CREDIT FACILITIES. In addition to the Line of Credit facility, the
following credit accommodations are either in place or will be made available
to Borrower.
TERM LOAN. Subject to the terms and conditions of this Agreement and the
exhibit, a term loan is either in place or will be made available to
Borrower as set forth in an exhibit, which is attached hereto and made a
part hereof.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all times any indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is
presently engaged or presently proposes to engage. Borrower also is
duly qualified as a foreign corporation and is in good standing in all
states in which the failure to so qualify would have a material adverse
effect on its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized
by all necessary action by Borrower, do not require the consent or
approval of any other person, regulatory authority or governmental body;
and do not conflict with, result in a violation of, or constitute a
default under (a) any provision of its articles of incorporation or
organization, or bylaws, or any agreement or other instrument binding
upon Borrower or (b) any law, governmental regulation, court decree,
or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered will
constitute, legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
PROPERTIES. Except for Permitted Liens, Borrower owns and has good title
to all of Borrower's properties free and clear of all Security
Interests, and except as previously disclosed to Lender has not executed
any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under,
any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in
this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of
the California Health and Safety Code, Section 25100, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant
to any of the foregoing. Except as disclosed to and acknowledged by
Lender in writing. Borrower represents and warrants that: (a) During the
period of Borrower's ownership of the properties, there has been no use,
operation, manufacture, storage, treatment, disposal, release or threatened
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03-30-1999 LOAN AGREEMENT
LOAN NO 200311600 (CONTINUED) PAGE 4
===============================================================================
release of any hazardous waste or substance by any person on, under,
about or from any of the properties. (b) Borrower has no knowledge of, or
reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened release
of any hazardous waste or substance on, under, about or from the
properties by any prior owners or occupants of any of the properties, or
(ii) any actual or threatened litigation or claims of any
kind by any person relating to such matters. (c) Neither Borrower nor any
tenant, contractor, agent or other authorized user of any of the properties
shall use, generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and
ordinances, including without limitation those laws, regulations and
ordinances described above. Borrower authorizes Lender and its agents to
enter upon the properties to make such inspections and tests as Lender
may deem appropriate to determine compliance of the properties with this
section of the Agreement. Any inspections or tests made by Lender shall be
at Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of
Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous
substances. Borrower hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Borrower
becomes liable for cleanup or other costs under any such laws, and (b)
agrees to indemnify and hold harmless Lender against any and all claims,
losses, liabilities, damages, penalties, and expenses which Lender may
directly or indirectly sustain or suffer resulting from a breach of this
section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release of a
hazardous waste or substance on the properties. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination or expiration
of this Agreement and shall not be affected by Lender's
acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event has
occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other events,
if any, that have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and and Note, that would be prior
or that may in any way be superior to Lender's Security Interests and
rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note and
all of the Related Documents are binding upon Borrower as well as upon
Borrower's successors, representatives and assigns, and are legally
enforceable in accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, (iii) no steps have been taken to
terminate any such plan, and (iv) there are no unfunded liabilities other
than those previously disclosed to Lender in writing.
INVESTMENT COMPANY ACT. Borrower is not an "investment company" or a
company "controlled" by an "investment company", within the meaning of
the Investment Company Act of 1940, as amended.
PUBLIC UTILITY HOLDING COMPANY ACT. Borrower is not a "holding company",
or a "subsidiary company" of a "holding company", or an "affiliate" of a
"holding company" or a "subsidiary company" of a "holding company",
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
REGULATIONS G, T AND U. Borrower is not engaged principally, or as one of
its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation G, T and U of the Board of Governors of the Federal Reserve
System).
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 932 GRAND CENTRAL AVENUE, GLENDALE CA 91201.
Unless Borrower has designated otherwise in writing this location is also
the office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
CLAIMS AND DEFENSES, There are no defenses or counterclaims, offsets or
other adverse claims, demands or actions of any kind, personal or
otherwise, that Borrower, Grantor, or any Guarantor could assert with
respect to the Note, Loan, Indebtedness, this Agreement, or the Related
Documents.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force
and effect until such time as Borrower's indebtedness shall be paid in
full, or until this Agreement shall be terminated in the manner provided
above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at
all reasonable times.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies
or certificates of insurance in form satisfactory to Lender, including
<PAGE>
03-30-1999 LOAN AGREEMENT PAGE 5
LOAN NO 200311600 (CONTINUED)
===============================================================================
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance
policy also shall include an endorsement providing that coverage in favor
of Lender will not be impaired in any way by any act, omission or default
of Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition,
upon request of Lender (however not more often than annually), Borrower
will have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantors
named below, on Lender's forms, and in the amounts and under the
conditions spelled out in those guaranties.
<TABLE>
<CAPTION>
GUARANTORS AMOUNTS
---------- -------
<S> <C>
ALLEN BONNIFIELD UNLIMITED
MEDICAL RESOURCES MANAGEMENT, INC. UNLIMITED
PULSE MEDICAL PRODUCTS, INC. UNLIMITED
LASER MEDICAL, INC. UNLIMITED
TEXAS OXYGEN MEDICAL EQUIPMENT COMPANY UNLIMITED
MED SURG SPECIALTIES, INC. UNLIMITED
</TABLE>
OTHER AGREEMENTS. Comply with all material terms and conditions of all
other material agreements, whether now or hereafter existing, between
Borrower and any other party and notify Lender immediately in writing of
any default in connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES, AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every kind
and nature, imposed upon Borrower or its properties, income, or profits,
prior to the date on which penalties would attach, and all lawful claims
that, if unpaid, might become a lien or charge upon any of Borrower's
properties, income, or profits. Provided however, Borrower will not be
required to pay and discharge any such assessment, tax, charge, levy,
lien, or claim so long as (a) the legality of the same shall be contested
in good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with
generally accepted accounting practices. Borrower, upon demand of Lender,
will furnish to Lender evidence of payment of the assessments, taxes,
charges, levies, liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written
statement of any assessments, taxes, charges, levies, liens, and claims
against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in a
timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under this
Agreement or under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender of
any change in executive and management personnel; conduct its business
affairs in a reasonable and prudent manner and in compliance with all
applicable federal, state and municipal laws, ordinances, rules, and
regulations respecting its properties, charters, business and operations,
including without limitation, compliance with the Americans With
Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time
to inspect any and all Collateral for the Loan or Loans and Borrower's
other properties and to examine or audit Borrower's books, accounts, and
records and to make copies and memoranda of Borrower's books, accounts,
and records. If Borrower now or at any time hereafter maintains any
records (including without limitation computer generated records and
computer software programs for the generation of such records) in the
possession of a third party, Borrower, upon request of Lender, shall
notify such party to permit Lender free access to such records at all
reasonable times and to provide Lender with copies of any records it may
request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying that
the representations and warranties set forth in this Agreement are true
and correct as of the date of the certificate and further certifying
that, as of the date of the certificate, no Event of Default exists under
this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentally concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure the
Loans and to perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including
any request or policy not having the force of law) shall impose, modify or
make applicable any taxes (except U.S. federal, state or local income or
franchise taxes imposed on Lender), reserve requirements, capital adequacy
requirements or other obligations which would (a) increase the cost to Lender
for extending or maintaining the credit facilities to which this Agreement
relates, (b) reduce the amounts payable to Lender under this Agreement or the
Related Documents, or (c) reduce the rate of return on Lender's capital as a
consequence of Lender's obligations with respect to the credit facilities to
which this Agreements relates, then Borrower agrees to pay Lender such
additional amounts as will compensate Lender therefor, within five (5) days
after Lender's written demand for such payment, which demand shall be
accompanied by an explanation of such imposition or charge and a calculation
in reasonable detail of the additional amounts payable by Borrower, which
explanation and calculations shall be conclusive in the absence of manifest
error.
NEGATIVE COVENANTS: Borrower covenants and agrees with Lender that while
this Agreement is in effect, Borrower shall not, without the prior
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03-30-1999 LOAN AGREEMENT PAGE 6
LOAN NO 200311600 (CONTINUED)
===============================================================================
written consent of Lender:
INDEBTEDNESS AND LIENS. (a) Except otherwise as approved by the Lender
trade debt incurred in the normal course of business and indebtedness to
Lender contemplated by this Agreement, create, incur or assume
indebtedness for borrowed money, including capital leases, (b) except as
allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of Borrower's
assets, or (c) sell with recourse any of Borrower's accounts, except to
Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (c) pay any dividends on Borrower's stock (other than dividends
payable in its stock), provided, however that notwithstanding the
foregoing, but only so long as no Event of Default has occurred and is
continuing or would result from the payment of dividends, if Borrower is
a "Subchapter S Corporation" (as defined in the Internal Revenue Code of
1986, as amended), Borrower may pay cash dividends on its stock to its
shareholders from time to time in amounts necessary to enable the
shareholders to pay income taxes and make estimated income tax payments
to satisfy their liabilities under federal and state law which arise
solely from their status as Shareholders of a Subchapter S Corporation
because of their ownership of shares of stock of Borrower, or (d)
purchase or retire any of Borrower's outstanding shares or alter or amend
Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surely or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds
if: (a) Borrower or any Guarantor is in default under the terms of this
Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar proceedings, or
is adjudged a bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any Guarantor,
or in the value of any Collateral securing any Loan; or (d) any Guarantor
seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender.
ADDITIONAL AFFIRMATIVE COVENANT--TANGIBLE NET WORTH. Borrower covenants and
agrees with Lender that, while this agreement is in effect, Borrower shall
maintain a minimum Effective Tangible Net Worth (defined as the aggregate of
net worth plus subordinated debt, less any intangible assets, and less any
amount from shareholders, officers, and affiliates of Borrower) of not less
than $1,350,000.00, increasing to $1,450,000 at fiscal year end October 31,
1999 and to $2,170,000.00 at fiscal year end October 31, 2000.
Borrower, Medical Resources Management, Inc. and Subsidiaries shall maintain
a minimum Effective Tangible Net Worth of $2,600,000.00, stepping up by
$150,000.00 annually.
Tangible Net Worth means Borrower's total assets excluding all intangible
assets (i.e, goodwill, trademarks, patents, copyrights, organizational
expenses, and similar intangible items, but including leaseholds and
leasehold improvements) less total Debt.
ADDITIONAL AFFIRMATIVE COVENANT--ANNUAL FINANCIAL STATEMENT. Borrower
covenants and agrees with Lender that, while this agreement is in effect,
Borrower will cause to be delivered to Lender, as soon as possible, but in no
event later than one hundred twenty (120) days of each fiscal year end,
Medical Resources Management, Inc. and subsidiaries, consolidated and
consolidating financial statements and 10K's audited by a certified public
accountant satisfactory to Lender.
ADDITIONAL AFFIRMATIVE COVENANT--QUARTERLY FINANCIAL STATEMENT. Borrower
covenants and agrees with Lender that, while this agreement is in effect,
Borrower will cause to be delivered to Lender, as soon as available, but in
no event later than sixty (60) days of each quarter end, Medical Resources
Management Inc. consolidated and consolidating financial statement and 10Q's,
prepared by companies Chief Financial Officer or other officer or person
acceptable to Lender.
ADDITIONAL AFFIRMATIVE COVENANT--AGING. Borrower covenants and agrees with
Lender that, while this agreement is in effect, Borrower will cause to be
delivered to Lender, as soon as available, but in no event later than twenty
(20) days of each month end, Medical Resources Management, Inc. and
Subsidiaries comprehensive aging report for accounts receivable, accounts
payable, inventory and equipment listing on form acceptable to Lender.
ADDITIONAL AFFIRMATIVE COVENANT--FIELD AUDIT. Borrower covenants and agrees
with Lender that, while this agreement is in effect, in addition to the
"Inspection" provision above, Borrower shall permit Lender or Lender's
representative or agents to perform examinations of Borrower's, Medical
Resources Management, Inc. and Subsidiaries collateral on a semi-annual basis
or at a time deemed necessary by Lender, and Borrower agrees that such
examination are at the expense of Borrower.
ADDITIONAL AFFIRMATIVE COVENANT--INDIVIDUAL GUARANTOR'S FINANCIAL STATEMENT.
Borrower covenants and agrees with Lender that, while this agreement is in
effect, Borrower will cause to be delivered to Lender, as soon as available,
but in no event later than one-hundred twenty (120) days of each fiscal year
ended, individual Guarantor's balance sheet and income statement for the year
end, prepared by individual Guarantor.
ADDITIONAL AFFIRMATIVE COVENANT--INDIVIDUAL GUARANTOR'S TAX RETURN. Borrower
covenants and agrees with Lender that, while this agreement is in effect,
Borrower will cause to be delivered to Lender, as soon as available, but in
no event later than thirty (30) days after filing, individual Guarantor's
federal tax return including all supporting schedule and K-1's.
ADDITIONAL AFFIRMATIVE COVENANT--MAXIMUM LEVERAGE RATIO. Borrower covenants
and agrees with Lender that, while this agreement is in effect, Borrower,
Medical Resources Management, Inc. and Subsidiaries shall maintain a Maximum
Leverage Ratio (defined as total liabilities divided by Effective Tangible
Net Worth) of 5.25 to 1.00 and decreasing to 4.50 to 1.00 at fiscal year end
October 31, 1999 and thereafter.
ADDITIONAL AFFIRMATIVE COVENANT--DEBT SERVICE COVERAGE RATIO. Borrower
covenants and agrees with Lender that, while this agreement is in effect,
Borrower, Medical Resources Management, Inc., and Subsidiaries shall
maintain a ratio of Net Income before tax plus Depreciation plus interest
expense divided by Current Portion of Long-Term Debt (CPLTD) and Current
Portion of Long-Term Debt (CPLTD) obligation under capital leases plus
interest expense of not less than 1.08 to 1.00 for quarter end April 30,
1999; 1.05 to 1.00 for quarter end July 31,1999; 1.10 to 1.00 for quarter end
October 31, 1999, 1.13 to 1.00 for quarter end January 31, 2000; 1.16 to 1.00
for quarter end April 31, 1999; 1.20 to 1.00 for quarter end July 31, 2000;
1.25 to 1.00 for quarter end October 31, 2000 and thereafter.
ADDITIONAL AFFIRMATIVE COVENANT--PROFITABILITY. Borrower covenants and agrees
with Lender that, while this agreement is in effect, Borrower, Medical
Resources Management, Inc., and Subsidiaries shall maintain a positive net
worth at all times and remain profitable both at the consolidated and
individual levels, for fiscal year ends, with no two (2) consecutive
quarterly losses.
ADDITIONAL AFFIRMATIVE COVENANT--INVESTMENT. Borrower covenants and agrees
with Lender that, while this agreement is in effect, Borrower shall not make
any advances, loans and/or investments in its parent and affiliates above
$150,000.00 and Medical Resources Management, Inc. and Subsidiaries shall be
prohibited from making investments, acquisitions and issuing dividends
without the prior written consent of Lender.
ADDITIONAL AFFIRMATIVE COVENANT--CAPITAL EXPENDITURES. Borrower covenants and
agrees with Lender that, while this agreement is in effect, provided
Borrower, Medical Resources Management, Inc. and Subsidiaries meets the
minimum Debt Service Coverage Ratio as defined above,
<PAGE>
03-30-1999 LOAN AGREEMENT PAGE 7
LOAN NO 200311600 (CONTINUED)
===============================================================================
capital expenditures and leases outside of bank financing shall be permitted.
The company will provide Bank with a proforma cash flow and certification of
its ability to debt service new capitalized lease payments prior to making
any capital expenditures and leases. Proforma cash flow will be calculated
based on Net Income plus Depreciation plus Interest Expense divided by
existing debt and interest expense and proposed debt servicing of new leases.
YEAR 2000. Borrower warrants and represents to the best of their knowledge
that all software utilized in the conduct of Borrower's business will record,
store, process, and present calendar dates falling, on or after January 1,
2000, and all information pertaining to such calendar dates, in the same
manner and with the same functionality as the software does respecting
calendar dates falling on or before December 31, 1999. Further, Borrower
warrants and represents, to the best of their knowledge, that the software
has or shall have all appropriate capabilities and compatibility for
operation and for handling century-aware or year 2000 compliant data.
Borrower also warrants and represents, to the best of their knowledge, that
the data-related user interface functions, data-fields, and data-related
program instructions and function of the software include the indication of
the century.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender
all Borrower's right, title and interest in and to, Borrower's accounts with
Lender (whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans, within five (5) days after receipt of notice that such
payment has not been made by Borrower.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor
or person that may materially affect any of Borrower's property or
Borrower's or any Grantor's ability to repay the Loans or perform their
respective obligations under this Agreement or any of the Related
Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the Indebtedness,
or by any governmental agency. This includes a garnishment, attachment,
or levy on or of any of Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all indebtedness immediately will become due and payable, all without notice
of any kind to Borrower, except that in the case of an Event of Default of
the type described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have all the
rights and remedies provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by applicable law, all of
Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or
to take action to perform an obligation of Borrower or of any Grantor, shall
not affect Lender's right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. The Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED
BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER
AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS
OF LOS ANGELES COUNTY, THE STATE OF CALIFORNIA. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any
other matter relating to the Loan, and Borrower hereby waives any rights
to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such participation
interests. Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners of such
interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests. Borrower further waives all right of offset or
couterclaim that it may have now or later against Lender or against any
purchase of such participation interest and
<PAGE>
03-03-1999 LOAN AGREEMENT PAGE 8
LOAN NO. 200311600 (CONTINUED)
==============================================================================
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans Irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses
that Borrower may have against Lender.
BORROWER INFORMATION. Borrower consents to the release of information on
or about Borrower by Lender in accordance with any court order, law or
regulation and in response to credit inquiries concerning Borrower.
NON-LIABILITY OF LENDER. The relationship between Borrower and Lender is
a debtor and creditor relationship and not fiduciary in nature, nor is
the relationship to be construed as creating any partnership or joint
venture between Lender and Borrower. Borrower is execising its own
judgment with respect to Borrower's business. All information supplied
to Lender is for Lender's protection only and no other party is entitled
to rely on such information. There is no duty for Lender to review,
inspect, supervise, or inform Borrower of any matter with respect to
Borrower's business. Lender and Borrower intend that Lender may
reasonably rely on all information supplied by Borrower to Lender,
together with all representations and warranties given by Borrower to
Lender, without investigation or confirmation by Lender and that any
investigation or failure to investigate will not diminish Lender's right
to so rely.
NOTICE OF LENDER'S BREACH. Borrower must notify Lender in writing of any
breach of this Agreement or the Related Documents by Lender and any
other claim, cause of action or offset against Lender within thirty (30)
days after the occurrence of such breach or after the accrual of such
claim, cause of action or offset. Borrower waives any claim, cause of
action or offset for which notice is not given in accordance with this
paragraph. Lender is entitled to rely on any failure to give such notice.
BORROWER INDEMNIFICATION. Borrower shall indemnify and hold Lender
harmless from and against all claims, costs, expenses, losses, damages,
and liabilities of any kind, including but not limited to attorneys'
fees and expenses, arising out of any matter relating directly or
indirectly to the indebtedness, whether resulting from internal disputes
of the Borrower, disputes between Borrower and any Guarantor, or whether
involving any third parties, or out of any other matter whatsoever
related to this Agreement or the Related Documents, but excluding any
claim or liability which arises as a direct result of Lender's gross
negligence or willful misconduct. This indemnity shall survive full
repayment and satisfaction of the indebtedness and termination of this
Agreement.
COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which, when so executed, shall be deemed an original, but all
such counterparts, taken together, shall constitute one and the same
Agreement.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation reasonable attorneys' fees,
incurred in connection with the preparation, execution, enforcement,
modification and collection of this Agreement or in connection with the
Loans made pursuant to this Agreement. Lender may pay someone else to
help collect the Loans and to enforce this Agreement, and Borrower will
pay the reasonable cost of such collection effort. This includes, subject
to any limits under applicable law, Lender's attorneys' fees and Lender's
legal expenses, whether or not there is a lawsuit, including attorneys'
fees for bankruptcy proceedings (including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court
costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise
required by law), and shall be effective when actually delivered or when
deposited with a nationally recognize overnight courier or deposited in
the United States mail, first class, postage prepaid, addressed to the
party to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose
of the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Borrower, notice to any
Borrower will constitute notice to all Borrowers. For notice purposes,
Borrower will keep Lender informed at all times of Borrower's current
address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validly; however, if the offending provision
cannot be so modified. It shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of
any provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower"
as used herein shall included all subsidiaries and affiliates of
Borrower. Notwithstanding the foregoing however, under no circumstances
shall this Agreement be construed to require Lender to make any Loan or
other financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure
to the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be considered
to have been relied upon by Lender and will survive the making of the
Loan and delivery to Lender of the Related Documents, regardless of any
investigation made by Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of
this Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or
between Lender and any Grantor, shall constitute a waiver of any of
Lender's rights or of any obligations of Borrower or of any Grantor as
to any future transactions. Whenever the consent of Lender is required
under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent in subsequent instances
where such consent is required, and in all cases such consent may be
granted or withheld in the sole discretion of Lender.
<PAGE>
03-30-1999 LOAN AGREEMENT
LOAN NO 200311600 (CONTINUED) PAGE 9
===============================================================================
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF MARCH 30, 1999.
BORROWER:
PHYSIOLOGIC REPS, A CALIFORNIA CORPORATION
BY /s/ GREGORY BONNIFIELD
-----------------------------------------------
GREGORY BONNIFIELD, PRESIDENT
LENDER:
SANTA MONICA BANK
BY /s/ KAREN BROWN
-----------------------------------------------
AUTHORIZED OFFICER
===============================================================================
<PAGE>
SANTA MONICA BANK
[LOGO]
PROMISSORY NOTE
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 03-30-1999 05-02-2000 200311592 KB KB
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: PHYSIOLOGIC REPS, LENDER: SANTA MONICA BANK
A CALIFORNIA CORPORATION LOAN SERVICING CENTER
(TIN: 95-2846224) 1231 4TH STREET
932 GRAND CENTRAL AVENUE SANTA MONICA, CA 90401
GLENDALE, CA 91201
===============================================================================
PRINCIPAL AMOUNT: $2,000,000.00 DATE OF NOTICE: MARCH 30, 1999
INITIAL RATE: 8.750%
PROMISE TO PAY. PHYSIOLOGIC REPS, A CALIFORNIA CORPORATION ("BORROWER")
PROMISES TO PAY TO SANTA MONICA BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF
THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF TWO MILLION & 00/100
DOLLARS ($2,000,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH
INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE.
INTEREST SHALL BE CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF
EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING
PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON MAY 2, 2000. IN ADDITION,
BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST
BEGINNING MAY 2, 1999, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE
SAME DAY OF EACH MONTH AFTER THAT. The annual interest rate for this Note is
computed on a 365/360 basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal
balance is outstanding. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied
first to accrued unpaid interest, then to principal, and any remaining amount
to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the Prime
rate as published in the Wall Street Journal. When a range of rates has been
published, the higher of the rates will be used (the "Index"). The index is
not necessarily the lowest rate charged by Lender on its loans. If the Index
becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will
not occur more often than each DAY. THE INDEX CURRENTLY IS 7.760%. THE
INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL
BE AT A RATE OF 1.000 PERCENTAGE POINT OVER THE INDEX, RESULTING IN AN
INITIAL RATE OF 8.750%. NOTICE: Under no circumstances will the interest rate
on this Note be more than the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is
entitled to a minimum interest charge of $50.00. Other than Borrower's
obligation to pay any minimum interest charge, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid
interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 15 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $5.00, WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment within five (5) days after receipt of
notice that such payment has not been made by Borrower. (b) Borrower breaks
any promise Borrower has made to Lender, or Borrower fails to comply with or
to perform when due any other term, obligation, covenant, or condition
contained in this Note or any agreement related to this Note, or in any other
agreement or loan Borrower has with Lender. (c) Borrower defaults under any
loan, extension of credit, security agreement, purchase or sales agreement,
or any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower's property or Borrower's ability to repay
this Note or perform Borrower's obligations under this Note or any of the
Related Documents beyond the cure period in the those periods. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now
or at the time made or furnished. (e) Borrower becomes insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency
laws. (f) Any creditor tries to take any of Borrower's property on or in
which Lender has a lien or security interest. This includes a garnishment of
any of Borrower's accounts with Lender. (g) Any guarantor dies or any of the
other events described in this default section occurs with respect to any
guarantor of this Note. (h) A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to
pay all amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 5.000
percentage points over the Index. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender the
reasonable costs of such collection effort. This includes, subject to any
limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A
LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION
OF THE COURTS OF LOS ANGELES COUNTY, THE STATE OF CALIFORNIA. THIS NOTE SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender
all Borrower's right, title and interest in and to, Borrower's accounts with
Lender (whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested either orally or in writing by Borrower or
===============================================================================
<PAGE>
03-30-1999 PROMISSORY NOTE PAGE 2
LOAN NO 200311592 (CONTINUED)
===============================================================================
as provided in this paragraph. Lender may, but need not, require that all
oral requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following party or parties are authorized as provided
in this paragraph to request advances under the line of credit until Lender
receives from Borrower at Lender's address shown above written notice of
revocation of their authority: ALLEN BONNIFIELD, CHIEF EXECUTIVE
OFFICER/CHIEF FINANCIAL OFFICER; GREGORY BONNIFIELD, PRESIDENT; AND MICHAEL
FEWER, SECRETARY. ANY ONE OF SUCH OFFICERS MAY REQUEST ADVANCES. Borrower
agrees to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation
to advance funds under this Note if: (a) Borrower or any guarantor is in
default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with
the signing of this Note; (b) Borrower or any guarantor ceases doing business
or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor's guarantee of this Note or any other
loan with Lender; or (d) Borrower has applied funds provided pursuant to this
Note for purposes other than those authorized by Lender.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive any applicable statute of limitations, presentment, demand for payment,
protest and notice of dishonor. Upon any change in the terms of this Note,
and unless otherwise expressly stated in writing, no party who signs this
Note, whether as maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is
made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.
BORROWER:
PHYSIOLOGIC REPS, A CALIFORNIA CORPORATION
BY: /s/ Gregory Bonnifield
---------------------------------------
GREGORY BONNIFIELD, PRESIDENT
===============================================================================
<PAGE>
[LOGO]
PROMISSORY NOTE
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 03-30-1999 04-02-2004 200311600 KB /s/[ILLEGIBLE]
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: PHYSIOLOGIC REPS, LENDER: SANTA MONICA BANK
A CALIFORNIA CORPORATION LOAN SERVICING CENTER
(TIN: 95-2846224) 1231 4TH STREET
932 GRAND CENTRAL AVENUE SANTA MONICA, CA 90401
GLENDALE, CA 91201
===============================================================================
PRINCIPAL AMOUNT: $2,000,000.00 DATE OF NOTE: MARCH 30,1999
INITIAL RATE: 9.000%
PROMISE TO PAY. PHYSIOLOGIC REPS, A CALIFORNIA CORPORATION ("BORROWER")
PROMISES TO PAY TO SANTA MONICA BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF
THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF TWO MILLION & 00/100
DOLLARS ($2,000,000.00), TOGETHER WITH INTEREST ON THE UNPAID PRINCIPAL
BALANCE FROM MARCH 30, 1999, UNTIL PAID IN FULL.
PAYMENT. SUBJECT TO ANY PAYMENT CHANGES RESULTING FROM CHANGES IN THE INDEX,
BORROWER WILL PAY THIS LOAN IN 59 PRINCIPAL PAYMENTS OF $33,333.33 EACH
AND ONE FINAL PRINCIPAL AND INTEREST PAYMENT OF $33,591.86. BORROWER'S FIRST
PRINCIPAL PAYMENT IS DUE MAY 2, 1999, AND ALL SUBSEQUENT PRINCIPAL PAYMENTS
ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. IN ADDITION, BORROWER WILL
PAY REGULAR MONTHLY PAYMENTS OF ALL ACCRUED UNPAID INTEREST DUE AS OF EACH
PAYMENT DATE. BORROWER'S FIRST INTEREST PAYMENT IS DUE MAY 2, 1999, AND ALL
SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER
THAT. BORROWER'S FINAL PAYMENT DUE APRIL 2, 2004, WILL BE FOR ALL PRINCIPAL
AND ACCRUED INTEREST NOT YET PAID. The annual interest rate for this Note is
computed on a 365/360 basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal
balance is outstanding. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied
first to accrued unpaid interest, then to principal, and any remaining amount
to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the Prime
rate as published in the Wall Street Journal. When a range of rates has been
published, the higher of the rates will be used (the "Index"). The Index is not
necessarily the lowest rate charged by Lender on its loans. If the Index
becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each DAY. THE INDEX CURRENTLY IS 7.750%. THE INTEREST
RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A
RATE OF 1.250 PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF
9.000%. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
<PAGE>
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment
of this Note, Borrower understands that Lender is entitled TO A MINIMUM
INTEREST CHARGE OF $50.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay without penalty all or a portion of
THE amount owed earlier than it is due. Early payments will not, unless
agreed to by Lender in writing, relieve Borrower of Borrower's obligation to
continue to make payments under the payment schedule. Rather, they will
reduce the principal balance due and may result in Borrower making fewer
payments.
LATE CHARGE. If a payment is 15 DAYS OR MORE LATE, BORROWER WILL BE CHARGED
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $5.00, WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of THE following happens: (a)
Borrower fails to make any payment within five (5) days after receipt of
notice that such payment has not been made by Borrower. (b) Borrower breaks
any promise Borrower has made to Lender, or Borrower fails to comply with or
to perform when due any other term, obligation, covenant, or condition
contained in this Note or any agreement related to this Note, or in any other
agreement or loan Borrower has with Lender. (c) Borrower defaults under any
loan, extension of credit, security agreement, purchase or sales agreement,
or any other agreement, in favor of any other creditor or person that may
materially effect any of Borrower's property or Borrower's ability to repay
this Note or perform Borrower's obligations under this Note or any of the
Related Documents beyond the cure period in those periods. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now
or at the time made or furnished. (e) Borrower becomes insolvent, a receiver
is appointed for any part of Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced either
by Borrower or against Borrower under any bankruptcy or insolvency laws. (f)
Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender, (g) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor
of this Note. (h) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to
pay all amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 5.00
percentage points over the index. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender the
reasonable costs of such collection effort. This includeS, subject tO any
limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A
LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION
OF THE COURTS OF LOS ANGELES COUNTY, THE STATE OF CALIFORNIA. THIS NOTE SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender
all Borrower's right, title and interest in and to, Borrower's accounts with
Lender (whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or offset all sums owing on this Note
against any and all such accounts.
<PAGE>
03-30-1999 PROMISSORY NOTE PAGE 2
LOAN NO 200311600 (CONTINUED)
===============================================================================
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive any applicable statute of limitations, presentment, demand for payment,
protest and notice of dishonor. Upon any change in the terms of this Note, and
unless otherwise expressly stated in writing, no party who signs this Note,
whether as maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is
made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES
TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
PHYSIOLOGIC REPS, A CALIFORNIA CORPORATION
BY: /s/ GREGORY BONNIFIELD
-----------------------------
GREGORY BONNIFIELD, PRESIDENT
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> OCT-31-1998 OCT-31-1999
<PERIOD-START> NOV-1-1997 NOV-1-1998
<PERIOD-END> OCT-31-1998 OCT-31-1999
<CASH> 141,228 45,332
<SECURITIES> 0 0
<RECEIVABLES> 2,016,159 1,728,277
<ALLOWANCES> 100,000 90,000
<INVENTORY> 775,735 820,614
<CURRENT-ASSETS> 3,040,225 2,656,109
<PP&E> 20,279,068 21,731,670
<DEPRECIATION> 8,090,817 9,772,733
<TOTAL-ASSETS> 16,162,691 15,540,209
<CURRENT-LIABILITIES> 5,063,898 5,550,638
<BONDS> 6,699,461 5,511,792
0 0
0 0
<COMMON> 7,386 7,407
<OTHER-SE> 3,197,041 3,250,356
<TOTAL-LIABILITY-AND-EQUITY> 16,162,691 15,540,209
<SALES> 11,578,705 11,728,537
<TOTAL-REVENUES> 11,578,705 11,728,537
<CGS> 6,213,239 5,973,309
<TOTAL-COSTS> 6,213,239 5,973,309
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,012,097 1,217,757
<INCOME-PRETAX> 280,310 70,547
<INCOME-TAX> 110,485 27,711
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 169,825 42,836
<EPS-BASIC> 0.023 0.006
<EPS-DILUTED> 0.023 0.006
</TABLE>
