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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB 12ga/2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Access Health Alternatives, Inc.
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(Name of Small Business Issuer in its charter)
FLORIDA 59-3542362
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2016 S. Orange Avenue, Orlando, Florida 32806
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(Address of principal executive offices) (zip code)
Issuer's telephone number, (407) 872-2440
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
- NONE - - NONE -
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 Par Value
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(Title of class)
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ITEM 1. DESCRIPTION OF BUSINESS.
(a) BUSINESS DEVELOPMENT.
GENERAL CORPORATE HISTORY
Access Health Alternatives, Inc. (the "Company") was incorporated on
October 4, 1988 in Florida as B C Insurance Services, Inc., and changed its
name to PLC Venture Corp. ("PLC") on May 18, 1998. From its inception, PLC had
no assets and did not engage in business. PLC, Access HealthMax, Inc., a then
unaffiliated Florida corporation ("HealthMax"), and the holders of
approximately 94% of the outstanding common stock of HealthMax (the "HealthMax
Principals") entered into a Share Exchange Agreement, dated as of September 2,
1998(the "Agreement"), pursuant to which the HealthMax Principals on September
2, 1998 (the "Exchange Date") were issued 0.8 shares of common stock of PLC for
each share of HealthMax' common stock owned by them (the "Exchange"). In
accordance with the foregoing, the HealthMax Principals received an aggregate
of 565,930 shares of common stock of PLC on the Exchange Date.
HealthMax originally was incorporated under the name "Access
Nutritionals, Inc." in December 1995; in January 1996 it changed its name to
Access HealthMax, Inc." As of the Exchange Date, HealthMax became a
majority-owned subsidiary of PLC. At that time, the HealthMax Principals were
appointed to the Company's Board of Directors, and the previous officers and
directors of the Company resigned in all capacities. As a result of the
Exchange and other contemporaneous private transactions, the HealthMax
Principals owned approximately 56.4% of the Company's outstanding common stock;
the original shareholders of PLC owned approximately 3% of the Company's
outstanding common stock; and other parties owned approximately 40.6% of the
Company's outstanding common stock, which they acquired from prior PLC
shareholders in a private transaction.
In late April 1999, the Company agreed to acquire the minority
interests in HealthMax for restricted stock of the Company, at the rate of one
share of the Company's common stock for each share of HealthMax stock
exchanged. If all of the minority shareholders exchange their HealthMax stock
for the Company's stock, the Company would be required to issue an additional
approximately 430,000 shares of common stock. This transaction is expected to
conclude by the end of August 1999.
Prior to, and in contemplation of the Exchange, the Company's Articles
of Incorporation were amended to change its name to "Access HealthMax Holdings,
Inc.," and to increase its authorized capital stock to 50,000,000 shares of
common stock, par value $0.001, and 10,000,000 shares of preferred stock, par
value $0.01. In March 1999, the Company's Amended and Restated Articles of
Incorporation were again amended to change its name to "Access Health
Alternatives, Inc.," and a 10-for-1 reverse split was declared effective March
15, 1999. All numbers of shares of common stock and preferred stock referenced
in this Registration Statement (including references earlier in this document)
have been adjusted for this reverse split, unless otherwise indicated.
On March 31, 1999, the Board of Directors authorized the acquisition
of Access HealthCare, Inc. ("HealthCare"), an affiliated entity, in exchange
for two million shares of the Company's common stock. This acquisition is
expected to be completed in August 1999.
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The Company currently operates as a holding company. Operations of the
nutritional health care business of the Company are conducted under its
HealthMax subsidiary. It is intended that the clinical aspects of the Company's
complementary and alternative health care program will be conducted under
HealthCare through HealthCare-owned locations, following the conclusion of the
pending acquisition. In May 1999 the Company formed Access Health Assurance
Plans, Inc. ("HAP"), a Florida corporation that will market the Company's
member benefits programs. Unless the context indicates otherwise, references
hereinafter to "the Company" include HealthMax, HealthCare and HAP. The
Company's principal place of business is 2016 S. Orange Avenue, Orlando,
Florida 32806. Its telephone number is (407) 872-2440.
HISTORICAL CAPITALIZATION
Initial funding of HealthMax was provided through approximately $2.2
million in short-term debt financing which was loaned to HealthCare by
individual investors. Most of that indebtedness was assigned by HealthCare to
HealthMax. This indebtedness was $869,637 at December 31, 1998 and presently is
the $845,637.
In October 1997, HealthMax organized Access HealthMax, LLC ("LLC I"),
a Colorado limited liability company, to market the Company's nutritional
program in Florida and Colorado. Utilizing the new marketing strategy, LLC I
established a regional office in Colorado Springs, Colorado, and also commenced
operations out of the offices of the corporate offices in Orlando, Florida.
HealthMax organized Access HealthMax LLC II and LLC III in 1997 and 1998,
respectively, to market the program in additional states. LLC I, LLC II and LLC
III are separate legal entities; the respective investors in each limited
liability company have no rights to participate in the marketing areas,
business, profits or assets of the other entity, or in the capital structure of
HealthMax or the Company. For information about the relationship between the
Company and its LLCs, and the flow of goods, services and payments between the
Company and the LLCs, see "Limited Liability Companies Affiliated with the
Company," below.
During the first half of 1998, HealthMax conducted an offering of
securities, resulting in gross proceeds of approximately $450,000. In September
1998, HealthMax completed a reverse merger with PLC Venture Corp. (which had
been a dormant business from inception). In February 1999, the Company
completed a limited offering of common stock resulting in gross proceeds of
$485,000. In March 1999, the Company began an offering of units consisting of
preferred stock and warrants, for gross proceeds of up to $1,008,000 (the "Unit
Offering"). That offering is pending and only one Unit ($25,000) has been sold
to date. For additional information concerning the pending offering, see "Item
11. Description of Securities," below.
LIMITED LIABILITY COMPANIES AFFILIATED WITH THE COMPANY
General. The capital structure of each of the LLCs is set forth in a
separate Operating Agreement, with HealthMax as the Manager of the LLC and the
investors in each LLC as Economic Members. The Economic Members generally have
specified rights to participate in distributions of cash and assets, and to
vote on certain limited matters, but have no rights to participate in the
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management of the business of HealthMax. HealthMax, as the Manager of each LLC,
has complete authority to manage the business of the LLC.
PAYMENTS OF DISTRIBUTABLE CASH, AND ALLOCATIONS OF PROFIT AND LOSS.
Distributable cash from operations of each LLC will be distributed as follows:
first, to the Economic Members until they have received total cash
disbursements equal to their preference; second, to the Economic Members until
they have received total cash disbursements equal to their initial capital
contributions plus 25% thereof; third to HealthMax (as General Member) until it
has received total cash disbursements equal to its initial capital contribution
($10,000 for each LLC); and thereafter, 25% to the Economic Members and 75% to
HealthMax.
Preference is defined in each Operating Agreement to be the right of
each Economic Member to receive from distributable cash paid out by the LLC, a
non-guaranteed, cumulative, non-compounding cash payment equal to 10.5% (annual
interest) of the Economic Member's initial capital contribution. Payment of the
preference is not secured by assets of HealthMax, the Company or any affiliate
of the Company, is not an obligation of any affiliate of the Company, and is to
be paid only from operating cash revenues realized by the LLC. Payment of the
preference will continue, in amount equal to 10.5% of the original initial
capital contributions, until the Economic Members, as a class, have received
total cash disbursements equal to their initial capital contributions plus an
additional amount equal to 25% of such original initial capital contributions.
Profits of the LLC generally will be allocated 100% to the Economic
Members until cumulative net profits paid to them equal cumulative cash
preference payments (including amounts equal to 125% multiplied by the amount
of the initial capital contributions); thereafter, profits will be allocated
25% to the Economic Members and 75% to HealthMax.
Pursuant to the Operating Agreement with each LLC, HealthMax has
received from each LLC $65,000 on a one-time basis for each regional office
opened by the LLC in their respective regions, such payment being for the right
to use the computer systems software and clinic marketing data base of
HealthMax, for accounting and other office administration services performed
for the LLC, and for the payroll cost to HealthMax of providing personnel for
training and marketing sessions for healthcare doctors from participating
clinics. In addition, each LLC has reimbursed HealthMax approximately $75,000
for legal, accounting and other costs incurred and paid by HealthMax in
connection with the development of the business plan for each LLC.
Also, pursuant to each LLC Operating Agreement, HealthMax receives
$10,000 per month as a management fee for each regional office of each LLC. The
management fee offsets a portion of HealthMax' ongoing general and
administrative overhead expenses.
RIGHT TO PURCHASE LLC INTERESTS. Pursuant to the Operating Agreement
with each LLC, HealthMax has the option to purchase all of the limited
liability company interests held by the Economic Members, at a price equal to
125% of the original purchase price (initial cash capital contribution)
therefor.
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PLANNED ACQUISITION OF HEALTHCARE
The Company has recently agreed to acquire HealthCare for
approximately two million shares of the Company's common stock. Although the
transaction is subject to the completion of definitive agreements and
additional due diligence, the Company expects it to be completed in August 1999.
The Company's President and Chief Executive Officer is the principal
shareholder of HealthCare, and will receive most of the consideration on the
completion of the acquisition. The Company believes that the acquisition of
HealthCare will serve as the platform for the acquisition of additional
revenue-generating complementary and alternative healthcare practices,
consolidating back-office operations and increasing the consistency and quality
of services, as well as enabling HealthCare to offer the benefits of its
contracts to other complementary and alternative healthcare practices.
HealthCare is currently engaged in the business of providing
complementary and alternative healthcare services under a range of
reimbursement programs, including traditional insurance plans, workers'
compensation, personal injury, private pay, HMOs, PPOs, and contracts, through
its four HealthCare-owned locations in the Central Florida area and over 100
affiliated practices throughout the State of Florida. Through its contracts
with such HMOs as PruCare, Cigna and HealthOptions, HealthCare is believed to
be the largest complementary and alternative healthcare group practice in
Central Florida, with the right to serve over 300,000 insured lives.
HealthCare is the outgrowth of Daniel J. Pavlik, D.C., P.A., which was
organized in the State of Florida in April 1983 by Dr. Pavlik. Dr. Pavlik owned
and operated HealthCare as a sole practitioner for a number of years with a
small support staff. As the practice grew, Dr. Pavlik hired additional
chiropractic physicians to be associate doctors with him. HealthCare focused,
during its initial years, on the treatment of the work-related injury, pursuant
to claims under the Florida Department of Worker's Compensation Law. Dr. Pavlik
and HealthCare have worked diligently in the marketing of and the communication
with the third-party payors and many employers in the Central Florida area.
Due to many requests from both insurance companies and employers for
HealthCare to provide wider geographic access to its clinical protocols,
procedures, staff and expertise, HealthCare started a process of looking at
expansion, and did so from late 1987 through early 1993. During its initial
expansion, HealthCare made a decision to move into the new area of healthcare
called "Managed Care." Because of HealthCare's experience in the area of
workers' compensation and the many contracts and relationships that it had
built, HealthCare set forth in an attempt to penetrate this new market as
quickly as possible to be ahead of its competition, and successfully secured
HMO and PPO contracts.
Some of these Managed Care contracts required that HealthCare provide
additional chiropractic physicians and locations that were outside those owned
by HealthCare. This lead to the development of the "affiliated clinics"
concept. An affiliated clinic is a clinic not owned by HealthCare but whose
doctors and staff are under contract with HealthCare to provide necessary
services under those Managed Care agreements. HealthCare, under its affiliated
clinic agreements, charges the affiliated office a percentage fee for managing
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and processing the claims for any patients that were seen in that affiliated
clinic under the terms of HealthCare's master contracts.
HealthCare, under the Company's umbrella, intends to expand its
marketing and operational plans throughout the United States, both in terms of
acquired clinics and affiliated clinics. As the Company's human and financial
resources allow, a focused market study will be developed to assess regional
market opportunities and a specific acquisition strategy. Although there have
been other attempts at national "roll-ups" of healthcare practices, the Company
believes that it will be able to offer unique advantages to target practices
and otherwise will be well-positioned to make this venture successful.
(b) BUSINESS OF THE ISSUER.
(1) Principal products or services and their markets
OVERVIEW
The Company, through its subsidiaries, is building a diversified
national alternative healthcare network. The Company, through its
majority-owned subsidiary Access HealthMax, Inc., presently offers a
nutritional alternative to traditional healthcare, in a clinical setting
through healthcare providers. HealthMax has developed and is distributing
proprietary blends of nutritional products under the supervision of
HealthMax-trained professionals and through other distribution channels.
Additionally, the Company plans to launch a robust internet gateway providing
information about nutritional health to consumers, along with product sales,
and support for its national group of Access HealthMax Nutritional Centers.
Daniel J. Pavlik organized HealthMax to market to healthcare clinics
and independent distributors a comprehensive "wellness" and "preventive"
healthstyle/lifestyle management program which incorporates the sale of
nutrition supplement products. HealthMax commenced operations in February 1996.
Since that time, the Company has focused on the development of its proprietary
blend of nutritional products, and has tested various methods of distribution.
CURRENT NUTRITIONAL SUPPLEMENT PRODUCTS
HealthMax' proprietary formulations of vitamin, mineral and enzyme
supplements have been formulated by Dr. Barry Bradley, a certified
nutritionist, in consultation with other healthcare professionals. The products
are made from natural, whole food plant sources and are formulated to address
specific nutritional deficiencies through a systems approach to wellness.
Products are manufactured for HealthMax to its specifications by a private
manufacturing company that serves the nutritional supplement industry.
The following are descriptions of the key products being sold as of
June 30, 1999, categorized by the system they are designed to address. In
addition, the Company has formulated a number of other products, which have not
yet been manufactured or sold.
Daily Nutritional System:
Digestyme
VitaDay
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Endocrine System:
ProstateMax
YoungAgain
Circulatory System:
SlimMax
Thin-Ergy
Detoxification System:
LiverPure
ColonPure
Musculo-skeletal System:
M.B.J. (muscle, bone & joint)
Inflammazyme
Digestive System:
Digestyme
FloraPlus
Immune System:
OxyAccess
ImmuneMax
The Company also is developing a series of wellness protocols, such as
its Weight Wellness program, which incorporate certain of its products (e.g.,
VitaDay, SlimMax and Thin-Ergy, in the case of the Weight Wellness program)
with a specific clinical program (such as a low-carbohydrate diet) under the
guidance of HealthMax trained healthcare professionals.
(2) Distribution methods of the products or services.
The Company's primary clinical channel for distributing HealthMax
nutritional products and services is the HealthMax Nutritional Center. This
channel is supported by two additional networks: the Independent Health
Assurance Agent Network; and the Health Associate Network. Although the Company
believes that these networks will form the foundation for the distribution of
the Company's products and services, the Company also believes that it is
important to continuously evaluate the efficacy of these networks, and of the
Company's delivery strategies in general. Accordingly, the Company anticipates
modifications in these networks, the elimination of one or more networks, and
the addition of other networks and methods of distribution, from time to time
as performance indicates.
BACKGROUND
There are approximately 550,000 allopathic doctors and approximately
50,000 chiropractors and 50,000 osteopaths who are licensed to practice in the
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United States. A great majority of these practitioners work as solo
practitioners or in small group practices. Most practitioners now are realizing
reduced incomes as a result of the growth of HMOs and other efforts by
employers and government to limit or stop increasing health care costs. As an
alternative to becoming direct employees of HMOs, those doctors and other
practitioners who wish to remain independent or in a small group need to
achieve economies of scale and, where possible, diversify and increase revenue
centers.
HealthMax Nutritional Centers
The principal method for delivering the Company's nutritional products
and services is through the HealthMax Nutritional Center, a clinical facility
licensed to offer HealthMax' products and services. Healthcare providers who
are associated with the Centers are part of the HealthMax Preferred Provider
Network, and will be given access to members of the Nutritional Options Plus
plan, described below. HealthMax has signed with a number of healthcare
providers that operate approximately 100 Centers.
Members of the HealthMax Preferred Provider Network receive training
and educational programs on an ongoing basis; the Company strongly recommends
that members follow a course of HealthMax-designed study leading to HealthMax
certification. This ongoing training, and the ongoing support provided by
regional and national HealthMax staff, is one of the features the Company
believes highlights the Company's emphasis on the clinical component of the
delivery of its nutritional products, and distinguishes HealthMax from other
participants in this industry.
Under its Site License Program, HealthMax licenses each clinic on the
basis of a five year contract, under which the clinic agrees to make an initial
purchase of $7,995 for the licensing rights to operate a HealthMax Nutritional
Center (which includes a specified exclusive territory); access to HealthMax'
educational and support programs, an inventory of sales literature, health
questionnaires, and manuals for patients; and an initial inventory of
nutritional supplements. Each clinic is expected (but not required) to purchase
$4,000 worth of restocking inventory each month starting with the fifth month
after enrollment in the program.
In May 1999, the Company initiated a program intended to accelerate
the marketing of the HealthMax Nutritional Centers. This "Market License
Program" offers, to an individual or a group, the rights to a portion of the
revenue from a specific market area. A market area is defined as a population
base of 2,000,000 that can support a minimum of 40 Nutritional Centers. The
market licensee agrees to purchase the right to install 20 Centers, all of
which will be trained and operated by the Company in accordance with its Center
program. The licensee will receive, for a five year period, certain revenue
from product sales and a portion of the sales from the Nutritional Options Plus
Plan as implemented in that licensee's market area. In addition, the licensee
will have a first right of refusal to fund an additional 20 units within the
market. Providers within the market will be "invited" to participate in the
Preferred Provider Network, and will be subject to the Company's provider
agreement, although they will not be required to purchase the right to
participate in the Network. These providers will be required to purchase a
minimum of 200 bottles per month, or $4,000 per month, after the fifth month
following enrollment, or they will lose the right to be included in the
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Network. The Company believes that this program will allow for quick growth of
Centers because providers will be "invited" to join a network as opposed to
having to purchase the rights to participate, while the capital outlay (and the
right to receive a significant portion of the revenue derived therefrom) will
belong to the market licensee.
Nutritional Options Plan
The Nutritional Options Plan is a member benefits plan open to
individuals and families, at no monthly fee. Discounts on HealthMax products
are provided, as are copies of the Company's WellCare Bulletin and WellCare
Journal.
Nutritional Options Plus Plan
The Nutritional Options Plus plan is an employee membership plan,
designed to primarily be an addition to existing health benefit programs, such
as a vision care or dental care. For a fixed monthly fee per member per month,
employers can provide their employees with discounted fees on services provided
by members of the HealthMax Preferred Provider Network (including a free annual
wellness exam and the lowest retail pricing available on HealthMax Nutritional
Products). Members also will receive free copies of the Company's WellCare
Bulletin and other informational material on an ongoing basis.
Comparison of Nutritional Options Plus Plan and Nutritional Options Plan
Participants in the Nutritional Options Plus Plan receive a greater
range and depth of benefits than those in the Nutritional Options Plan,
including steeper discounts on products and an annual wellness exam. The "Plus"
Plan is designed to provide maximum benefits when members take advantage of the
clinical services of the HealthMax Preferred Provider Network, in contrast with
the basic Plan, which provides more moderate discounts to consumers that either
have no access to the HealthMax Preferred Provider Network or prefer a more
"self-help" form of nutritional healthcare.
The Role of Health Assurance Agents and Health Associates
The Company believes that the successful deployment of its method of
distribution of products and services will be enhanced by the development of a
robust network of independent "Health Assurance Agents" and a broad-based
universe of "Health Associates." Health Assurance Agents identify companies
that appear to be candidates for participating in the Nutritional Options Plus
Plan, based on their geographic location and their numbers of employees. These
agents are expected to be currently involved in offering health-related
voluntary member benefits programs to and through employers, such as
dental-care and vision-care programs, and will add the Nutritional Options Plus
Plan to their menus. Agents will be paid commissions based on the number of
employees enrolled.
Anyone that actively engages in enrolling members of the Nutritional
Options Plan is a Health Associate. Compensation will be paid based on the
volume of products purchased by members enrolled by the Health Associate, and
for referrals to other Health Associates, subject to quotas.
The Company is in the process of developing strategies to recruit
Health Assurance Agents and Health Associates, and anticipates active use of
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the internet and other direct marketing means as integral part of this effort.
Additionally, the Company intends to form alliances with existing benefit
communication and enrollment firms that specialize in worksite marketing and
benefit delivery systems, in order to accelerate the development of Health
Assurance Agents and the deployment of the Nutritional Options Plus Plan.
(3) Status of Any Publicly Announced New Product or Service.
Not applicable.
(4) Competition.
The principal markets in which the Company competes are competitive
and fragmented, with competitors in the nutritional supplements market and the
alternative healthcare markets. Increased competition could have a material
adverse effect on the Company, as competition may have far greater financial
and other resources available to them and possess extensive manufacturing,
distribution and marketing capabilities far greater than those of the Company.
Although there are thousands of health food stores, including some
small chains and several national companies, all of which sell a variety of
herbal and other nutritional items, and one national retail chain (General
Nutrition Centers), the Company is unaware of any other healthcare company
utilizing a systems approach, with a clinical component attached to the
delivery of products.
Although all employees sign confidentiality agreements, there is no
guarantee that trade secrets will not be shared with competitors or that the
Company could enforce these agreements. Such disclosures, if made, could
negatively affect the Company's competitiveness.
(5) Principal Suppliers.
The Company's proprietary nutritional products are manufactured,
bottled and labeled (under the Company's supervision) by ConSeal International,
Inc., of Longwood, Florida. Although the Company is very particular in choosing
its supplier on the basis of quality of materials, manufacturing practices,
pricing, and other factors, the Company does not believe that ConSeal is the
only manufacturer capable of meeting the Company's specifications.
(6) Dependence on Major Customers.
The Company is not dependent on any major customer for a significant
portion of its business.
(7) Intellectual Property.
The Company has relied on common law copyright, trademark and service
mark rights to protect its intellectual property, and on common law trade
secrecy laws with respect to the formulations of its products. Common law
intellectual property rights do not provide the Company with the same level of
protection as afforded by a United States federal registration of a mark. In
addition, common law rights are limited to the geographic area in which the
mark is actually used, while a United States federal registration of a mark
enables the registrant to stop the unauthorized use of the mark by any third
party anywhere in the United States even if the registrant has never used the
mark in the geographic area wherein the unauthorized use is being made
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(provided, however, that an unauthorized third party user has not, prior to the
registration date, perfected its common law rights in the trademark in that
geographic area). The Company also intends to register its trademarks in
foreign jurisdictions where the Company's products are sold, when such
international sales commence. However, the protection available in such
jurisdictions may not be as extensive as the protection available to the
Company in the United States.
As of May 31, 1999, the Company (through HealthMax) had one federal
trademark and service mark registration pending with the United States Patent
and Trademark Office (the "PTO"). The application (serial number 75/601,162
filed December 7, 1998) covers the phrase "Access HealthMax," for nutritional
supplements (class 5), and for healthcare services (class 42). In addition,
HealthMax has filed for copyright protection of the "Access HealthMax System
Manual," and is awaiting a file number from the PTO. The Company's policy will
be to pursue registrations for all of the trademarks and service marks
associated with its key products and services, as human and financial resources
allow.
(8) Need for Government Approval of Products and Services.
The Company does not believe that any government approval is required
for the delivery of its products and services (subject to the discussion
below). As the Company pursues its plans of delivering clinical alternative
healthcare through proprietary HealthCare centers, such services will only be
rendered by healthcare providers licensed under applicable state law.
(9) Regulation - Product Formulation and Labeling.
The Company's products are subject to regulation by one or more
federal agencies, including the FDA, FTC, Consumer Product Safety Commission,
and various state and local agencies. In particular, the FDA regulates the
labeling and sales of dietary supplements, including vitamins, minerals and
herbs, food additives, food supplements, cosmetics, and over-the-counter and
prescription drugs. The private label companies used to manufacture the
Company's products are subject, among other things, to regulation by the FDA as
food manufacturing facilities in compliance with the Current Good Manufacturing
Practices ("CGMP") rule promulgated by the FDA.
The Dietary Supplement Health and Education Act of 1994 (the "DSA")
amends the United States Food, Drug, and Cosmetic Act by defining dietary
supplements to include vitamins, minerals, nutritional supplements and herbs.
The DSA provides a regulatory framework to ensure safe quality dietary
supplements and the dissemination of accurate information about such products.
Dietary supplements are regulated as foods under the DSA and the FDA is
generally prohibited from regulating the active ingredients in dietary
supplements as food additives or as drugs unless the product claims trigger
drug status.
The DSA provides for specific nutritional labeling requirements for
dietary supplements effective January 1, 1997. The DSA permits substantiated,
truthful and non-misleading statements of nutritional support to be made in
labeling, such as statements describing general well-being from consumption of
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a dietary ingredient or the role of a nutrient or dietary ingredient in
affecting or maintaining structure or function of the body. In addition, the
DSA authorizes the FDA to promulgate CMGPs for dietary supplements modeled
after CMGPs for food manufacturing. The FDA will be proposing various rules and
regulations to implement the DSA; however, HealthMax believes it is in material
compliance with all currently applicable laws.
The dietary supplement industry is subject to regulations by the FDA
and local authorities. However, dietary supplements have now been affirmed by
the DSA as a food and not a drug or food additive. As a result, the regulation
of dietary supplements is significantly less restrictive than the regulatory
framework imposed upon manufacturers or distributors of drugs and food
additives. Unlike food additives, which are more regulated, and new drugs,
which require regulatory approval of formulation and labeling prior to
marketing, dietary supplement companies are authorized to make substantiated
statements of nutritional support and to market new,
manufacturer-substantiated-as-safe dietary supplement products without FDA
preclearances. Since the Company makes no therapeutic claims for its products,
the Company believes it falls within this category. However, the FDA retains
jurisdiction to regulate labeling and printed sales literature insofar as such
materials may invoke the FDA's health claims regulations. The Company cannot
determine what effect new FDA regulations in this area might have on its
business in the future. Such regulations could, among other things, require
expanded or different labeling, the recall or discontinuance of certain
products, additional record keeping and expanded documentation of the
properties and certain products and scientific substantiation.
In the future, the Company may be subject to additional laws or
regulations administered by the FDA or other federal, state or foreign
regulatory authorities, the repeal of laws or regulations that the Company
considers favorable, such as the DSHEA, or more stringent interpretations of
current laws or regulations. The Company is unable to predict the nature of
such future laws, regulations, interpretations or application, nor can it
predict what effect additional governmental regulations or administrative
orders, when and if promulgated, would have on its business in the future. They
could, however, require the reformulation of certain products to meet new
standards, the recall or discontinuance of certain products not able to be
reformulated, imposition of additional record keeping requirements, or expanded
documentation of the properties of certain products, expanded or different
labeling and scientific substantiation. Any or all of such requirements could
have a material adverse effect on the company's results of operations and
financial condition.
(10) Research and Development
Although the Company has chosen to integrate the costs of research and
development in its general overhead, Management is of the view that until 1999,
virtually all of its expenditures were in the nature of research and
development, whether related to product formulation, development and revision
of distribution methods, development and revision of marketing strategies, or
development and revision of training and support protocols and associated
manuals.
Management anticipates spending little, if anything, on product
research and development in 1999, although it may bring to market several
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products already formulated but not presently being produced. To the extent
significant research and development does occur in 1999, the Company believes
that it will be related to adjustments and/or refinements in current product
lines and in testing of new and old methods of distribution, training,
marketing and support.
(11) Compliance with Environmental Laws
The Company believes that it is in full compliance with all relevant
environmental laws. Due to the nature of the Company's operations, to date, the
cost of complying with environmental laws does not have a significant effect on
the Company's operations.
(12) Employees
As of June 30, 1999, Access Health Alternatives, Inc., had 15 full-time
employees and two part-time employees, all of whom were engaged in
administrative capacities and three of whom are considered executives. Access
HealthMax, Inc., employed 6 full-time people, and one part-time employee; two
of HealthMax' employees are involved in distribution and the balance are in
sales. In addition, HealthMax is supported by approximately 7 independent
contractors who are primarily engaged in sales and support within specific
market areas. It is anticipated that this market representative role will grow
as the Company's presence expands into new markets.
None of the Company's employees is represented by labor unions. The
Company believes its relationship with employees is good.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The following discussion and analysis should be read in conjunction
with the financial statements of the Company and the accompanying notes
appearing subsequently under the caption "Financial Statements."
The following discussion and analysis contains forward-looking
statements, which involve risks and uncertainties. The Company's actual results
may differ significantly from the results, expectations and plans discussed in
these forward-looking statements.
During the past two years, the Company, through its subsidiaries, has
spent considerable time and capital resources on defining, developing and
testing its strategic plan for delivering nutritional education, support and
supplements through a network of healthcare professionals certified in the
Access HealthMax method. The Company has tested a number of methods of tactical
deployment for creating its network of nutritional healthcare providers and
marketing its services and products, all with the primary and overriding
objective of maximizing the number of nutritional products delivered to
consumers and patients. A comparison of the financial statements for the fiscal
years ended December 31, 1998 and 1997, and a comparison of the six months ended
June 30, 1999 and 1998, show the impact of the Company's continual efforts to
determine the best method for delivery of its products and services, and the
resulting change in tactics.
In addition to the historical activities relating to product
formulation, development of the HealthMax instructional manuals, and creation
and refinement of strategies for the delivery and marketing of the Company's
services and products, Management focused a significant portion of its
resources on capital raising and on preparing for the establishment of a
trading market for the HealthMax' (and, ultimately, the Company's) common
stock. Although these efforts ultimately resulted in the reverse merger into
PLC Venture Corp., attention to financing the Company was a serious diversion
of senior Management time, one consequence of which was a slower than expected
growth in the Company's core business. Although the Company will continue to
seek private debt and/or equity financing in 1999, the Company also will
attempt to grow through operations by hiring additional senior-level Management
and streamlining delivery of the Company's programs and networks.
Additional plans for 1999 include the deployment of the Company's
Health Assurance Plans. The Company believes that these member benefits plans
will increase the likelihood of provider loyalty to the Company's products and
networks, which should translate into ongoing and increasing product sales. The
Company anticipates devoting significant funds (as available) to the creation
of a meaningful presence on the internet, which will serve as an important
vehicle for education, marketing and sales of product. The web site's
e-commerce component is expected to develop, over time, into the primary method
for ordering the Company's nutritional products, and for tracking sales and
fulfillment of those product orders.
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<PAGE> 14
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Management believes that a comparison of the financial performance of
the Company in the fiscal year ended December 31, 1998 and in the fiscal year
ended December 31, 1997 dramatically indicates the impact of the Company's
decision in mid-1998 to terminate sales of labs and sophisticated lab equipment
ancillary to its products and systems. Prior to that decision, this equipment
was sold to members of the Company's provider network, and required a fairly
high level of training and support. The equipment component presently sold to
providers is a much more basic, much less costly component, with a higher
profit margin to the Company. As a result of the decision to alter the
equipment component, revenue from the sales of equipment decreased by 27.1%,
from $411,610 in 1997 to $299,989 in 1998. During that time, the cost of sales
for equipment decreased by 56.7%, from $135,670 in 1997 to $58,799 in 1998.
Sales of the Company's products increased from $240,607 in the fiscal
year ended December 31, 1997 to $439,601 in December 31, 1998, or 82.7%. The
cost of those sales increased by 13.7%, from $109,938 in 1997 to $125,027 in
1998. More importantly, the cost of sales as a function of the sales decreased
substantially from 45.7% in 1997 to 28.4% in 1998. Similarly, gross profit
margins for the sale of products increased from 54.3% in 1997 to 71.6% in 1998.
These changes are largely the result of greater discounts from the products'
manufacturer as a result of increased volume. Management believes that profit
margins on the sale of products can be further increased as volume increases.
Three limited liability companies affiliated with the Company
experienced losses in 1998 and 1997. Under the terms of the operating
agreements between HealthMax and the limited liability companies, 99% of the
losses of the limited liability companies is allocated to HealthMax.
Accordingly, the amounts of $506,255 and $363,341, were reflected as a
reduction of selling, general and administrative expenses of the Company in
1998 and 1997, respectively, and the amount to due the limited liability
companies were reduced by the same amounts.
Six Months Ended June 30, 1999, Compared with Six Months Ended June 30, 1998
As a result of the Company's persistent cash flow difficulties, and as
a consequence of certain unfulfilled funding commitments, senior management of
the Company was forced to focus most of its time and resources on the Company's
corporate finance requirements, rather than on sales of new licenses and
expansion of the Company's networks. The impact of this was reflected in the
lack of new site licenses, and in a diminution in equipment and product sales,
which accounted for the marked decline in revenue from $496,301 during the
six months ended June 30, 1998 to $335,869 during the six months ended June 30,
1999. Accordingly, sales of equipment (which are a component of new licenses
only) declined from $215,133 in the six months ended June 30, 1998, to none in
the comparable quarter in 1999. Similarly, product sales declined both because
of the lack of new new site licenses, which include a quantity of product
sales, and because new site licenses often are shortly followed by additional
sales generated by enthusiastic new participants.
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<PAGE> 15
Cost of sales as a function of sales declined from approximately 25% in
the six months ended June 30, 1998, to approximately 23% during the six months
ended June 30, 1999. This was to be expected, as the 1998 quarter included the
sales of equipment, which carry a greater cost of sales than product. The
Company continued to receive the benefit of better pricing on its products,
resulting in an increase in the profit margins on its product sales from 74.9%
during the six months of 1998 to 76.3% during the six months of 1999. Management
believes that as the volume of sales recovers, profit margins should continue to
increase.
Selling, general and administrative expenses during the six months
ended June 30, 1999, were significantly greater than during the comparable
period in 1998, increasing from $524,097 to $707,739, or a 35% increase. This
was in part the result of the addition of new members of management,
professional fees necessitated by operating in a public environment, and
expenses related to the development of the Company's website. Ongoing increases
in SG&A during 1999 may be anticipated.
Liquidity and Capital Resources
Despite non-binding commitments from third-parties to fund the
Company's operations in 1998, the Company continued to experience, and
continues to experience, cash flow shortages that have slowed the Company's
growth. During fiscal 1998, one consequence of those cash flow shortages has
been an increase of $132,788 in accounts payable and an increase of $390,044 in
accrued liabilities, bringing those figures to $284,637 and $452,188,
respectively, at December 31, 1998. At June 30, 1999, those numbers were
$145,756 and $389,339, respectively.
The Company has primarily financed its activities from the sale of
capital stock of HealthMax, and from loans from affiliated parties, including
HealthCare and the limited liability companies. A significant portion of the
funds raised from the sale of capital stock has been used to reduce
indebtedness on commercial paper ($520,664 and $813,596 in 1998 and 1997,
respectively) and to service certain investments in the limited liability
companies made by third parties, as well as to cover working capital deficits.
The Company continues to experience negative cash flow, and
anticipates this continuing through 1999. The Company is currently engaged in a
private offering that, if fully completed, would result in proceeds to the
Company of approximately $1 million, with additional funds in excess of $5
million if warrants that are part of that offering are exercised in full. There
can be no assurances that the offering will be completed, or that any warrants
will be exercised.
In May 1999, the Company received a revolving loan commitment of
$500,000 for the purchase of inventory ($250,000 of which has been funded) and
a $75,000 loan for working capital. The inventory financing is expected to be
repaid from the sale of product during the next two years; the working capital
loan is expected to be repaid from the proceeds of an ongoing private offering.
15
<PAGE> 16
Management believes that additional funding will be necessary in order
for it to continue as a going concern. In addition to the ongoing private
offering, the Company is investigating other forms of private debt and/or
equity financing, although there can be no assurances that the Company will be
successful in procuring such financing or that it will be available on terms
acceptable to the Company, if at all.
Year 2000 Impact Statement
The Company is not aware of any potential problems resulting from the
year 2000 with any of its computer systems, major vendors or suppliers.
Potential Sales and Earnings Volatility
The Company's sales and earnings may be subject to potential
volatility based upon, among other things: (i) the adverse effect of HealthMax
Nutritional Centers' or the Company's failure, or allegations of their failure,
to comply with applicable regulations; (ii) the negative impact of changes in
or interpretations or regulations that may limit or restrict the sale of
certain of the Company's products, the expansion of its operations into new
markets and the introduction of its products into each such market; (iii) the
inability of the Company to introduce new products or the introduction of more
products by the Company's competitors; (iv) general conditions in the
nutritional supplement industry; and (v) consumer perceptions of the Company's
products and operations. In particular, because the Company's products are
ingested by consumers, the Company is dependent upon consumers' perception of
the safety and quality of its products. As a result, substantial negative
publicity concerning one or more of the Company's products or other nutritional
supplements similar to the Company's products could adversely affect the
Company results of operations or financial condition.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company's corporate headquarters, including administrative
offices, and research and development facilities are located in downtown
Orlando, Florida, and are leased from an affiliated party. The Company also
maintains a regional sales office in Bloomington, Minnesota, which it rents
from an employee at a minimal monthly rate, and a regional sales office in
Colorado Springs, Colorado, which it rents from an unaffiliated party, also at
a minimal monthly rate. The Company presently utilizes certain distribution
facilities in Norcross, Georgia, under a verbal agreement, for which it pays
$2,000 per month.
The Company believes all leased property is in good and satisfactory
condition, and is suitable for the Company's business needs for the term of the
respective leases.
Addresses for the Company's locations are as follows:
Colorado: 101 N. Cascade Avenue, #3, Colorado Springs, CO 80903
Florida: 2016 S. Orange Avenue, Orlando, FL 32806
Georgia: 6665-B Corners Industrial Court, Norcross, GA 30082
Minnesota: 2850 Metro Drive, Suite 223, Bloomington, MN 55425
16
<PAGE> 17
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
As of June 30, 1999, the Company had issued and outstanding 1,587,684
shares of its Common Stock. The following table sets forth, as of that date,
certain information regarding beneficial ownership of the Common Stock by those
persons known by the Company to be beneficially holding more than five percent
of the Company's common stock.
NAME AND ADDRESS(1) # OF SHARES % OF TOTAL
- ------------------- ----------- ----------
The Daniel J. Pavlik Revocable Trust(2) 218,618 13.80
1602 Patton Avenue
Apopka, FL 32703
The Rebecca Pavlik Revocable Trust(3) 218,618 13.80
1602 Patton Avenue
Apopka, FL 32703
Patricia Cohen 150,000 9.45
203 Waymouth Harbor Cove
Longwood, FL 32792
Donald Metchick(4) 145,265 9.15
106 Wisteria Drive
Longwood, FL 32792
Mia Metchick(5) 81,000 5.10
2242 Stonington Avenue
Orlando, FL 32817
Jennifer Trammel(5) 81,000 5.10
836 Marque Drive
Clermont, FL 34711
- -----------------
(1) For purposes of the table, a person is considered to "beneficially
own" any shares with respect to which he/she directly or indirectly
has or shares voting or investment power or of which he or she has the
right to acquire the beneficial ownership within 60 days. Unless
otherwise indicated and subject to applicable community property law,
voting power and investment power are exercised solely by the person
named above or shared with members of his or her household.
(2) Does not include 715,000 shares issuable upon closing of the
acquisition of HealthCare.
(3) Does not include 715,000 shares issuable upon closing of the
acquisition of HealthCare.
(4) Does not include 476,000 shares issuable upon closing of the
acquisition of HealthCare.
(5) Held in name only; will revert to certain former shareholders of PLC
Venture Corp. or their assigns in near future.
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<PAGE> 18
(b) SECURITY OWNERSHIP OF MANAGEMENT.
As of June 30, 1999, the Company had issued and outstanding 1,587,684
shares of its Common Stock. An additional 600,000 shares were to have been
issued as of January 1, 1999, pursuant to certain executive employment
agreements, and will be issued in the next 30 days. Of the shares to be issued,
200,000 shares will be released to the shareholders, 200,000 will be held in
escrow until January 1, 2000, and 200,000 will be held in escrow until January
2, 2001.
The following table sets forth, as of June 30, 1999, certain
information regarding beneficial ownership of the Common Stock by members of
Management, giving effect to the issuance of the 600,000 shares described
above.
NAME AND ADDRESS(1) # OF SHARES % OF TOTAL
- ------------------- ----------- ----------
Daniel J. Pavlik(2) 218,618 10.00
1602 Patton Avenue
Apopka, FL 32703
Donald Metchick(3) 245,265 11.21
106 Wisteria Drive
Longwood, FL 32792
Steven Miracle(4) 100,000 4.57
3000 Old Alabama, Suite 119250
Alpharetta, Georgia 30022
- --------------------
(1) Based on 2,187,684 shares outstanding.
(2) Represents shares owned of record by The Daniel J. Pavlik Revocable
Trust. Does not include 218,618 shares owned of record by The Rebecca
Pavlik Revocable Trust, as to which Dr. Pavlik disclaims beneficial
ownership. Does not include 715,000 shares issuable to The Daniel J.
Pavlik Revocable Trust upon closing of the acquisition of HealthCare.
(3) Does not include 476,000 shares issuable upon closing of the
acquisition of HealthCare. Does not include 100,000 shares issued in
Mr. Metchick's name but held in escrow until January 1, 2000, and
100,000 shares issued in Mr. Metchick's name but held in escrow until
January 1, 2001, which shares cannot be voted or disposed of by Mr.
Metchick until released from escrow.
(4) Does not include 100,000 shares issued in Mr. Miracle's name but held
in escrow until January 1, 2000, and 100,000 shares issued in Mr.
Miracle's name but held in escrow until January 1, 2001, which shares
cannot be voted or disposed of by Mr. Miracle until released from
escrow.
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<PAGE> 19
(c) CHANGES IN CONTROL.
Not Applicable
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
(a) DIRECTORS AND EXECUTIVE OFFICERS.
Directors are elected annually and serve until the next annual
shareholders' meeting, unless they resign or are removed earlier in accordance
with the Company's Amended and Restated Articles of Incorporation.
Executive Officers are appointed by the Board of Directors.
DANIEL J. PAVLIK, 48, PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE
BOARD.
Dr. Pavlik has been active in the healthcare industry for the last 20
years. He obtained his undergraduate degree from Indiana University of
Pennsylvania in 1973. In February 1997 he received his master of science degree
from Rollins College, Orlando, Florida. His postgraduate doctoral studies were
completed by June of 1980, when he received his Doctorate of Chiropractic
Degree from Palmer College of Chiropractic located in Davenport, Iowa. Dr.
Pavlik has founded and developed three healthcare companies during his
professional career. As President of NMS Rehabilitation, Inc. from 1985 through
1992 he successfully implemented nine full service physical rehabilitation
facilities in a multi-state forum. From 1987 through 1993 he founded and
developed one of the largest chiropractic preferred provider organizations in
the nation, consisting in excess of 1,200 members. As well, Dr. Pavlik has been
active since 1980 in the management and development of the largest chiropractic
group practice in Central Florida. The need for constant improvement within the
healthcare delivery system has lead to his innovative and visionary programs.
STEVEN MIRACLE, 45, CHIEF OPERATING OFFICER.
Mr. Miracle joined the Company as of January 1, 1999, after over 20
years of senior-level healthcare administrative experience, which included
developing and implementing growth strategies for companies prepared to move to
a new level of productivity and orchestrating turn-around situations, as well
as establishing and carrying out business plans from start-up through
profitable operations. Mr. Miracle began his career in healthcare
administration after receiving his M.B.A. from Vanderbilt University in 1977.
As part of its early management group, Mr. Miracle was instrumental in
developing and implementing operating procedures for Humana's primary care
business, assisting in the migration from a hospital-based business and
creating templates for the financial analysis of Humana's acquisition targets.
After serving as the principal operations officer for several start-up
ventures, Mr. Miracle more recently served as the President of AmHealth, Inc.,
an occupational health provider, taking it from near bankruptcy, through a
creditor work-out, consolidation, and successful sale.
DONALD METCHICK, 56, VICE PRESIDENT AND DIRECTOR.
Mr. Metchick has been in the financial services and estate planning
areas for 22 years. From 1973 until 1993, he was a general insurance agent for
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<PAGE> 20
John Hancock Insurance Co. Mr. Metchick filed for and was discharged from
personal bankruptcy in the United States Bankruptcy Court in early 1994. Mr.
Metchick is the President of the Company's newly-formed subsidiary, Access
Health Assurance Plans, Inc., and has been and will continue to be instrumental
in the development and deployment of the Company's Nutritional Options plans.
RICHARD D. EKSTROM, 55, DIRECTOR.
Mr. Ekstrom was appointed to the Company's Board of Directors in May
1999. He is the Chairman of the Board of Directors and President of Demegen,
Inc., a publicly-held company, and has served in those capacities since January
1996. Mr. Ekstrom was Demegen's Chief Financial officer from December 1994
until August 1998. Mr. Ekstrom holds a B.A. from Cornell University and an
M.B.A. from Boston University. From 1990 through 1991, Mr. Ekstrom was
President of Cost Containment Corporation and from 1993 through 1994, he was
Chief Operating Officer of Preferred Solutions Inc., both of which were
start-up pharmacy benefit management companies. Mr. Ekstrom is the founder of
Prescription Price Watch, a buying guide for pharmacy benefit programs. From
1968 to 1990, he was employed by Westinghouse Electric Corporation where he
served in a variety of management positions, including controller,
manufacturing manager and corporate staff positions.
The Board of Directors intends to establish Compensation and Audit
Committees; as the only "outside director" at this time, Mr. Ekstrom is
expected to serve on those committees. The Compensation Committee will
establish salaries, incentives and other forms of compensation for directors,
officers and other employees for the Company, will administer the Company's
incentive compensation and benefit plans and recommend policies relating to
such incentive compensation and benefit plans. The Audit Committee will review
the need for internal auditing procedures and the adequacy of internal controls
and meets periodically with management and independent auditors.
(b) OTHER SIGNIFICANT EMPLOYEES.
Dr. Barry Bradley has served as the Executive Vice President of
Education and Product Development for HealthMax since HealthMax' inception. He
is board certified in clinical nutrition through both the American College of
Nutrition and the Clinical Nutrition Certification Board, and is HealthMax
principal clinical nutritionist, responsible for HealthMax' product
formulations. A practicing chiropractor and clinical nutritionist for over 21
years, Dr. Bradley was in private practice with the Bradley Chiropractic Center
in West Monroe, Louisiana from 1979 to 1991, and with the Darrow Family
Chiropractic Clinic in Longwood, Florida, from 1992 to 1995. Dr. Bradley
received his Doctor of Chiropractic in 1978 from the Cleveland College of
Chiropractic, and is certified in several areas of nutritional healthcare and
chiropractic. He is a member of the International and American Association of
Clinical Nutritionists, the American Chiropractic Association Council on
Nutrition, the American Chiropractic Board of Nutrition, and the Clinical
Nutrition Certification Board. In June 1995, Dr. Bradley sought protection
under the federal bankruptcy laws, both personally and professionally, in
connection with an unsuccessful business venture (Dr. Barry J. Bradley DBA
Cornerstone Chiropractic Clinic); these cases were discharged in October 1995.
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<PAGE> 21
(c) FAMILY RELATIONSHIPS.
None of the members of Management and/or other key employees is
related to another.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
Not applicable.
ITEM 6. EXECUTIVE COMPENSATION.
(a) GENERAL.
During the past three fiscal years, the Company has operated without
formal employment agreements with respect to its executive officers. During
that time, the only person whose compensation, including salary and bonuses,
exceeded $100,000, was Dr. Daniel J. Pavlik (President and Chief Executive
Officer). Effective January 1, 1999, the Company entered into written
agreements with Donald Metchick and Steven Miracle, the principal terms of
which agreements are described below.
The Company presently does not have any form of stock option or stock
grant plan, although it anticipates reserving up to two million shares for such
a plan in the near future.
(b) SUMMARY COMPENSATION TABLE.
The following table shows all the cash compensation paid by the
Company, during the fiscal years indicated, to the President and CEO; no other
person earned or was paid at least $100,000 in all forms of compensation. There
was no long-term compensation earned or paid to any party, nor was any other
form of reportable compensation earned or paid.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
(a) (b) (c) (d) (e)
Total
Annual
Compen-
sation
Name and Principal Position Year Salary ($) Bonus ($) ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Daniel J. Pavlik, CEO 1998 174,999 -- 174,999
1997 153,845 -- 153,845
1996 -- -- --
</TABLE>
The foregoing includes $100,961 earned in 1998 by Dr. Pavlik but not
paid in 1998, which amount has not been paid to date. These amounts do not
include amounts paid by HealthCare, which was not a subsidiary during the
reported years and is not presently a subsidiary.
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<PAGE> 22
(c) OPTION/SAR GRANTS TABLE.
Not applicable.
(d) AGGREGATED OPTION/SAR EXERCISE AND FISCAL YEAR-END OPTION/SAR VALUE
TABLE.
Not applicable.
(e) LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE.
Not applicable.
(f) COMPENSATION OF DIRECTORS.
The Company does not separately compensate its employee directors for
their service as directors. Non-employee directors are expected to receive
annual fees of $2,500, with no additional compensation for meetings attended.
Non-employee directors also will be reimbursed any reasonable out-of-pocket
expenses incurred in connection with their attendance at meetings. No
additional compensation is anticipated for service on committees of the Board
of Directors.
Prior to April 1999, all of the Company's directors (and nominees for
directors) also were employees. Accordingly, no compensation reportable under
this item was paid.
(g) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-
CONTROL ARRANGEMENTS.
Effective January 1, 1999, the Company has entered into an executive
employment agreement with Steven Miracle, pursuant to which Mr. Miracle serves
as the Chief Operating Officer of Access Health Alternatives, Inc. Mr. Miracle
also serves in that capacity with respect to HealthMax. The term of the
agreement is three years, with consecutive one-year terms if not terminated by
written notice prior to the expiration of an ongoing term. Mr. Miracle will
receive a base salary of $125,000 in each year of the term, and will be
entitled to a cash bonus equal to two percent (2%) of the Company's annual net
profits after taxes, subject to maximums as follows: $100,000 in 1999; $150,000
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<PAGE> 23
in 2000; and $200,000 in 2001. Mr. Miracle also is to receive a common stock
bonus as follows: 100,000 shares upon commencement of his employment
relationship (which has not been issued to date but will be shortly); 100,000
shares on January 1, 2000; and 100,000 shares on January 1, 2001. In the event
of a change of control of the Company, as defined in the agreement, additional
compensation would be payable to Mr. Miracle.
Effective January 1, 1999, the Company has entered into an executive
employment agreement with Donald Metchick, pursuant to which Mr. Metchick
serves as the Executive Vice President in charge of Health Assurance Plans of
Access Health Alternatives, Inc., and as the President of HAP. The term of the
agreement is three years, with consecutive one-year terms if not terminated by
written notice prior to the expiration of an ongoing term. Mr. Metchick will
receive a base salary of $100,000 in each year of the term, and will be
entitled to a cash bonus equal to two percent (2%) of the Company's annual net
profits after taxes, subject to maximums as follows: $100,000 in 1999; $150,000
in 2000; and $200,000 in 2001. Mr. Metchick also is to receive a common stock
bonus as follows: 100,000 shares upon commencement of his employment
relationship (which has not been issued to date but will be shortly); 100,000
shares on January 1, 2000; and 100,000 shares on January 1, 2001. In the event
of a change of control of the Company, as defined in the agreement, additional
compensation would be payable to Mr. Metchick.
The Company has no employment contracts with any other employees,
although it anticipates entering into agreements with Dr. Daniel J. Pavlik and
Dr. Barry Bradley, the terms of which agreements have not been finalized.
(h) REPORT ON REPRICING OF OPTIONS/SARS.
Not applicable.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company leases its corporate headquarters in Orlando, Florida from
PSC Realty, a partnership in which Dr. Pavlik, the Company's President and
Chief Executive Officer, is a partner.
The Company's distribution facilities in Norcross, Georgia, are
provided at a rate of $2,000 per month under a verbal arrangement with Paideia
Health, Inc. ("Paideia"), a company controlled by Steven Miracle, the Company's
Chief Operating Officer. Paideia leases the premises from an unaffiliated third
party. It is anticipated that Access Health Alternatives, Inc., will enter into
a formal agreement with the owner of the premises in the next 60 days, at which
time Paideia's lease will be terminated.
Pavlik Chiropractic Group, P.A. ("PCG"), a professional association
owned and controlled by Dr. Pavlik, employs the doctors who provide services
through Access HealthCare, Inc. HealthCare reimburses PCG for the costs
associated with the employment of the doctors, and PCG does not receive any
premium or other compensation for its role.
In addition to the foregoing, the Company has arrangements with
certain limited liability companies that may be considered related-party
transactions. Details of those arrangements are described elsewhere herein.
ITEM 8. LEGAL PROCEEDINGS.
The Company is not presently a party to any material litigation not in
the regular course of its business, nor to the Company's knowledge is such
litigation threatened, except as follows: one of the Company's unsecured
creditors has threatened to file suit against the Company in connection with a
debt of $64,583 claimed to be owed to him by the Company. The Company believes
that this matter has been resolved, subject to documentation.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION.
Bid and ask quotations for the Company's Common Stock, $.001 par
value, are posted on the over-the-counter bulletin board of the National
Association of Securities Dealers, Inc. From the commencement of trading in
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<PAGE> 24
October 1998 until the Reverse Stock Split in March 1999, the stock traded under
the symbol, "AHMX." Following the Reverse Stock Split, through June 1999, the
stock traded under the symbol, "AHMXD." The stock briefly resumed quotation
under "AHMX" before changing to "AHMXE" in early July.
The Company is aware that there is a possibility that it will become
ineligible for quotation on the Bulletin Board if the Securities and Exchange
Commission has not completed its comments with respect to this Registration
Statement on Form 10SB by August 1, 1999. In that case, the Company believes
that a reasonably comparable quotation medium will be available in the form of
the "Electronic Pink Sheets" of the National Quotation Bureau, until such time
as this Registration Statement has been cleared of all comments by the
Commission.
The following table sets forth the range of high ask and low bid
prices for the Company's Common Stock on a quarterly basis since the
commencement of trading in October 1998 (giving retroactive effect to the
1-for-10 reverse stock split declared in March 1999), as reported by the
National Quotation Bureau (which reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent actual
transactions). The foregoing and following information should not be taken as
an indication of the existence of an established public trading market for the
Company's Common Stock.
COMMON STOCK
High Ask Low Bid
-------- -------
Quarter ended December 31, 1998 $90.0000 $ 0.6250
Quarter ended March 31, 1999 $ 3.3750 $ 0.1563
Quarter ended June 30, 1999 $ 3.0000 $ 1.6250
(b) HOLDERS.
As of June 30, 1999, the approximate number of record holders of the
Company's common stock was 40. This includes brokerage firms and/or clearing
firm holding the Company's stock for their clientele (with each such brokerage
house and/or clearing house being considered as one holder). The Company
believes that the number of beneficial owners exceeds 200, however there can be
no assurance that this is accurate.
(c) DIVIDENDS.
Holders of Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors out of funds available therefor, subject
to any restrictions imposed by any loan or other agreements, including the
rights of investors in affiliated limited liability companies, who are entitled
to certain distributions based on revenue, and holders of Series A Redeemable
Convertible Preferred Stock, who will have a dividend preference described
elsewhere herein.
The Company has not paid or declared any dividends on its Common Stock
since its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future.
24
<PAGE> 25
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
The following shares of unregistered common stock of the Company have
been issued in the period from September 2, 1998 (the Exchange Date) through
June 30, 1999 (with adjustments shown to reflect the Reverse Stock Split
declared in March 1999):
In October 1998, the Company issued 20,000 restricted shares of common
stock to LNB Investment Corporation, under an assignment from Capital FCG
Unlimited, Inc. ("FCG"), in consideration for consulting services rendered by
FCG. These shares were issued under Section 4(2) of the Securities Act of 1933,
as amended (the "Act") and were due to have been issued in September 1998,
following the Share Exchange. The parties have valued the shares at $1.00 per
share, as there was no trading market for the shares at the time they were
earned, and the services were valued at $20,000.
In February 1999, the Company sold a total of 323,334 shares of Common
Stock, for an aggregate of $485,000, pursuant to Rule 504, to the following
persons and in the following amounts:
Alan K. Avra 10,000 Shares
Lonnie E. Avra 10,000 Shares
Joseph Camillo 10,000 Shares
Cheverlton Fund Ltd. 60,000 Shares
Richard W. Coffman 10,000 Shares
Thomas S. Danford 10,000 Shares
Derrick Dental Care, P.A. 10,000 Shares
Money Purchase Plan
Anthony C. & Rosemary E. Derrick 10,000 Shares
Sean R. Derrick 10,000 Shares
Hi-Tel Group, Inc. 30,000 Shares
George R. Kinney 40,000 Shares
Angie G. Langley 14,334 Shares
Lyle G. Meyers 20,000 Shares
Sheila O'Derrick 10,000 Shares
Progressive Media Group, Inc. 39,000 Shares
Greig A. Rank 10,000 Shares
David Tuscan 10,000 Shares
Doug Ward 10,000 Shares
In March 1999, the Company issued a total of 16,000 restricted shares
to certain employees, independent contractors and consultants, as a bonus for
services rendered. The shares were issued under Section 4(2) of the Act, as
follows:
Barry Bradley 10,000 Shares
Ron Broman 500 Shares
Roger Cameron 500 Shares
Kirk Johnson 500 Shares
Mark Leutem 1,500 Shares
Brent Phillips 2,500 Shares
Mary Jo Sabata 500 Shares
25
<PAGE> 26
In April 1999, the Company issued 150,000 shares of Common Stock to
Patricia Cohen, in consideration for her assistance in facilitating revisions
in January and February 1999 to the original Share Exchange and related
transactions. These shares were valued by the parties at $150,000, and were
issued under Rule 504.
In April 1999, the Company issued 75,000 shares of Common Stock to Amy
Lewis, in consideration for consulting services; the shares were issued under
Section 4(2), and were due to have been issued immediately following the Share
Exchange in September 1998. The parties have valued the shares at $1.00 per
share, as there was no trading market for them at the time they were earned,
and the services were valued at $75,000.
In May 1999 the Company sold one Unit of its securities pursuant to
Rule 506 promulgated under the Act, for $25,000. The securities have not yet
been issued. The Unit consisted of one shares of Series A Redeemable
Convertible Preferred Stock, one Class A Warrant and one Class B Warrant.
In July 1999 the Company agreed to retain The Edge Unlimited, Inc.
("The Edge"), Orlando, Florida to provide certain investor relations and public
relations services, for which The Edge will receive 150,000 restricted
shares of the Company's common stock, under Section 4(2).
ITEM 11. DESCRIPTION OF SECURITIES.
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock,
$.001 par value per share, of which approximately 1.6 million of which are
currently outstanding, and an additional 2.0 million (approximately) of which
have been reserved in connection with the acquisition of HealthCare. An
additional 4.2 million shares of common stock (approximately) have been
reserved in connection with an ongoing offering of securities presently being
conducted under Regulation D of the Securities Act (the "Unit Offering"), which
offering is described below. The Company also has reserved 600,000 shares for
issuance under two employment agreements, which shares are to be issued in the
immediate future, and approximately 430,000 shares that may be issued to
minority shareholders of HealthMax in connection with a pending share exchange.
The Company anticipates reserving an additional 2.0 million shares in
connection with a planned stock option plan, which has not been finalized.
Holders of Common Stock are entitled to cast one vote for each share
held at all stockholder meetings for all purposes, including the election of
directors. Cumulative voting for the election of directors is not permitted.
The holders of more than 50% of the Common Stock issued and outstanding and
entitled to vote, present in person or by proxy, constitute a quorum at all
meetings of stockholders. The vote of the holders of a majority of Common Stock
present at such a meeting will decide any question brought before such a
meeting, except for certain actions such as amendments to the Articles of
Incorporation, or a merger or dissolution of the Company, which would require
the affirmative vote of the holders of a majority of the outstanding shares of
Common Stock. Upon liquidation or dissolution, the holder of each outstanding
share of Common Stock will be entitled to share equally in the assets of the
Company legally available for distribution to the shareholders, after payment
of all liabilities (including distributions to investors in the LLCs). Holders
of Common Stock do not have any preemptive, subscription or redemption rights.
All outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby, upon purchase on the terms hereof will be, fully paid and
nonassessable.
26
<PAGE> 27
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred
stock, $.01 par value per share, the rights and preferences of which may be
designated by the Board of Directors without shareholder approval. On March 3,
1999, the Company designated the rights and preferences of its Series A
Redeemable Convertible Preferred Stock, and authorized the sale of up to
1,400,000 shares as part of the Unit Offering. Prior to the Unit Offering, no
series of preferred stock had been designated. No shares of Series A Redeemable
Convertible Preferred Stock are currently outstanding, although one share has
been sold and is due to be issued.
The following is a summary of the rights and preferences of the Series
A Redeemable Convertible Preferred Stock:
Voting: none until conversion
Preference on liquidation: none
Dividend: 10.5% per year per share until
conversion or redemption; payable
quarterly commencing on the six
month anniversary of the completion
of this offering; funds must be
legally available for payment
Conversion: At the holder's election, by
written notice, at any time from
March 15, 2000 (the one-anniversary
of the commencement of the Unit
Offering) to March 14, 2002, into
one share of common stock
Redemption: By the Company at any time prior to
conversion, at a redemption price
of $1.44 per share
Registration: The Company will include the shares
of common stock into which the
Series A Redeemable Convertible
Preferred Stock may be converted
(or have been converted, as the
case may be) in the Company's first
registration statement to be filed
under the Securities Act of 1933,
as amended. In the event the
Company does not file such a
registration statement within 90
days following the completion of
the Unit Offering, the holders of a
majority of the Preferred Stock may
27
<PAGE> 28
demand that the Company file such a
registration statement within 90
days from receipt of written notice
by such holders, or as soon
thereafter as possible. Each
shareholder to whom these
registration rights pertains must
agree not to dispose of any of the
registered securities for at least
60 business days following the
effective date of the registration
statement if an underwritten
offering is then pending.
CLASS A WARRANTS
The Company has authorized the issuance of up to 1,400,000 Class A
Warrants, which are included in the Units offered in the Unit Offering. Each
Class A Warrant entitles the holder to purchase one share of the Company's
common stock for $3.00 per share, commencing on March 15, 2000, and for a
period of 90 days thereafter. The Company may redeem the Class A Warrants at
any time that the average closing bid and asked price for its common stock has
been at least $4.00 for a minimum of 20 consecutive trading days, at a
redemption price of $.01 per share, upon 30 days' written notice to the warrant
holders, during which time the warrant holders may exercise their warrants
(even if such exercise would precede March 15, 2000); provided, however, that a
current registration statement covering the underlying shares of common stock
is then available.
CLASS B WARRANTS
The Company has authorized the issuance of up to 1,400,000 Class B
Warrants, which are included in the Units offered in the Unit Offering. Each
Class B Warrant entitles the holder to purchase one share of the Company's
common stock for $4.50 per share, commencing on September 15, 2000, and for a
period of 90 days thereafter. The Company may redeem the Class B Warrants at
any time that the average closing bid and asked price for its common stock has
been at least $6.00 for a minimum of 20 consecutive trading days, at a
redemption price of $.01 per share, upon 30 days' written notice to the warrant
holders, during which time the warrant holders may exercise their warrants
(even if such exercise would precede September 15, 2000); provided, however,
that a current registration statement covering the underlying shares of common
stock is then available.
TRANSFER AGENT
The Transfer Agent for the Company's Common Stock is Interwest
Transfer and Trust Company of Salt Lake City, Utah.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended and Restated Articles of Incorporation and Bylaws of the
Company contain provisions limiting or eliminating the liability of directors
of the Company to the Company or to its shareholders to the fullest extent
permitted by the Florida Business Corporation Act and indemnifying officers and
directors of the Company to the fullest extent permitted by Florida law.
28
<PAGE> 29
The Company does not presently maintain directors' and officers'
liability insurance.
ITEM 13. FINANCIAL STATEMENTS.
The Company's financial statements, as well as the financial
statements for HealthCare and certain pro forma information related to the
acquisition of HealthCare by the Company, begin at page F-1.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following financial statements are submitted herewith:
(i) For Access Health Alternatives, Inc., and Subsidiary F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets at December 31, 1998
and June 30, 1999 (unaudited) F-3
Consolidated Statements of Operations for the
years ended December 31, 1998 and 1997 and
the six months ended June 30, 1999 and
1998 (unaudited) F-4
Consolidated Statements of Stockholders' Deficit
for the years ended December 31, 1998 and 1997
and the six months ended June 30, 1999
(unaudited) F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1998 and 1997 and
the six months ended June 30, 1999 and 1998
(unaudited) F-7
Notes to Consolidated Financial Statements F-8
(ii) For Access HealthCare, Inc. F-21
Independent Auditors' Report F-22
Consolidated Balance Sheets at December 31, 1998
and June 30, 1999 (unaudited) F-23
Consolidated Statements of Operations for the years
ended December 31, 1998 and 1997 and the six
months ended June 30, 1999 and 1998
(unaudited) F-24
Consolidated Statements of Stockholders' Deficit
for the years ended December 31, 1998 and 1997
and the six months ended June 30, 1999
(unaudited) F-25
Consolidated Statements of Cash Flows for the
years ended December 31, 1998 and 1997 and the
six months ended June 30, 1999 and 1998
(unaudited) F-26
Notes to Financial Statements F-27
29
<PAGE> 30
(iii) Pro Forma (unaudited) Consolidated Statements F-33
Pro Forma Consolidated Balance Sheet at
December 31, 1998 F-34
Pro Forma Consolidated Statements of Operations
for the years ended December 31, 1998 and 1997 F-35
Pro Forma Consolidated Balance Sheet at June 30,
1999 (unaudited) F-37
Pro Forma Consolidated Statements of Operations
for the six months ended ended June 30, 1999 and
1998 (unaudited) F-38
Notes to Pro Forma Consolidated Financial Statements F-40
(b) The following exhibits are submitted herewith:
Exhibit 3.1.1* Articles of Incorporation of B C Insurance
Services, Inc.
Exhibit 3.1.2* Articles of Amendment to B C Insurance
Services, Inc.
Exhibit 3.1.3* Articles of Restatement to the Articles of
Incorporation of PLC Ventures Corp.
Exhibit 3.1.4* Articles of Amendment to the Amended and
Restated Articles of Incorporation of
Access HealthMax Holdings, Inc.
Exhibit 3.1.5* Articles of Amendment to the Amended and
Restated Articles of Incorporation of
Access HealthMax Holdings, Inc.
Exhibit 3.2* Bylaws
Exhibit 4.1* Class A Common Stock Purchase Warrant
Exhibit 4.2* Class B Common Stock Purchase Warrant
Exhibit 10.1* Employment Agreement with Steven Miracle
Exhibit 10.2* Employment Agreement with Donald Metchick
Exhibit 10.3* Form of LLC Operating Agreement (LLC II
given as example)
Exhibit 11.1 Statement re: computation of per share
earnings (fiscal years ended December 31,
1998 and 1997)
Exhibit 11.2 Statement re: computation of per share
earnings (six months ended June 30, 1999
and 1998)
Exhibit 21* List of Subsidiaries
- --------------
* Previously Filed.
30
<PAGE> 31
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
ACCESS HEALTH ALTERNATIVES, INC.
-------------------------------------
(Registrant)
Date: August 26, 1999 By: /s/ Daniel J. Pavlik
---------------------------------
Daniel J. Pavlik, President
31
<PAGE> 32
ACCESS HEALTH ALTERNATIVES, INC.
Consolidated Financial Statements
December 31, 1998 and 1997 and
June 30, 1999 and 1998 (Unaudited)
(With Independent Auditors' Report Thereon)
F-1
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Access Health Alternatives, Inc.:
We have audited the accompanying consolidated balance sheet of Access Health
Alternatives, Inc. as of December 31, 1998, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the years
ended December 31, 1998 and 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Access Health
Alternatives, Inc. at December 31, 1998 and the results of their operations and
their cash flows for the years ended December 31, 1998 and 1997, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital and working capital deficiency, which raises substantial
doubt about their ability to continue as a going concern. Management's plans
regarding those matters are described in Note 9. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Tedder, James, Worden & Associates, P.A.
March 3, 1999, except as to note 1a which is as of March 11, 1999 and notes 10
and 11 which are as of April 30, 1999
F-2
<PAGE> 34
ACCESS HEALTH ALTERNATIVES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
----------- ----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 419 80,857
Receivables:
Trade 8,218 27,329
Other 7,988 10,127
----------- ----------
Total receivables 16,206 37,456
Inventories 68,968 55,805
Other current assets -- 10,906
----------- ----------
Total current assets 85,593 185,024
Property and equipment, net 51,034 43,360
Other assets, net 16,711 13,976
----------- ----------
Total assets 153,338 242,360
=========== ==========
Liabilities and Stockholders' Deficit
Current liabilities:
Notes and commercial paper 1,155,723 1,467,821
Current obligation under capital lease 7,523 6,903
Bank overdraft 101,357 --
Accounts payable 284,637 145,756
Accrued liabilities 452,188 389,339
Due to related parties:
Stockholders 117,378 22,708
Limited liability companies 1,084,099 1,063,614
Access Healthcare, Inc 39,383 39,744
----------- ----------
Total due to related parties 1,240,860 1,126,066
----------- ----------
Total current liabilities 3,242,288 3,135,885
Unearned income 278,417 239,417
Obligation under capital lease, less current portion 5,226 4,190
Minority interest in subsidiary 405,063 405,063
----------- ----------
Total liabilities 3,930,994 3,784,555
Stockholders' deficit:
Preferred stock, $.01 par value, 10,000,000 shares authorized,
1 share issued and outstanding at June 30, 1999 -- --
Common stock, $.001 par value, 50,000,000 share authorized,
1,023,350 shares issued and outstanding at
December 31, 1998 and 1,587,684 at June 30, 1999 1,023 1,587
Capital in excess of par value 26,477 762,193
Accumulated deficit (3,805,156) (4,305,975)
----------- ----------
Total stockholders' deficit (3,777,656) (3,542,195)
----------- ----------
Total liabilities and stockholders' deficit $ 153,338 242,360
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 35
ACCESS HEALTH ALTERNATIVES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended Six months ended
December 31, June 30,
------------------------------ -------------------------------
1998 1997 1999 1998
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Equipment $ 299,989 411,610 - 215,133
Products 439,601 240,607 200,625 231,365
Other 94,968 96,672 135,244 49,803
---------- ---------- ---------- ----------
Total revenues 834,558 748,889 335,869 496,301
Cost of sales:
Equipment 58,799 135,670 - 64,235
Products 125,027 109,938 77,114 56,347
Other 7,180 - 2,460 3,800
---------- ---------- ---------- ----------
Total cost of sales 191,006 245,608 79,574 124,382
---------- ---------- ---------- ----------
Gross profit 643,552 503,281 256,295 371,919
Selling, general and administrative 1,191,534 1,010,221 707,739 524,097
---------- ---------- ---------- ----------
Operating loss (547,982) (506,940) (451,444) (152,178)
Other expense:
Interest expense 164,057 235,030 49,375 103,978
Other, net 2,559 5,470 - -
---------- ---------- ---------- ----------
Total other expense 166,616 240,500 49,375 103,978
---------- ---------- ---------- ----------
Net loss $ (714,598) (747,440) (500,819) (256,156)
========== ========== ========== ==========
Basic net loss per share $ (0.71) (0.74) (0.37) (0.26)
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 36
ACCESS HEALTH ALTERNATIVES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the years ended December 31, 1998 and 1997 and
six months ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Capital in
Preferred Stock Common Stock Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit Total
------- ------- -------- ------ -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996 -- -- 750 $ -- 7,500 (2,343,118) (2,335,618)
Net loss -- -- -- -- -- (747,440) (747,440)
------- ------- -------- ------ -------- ---------- ----------
Balances, December 31, 1997 -- -- 750 -- 7,500 (3,090,558) (3,083,058)
Shares issued to reflect
recapitalization for reverse
acquisition (Note 1a) -- -- 565,100 565 (565) -- --
Impact of reverse acquisition
of PLC Ventures Corp.
shares outstanding
(Note 1a) -- -- 437,500 438 (438) -- --
Shares issued for services -- -- 20,000 20 19,980 -- 20,000
Net loss -- -- -- -- -- (714,598) (714,598)
------- ------- -------- ------ -------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 37
ACCESS HEALTH ALTERNATIVES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT, CONTINUED
For the years ended December 31, 1998 and 1997 and
six months ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Capital in
Preferred Stock Common Stock Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit Total
----- ----- --------- ------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1998 -- -- 1,023,350 1,023 26,477 (3,805,156) (3,777,656)
----- ----- --------- ------ ------- ---------- ----------
Shares issued in Rule 504
offering, February 1999 -- -- 323,334 323 484,677 -- 485,000
Shares issued for services -- -- 241,000 241 226,039 -- 226,280
Preferred share issued May 1999 1 -- -- -- 25,000 -- 25,000
Net loss for six months
ended June 30, 1999
(Unaudited) -- -- -- -- -- (500,819) (500,819)
----- ----- --------- ------ ------- ---------- ----------
Balances, June 30, 1999
(Unaudited) 1 -- 1,587,684 $1,587 762,193 (4,305,975) (3,542,195)
===== ===== ========= ====== ======= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 38
ACCESS HEALTH ALTERNATIVES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
------------------------ -----------------------
1998 1997 1999 1998
--------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(714,598) (747,440) (500,819) (256,156)
Adjustment to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 33,520 26,641 18,347 16,282
Losses of limited liability companies 506,255 363,341 86,204 280,797
Unearned income recognized (78,000) (33,583) (39,000) (39,000)
Issuance of common stock for services 20,000 -- 226,280 --
Cash provided by (used in) changes in:
Receivables 515 (6,226) (21,250) 6,679
Inventories (15,202) 39,835 13,163 (12,965)
Other assets -- (500) (10,906) (5,717)
Bank overdraft 61,749 36,174 (101,357) 84,889
Accounts payable 132,788 64,343 (138,881) 64,524
Accrued liabilities 390,044 (1,243) (62,849) 68,854
--------- -------- -------- --------
Net cash provided by (used in)
operating activities 337,071 (258,658) (531,068) 208,187
Cash flows from investing activities:
Payments for the purchase of property
and equipment (6,633) (53,712) (7,938) (2,500)
--------- -------- -------- --------
Net cash used in investing activities (6,633) (53,712) (7,938) (2,500)
Cash flows from financing activities:
Payments on notes and commercial paper (526,200) (815,441) (133,987) (415,531)
Proceeds from notes and commercial paper 150,015 -- 444,429 201,014
Due to (from) related party 143,233 (103,850) 361 20,890
Due to (from) stockholders (23,741) 148,619 (94,670) (148,619)
Advances (to) from limited liability companies (610,144) 824,647 (106,689) (5,238)
Increase in unearned income 130,000 260,000 -- --
Proceeds from issuance of stock 405,063 -- 510,000 147,000
--------- -------- -------- --------
Net cash provided by (used in)
financing activities (331,774) 313,975 619,444 (200,484)
--------- -------- -------- --------
Net increase (decrease) in cash (1,336) 1,605 80,438 5,203
Cash at beginning of period 1,755 150 419 1,755
--------- -------- -------- --------
Cash at end of period $ 419 1,755 80,857 6,958
========= ======== ======== ========
Supplemental disclosure of non-cash activities:
Cash paid during the period for interest $ 146,448 226,561 36,482 88,793
========= ======== ======== ========
Capital lease obligation $ -- 20,130 -- --
========= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 39
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION
On September 2, 1998, Access HealthMax Holdings, Inc. ("Holdings"),
f/k/a PLC Ventures Corp. ("PLC") acquired approximately 94.3% of the
outstanding common stock of Access HealthMax, Inc. (HealthMax), for
565,100 shares of authorized but previously unissued common stock.
Immediately preceding the exchange, there were 437,500 shares
outstanding of PLC. The shares of PLC had been issued for a total
consideration of $1,000. PLC had no sales or revenues since its
formation on October 2, 1988 and had zero stockholders' equity at the
time of acquisition of HealthMax. For accounting purposes, the
acquisition has been treated as an acquisition of PLC by HealthMax and
as a recapitilization ("Reverse Acquisition") of HealthMax. The
historical financial statements prior to September 2, 1998 are those
of HealthMax. Pro forma information is not presented, since the
combination is a recapitilization rather than a business combination.
The deficiency in the net assets of PLC were not adjusted in
connection with the Reverse Acquisition since it consisted of accounts
payable.
On March 11, 1999 Holdings changed its name to Access Health
Alternatives, Inc. ("Alternatives"). Unless the context indicates
otherwise, references hereinafter to (the "Company") include HealthMax
or Alternatives.
On March 3, 1999 the Board of Directors authorized a ten-for-one
reverse stock split effective March 15, 1999. All references in the
financial statements to number of shares, per share amounts and market
prices of the Company's common stock have been retroactively restated
to reflect the decreased number of common shares outstanding.
(b) BUSINESS
The Company, through HealthMax, distributes clinical nutrition
programs and products throughout the United States using small doctor
practices as its sales and clinical support base. HealthMax commenced
operations in 1996 and has spent the past three years developing its
blends of nutritional health care products, and in establishing an
infrastructure for the distribution and sales of those products, as
well as a system of support for the participating doctors.
F-8
(Continued)
<PAGE> 40
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(b) BUSINESS, CONTINUED
A portion of the Company's operations, specifically those related to
sales and distribution, are conducted through three affiliated limited
liability companies ("LLC"), each of which is responsible for a
separate geographic territory under operating agreements with the
Company. HealthMax is the manager of the LLC's, and performs all
operating and administrative functions for them. The operating
agreement with the LLC's provide that net profits shall be allocated
100% to the investors in the LLC's until they receive 125% of their
investment, then 25% to the investor and 75% to the Company. Losses
are allocated 99% to the investor and 1% to HealthMax. The term of the
LLC's is for five years. Since all operating activities are conducted
by HealthMax on behalf of the LLC's, HealthMax recognizes all of the
sales and expenses related to the operations being conducted for the
LLC's.
(c) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(d) STATEMENT OF CASH FLOW
For purposes of the statement of cash flows, the Company considers all
short-term investments with a maturity of three months or less, at the
date of purchase, to be cash equivalents.
(e) INCOME TAXES
The Company accounts for income taxes under the provisions of
Statement of Financial accounting Standards No. 109 "Accounting for
Income Taxes." Under Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
F-9
(Continued)
<PAGE> 41
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(f) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amount of revenues and
expenses during the reporting period. Actual results could differ from
these estimates.
(g) REVENUE RECOGNITION
Sales are recognized when the product is shipped.
(h) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation, which
includes amortization of assets under capital leases, is provided over
the estimated useful lives of the individual assets using the
declining-balance method.
(i) OTHER ASSETS
Intangible assets included in the other assets on the balance sheet
are amortized over five years.
(j) NET LOSS PER SHARE
Basic loss per share is computed giving effect to the recapitalization
with Holdings. For purposes of the computation of the basic net loss
per share 1,003,350 shares of common stock are assumed to be
outstanding for 1997 and for the six months ended June 30, 1998. The
weighted average shares outstanding for 1998 of 1,007,581 reflects the
issuance of 20,000 shares for services. The weighted average shares
outstanding for the six months ended June 30, 1999 of 1,345,664
reflects the 323,334 shares issued in the Rule 504 offering and the
241,000 shares issued for services.
(k) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the Company's balance sheet for cash,
accounts receivable, notes and commercial paper payable, accounts
payable and accrued expenses approximate their fair value because of
the short term maturity of these instruments.
F-10
(Continued)
<PAGE> 42
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(l) MINORITY INTEREST
The net proceeds received from a private placement of common stock of
HealthMax in 1998 has been reflected as a minority interest in
subsidiary. In view of agreement to acquire the minority interest in
1999, (see Note 11) all of the loss of HealthMax was reflected in the
accompanying consolidated financial statement of operations.
(m) RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ --------
<S> <C> <C>
Computer equipment $ 71,944 78,515
Medical equipment 12,943 12,943
Furniture and fixtures 12,266 12,266
Computer software 3,950 3,950
Leasehold improvements 1,596 1,596
Office equipment 1,381 2,748
-------- -------
104,080 112,018
Less accumulated depreciation
and amortization 53,046 68,658
-------- -------
Total $ 51,034 43,360
======== =======
</TABLE>
For the years ended December 31, 1998 and 1997, depreciation expense
amounted to $28,049 and $21,172, respectively. For the six months
ended June 30, 1999 and 1998, depreciation expense amounted to $15,612
and $13,546, respectively. The Company has reviewed its long-lived
assets and intangibles for impairment and has determined that no
adjustment to the carrying value of long-lived assets is required.
F-11
(Continued)
<PAGE> 43
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(3) NOTES AND COMMERCIAL PAPER
Notes and commercial paper are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ---------
<S> <C> <C>
Commercial paper, bearing interest
at 10 1/2%; collateralized by
inventory and accounts receivable
of Access HealthMax, Inc. $ 869,637 832,137
Notes payable, bearing interest
at 10 1/2%; unsecured 159,294 533,721
Lines of credit, bearing interest
at 10% to 22%; unsecured 29,277 22,350
Note payable, bearing interest
at 18%; unsecured 20,015 15,030
Note payable, non-interest bearing;
unsecured 77,500 64,583
---------- ---------
Total $1,155,723 1,467,821
========== =========
</TABLE>
The notes and commercial paper are all due within one year unless
extended.
(4) TRANSACTIONS WITH RELATED PARTIES
The Company commenced operations January 1, 1996. Prior to that, start
up activities were conducted in Access HealthCare, Inc. ("HealthCare").
The principal beneficial owners of HealthCare are also the principal
beneficial owners of the Company. In January 1997, the Company
reimbursed HealthCare in the amount of $1,831,970 related to the
development of the clinical nutritional programs distributed by the
Company and its blends of nutritional health care products, and for
costs relating to financial start-up activities. The reimbursement to
HealthCare was recorded in the 1996 statement of operations as start up
costs, interest expense and general and administrative expense in the
amount of $1,182,041, $173,197 and $476,732, respectively. In
connection with the reimbursement to HealthCare, the Company assumed
$2,339,969 in commercial paper. In addition, prior advances to
HealthCare in the amount of $507,999 were repaid.
F-12
(Continued)
<PAGE> 44
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(4) TRANSACTIONS WITH RELATED PARTIES, CONTINUED
In connection with forming the three LLC's, HealthMax received $225,000
as reimbursement for costs incurred in connection with the formation
and development of their business plan, which has been reflected as a
reduction of selling, general and administrative expenses in the years
ended December 31, 1998 and 1997 in the amount of $75,000 and $150,000,
respectively. HealthMax also received $65,000 for each regional office
opened by the Company, which amounted to $130,000 and $260,000 in the
years ended December 31, 1998 and 1997, respectively. These amounts are
being recognized over a 60 month period. HealthMax recognized income of
$78,000 and $33,583 in 1998 and 1997, respectively. HealthMax also
received a $10,000 fee per month from each regional office as
reimbursement for HealthMax's ongoing administrative overhead expense,
which amounted to $490,000 and $370,000 in 1998 and 1997, respectively.
The reimbursements were reflected as a reduction of selling, general
and administrative expenses. The LLC's were operating at a loss in 1998
and 1997. In accordance with the operating agreement, 99% of the LLC's
losses, which amounted to $506,255 and $363,341, were reflected as a
reduction of selling, general and administrative expense of HealthMax
in 1998 and 1997, respectively. For the six months ended June 30, 1999
and 1998, losses of $86,2044 and $280,797, respectively were allocated.
When an LLC's account balance has been reduced to $0 there are no
further allocation of losses according to the operating agreement.
HealthMax has an option, exercisable within a five year period, to
purchase some or all of the members interest in the LLC's at a price
equal to 125% of their capital contribution, less any prior returns of
capital contributions, plus any amount necessary to pay a 10 1/2%
preference return to members. The amounts due to LLC's of $1,084,099
and $1,063,614 at December 31, 1998 and June 30, 1999, respectively,
reflects proceeds from the Limited Liability Company offerings reduced
by charges to the LLC's for formation, opening regional offices,
reimbursement for administrative overhead expenses and 99% of the
operating losses of the LLC's.
The Company rents its administrative office from a partnership in which
the principal shareholder of the Company is a partner. Lease expense
relating to the lease was $15,000 and $36,000 in 1998 and 1997,
respectively and $7,500 for the six months ended June 30, 1999 and
1998, respectively. At December 31, 1998 and June 30, 1999 the Company
had a liability for unpaid rent to the partnership of $74,385 and
$69,960, respectively, which is included in accrued liabilities (see
note 7). The Company sells nutritional products to HealthCare at cost.
Such sales amounted to $36,517 and $24,187 in 1998 and 1997,
respectively and $12,220 and $19,990 for the six months ended June 30,
1999 and 1998, respectively. The liability of $39,383 and $39,744 at
December 31, 1998 and June 30, 1999, respectively, to HealthCare is net
of product sales and advances made to HealthCare and a loan from
HealthCare.
F-13
(Continued)
<PAGE> 45
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(5) LEASES
The following is a schedule by year of future minimum lease payments
under capital leases together with the present value of the net lease
payments for furniture and equipment:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ --------
<S> <C> <C>
1999 $ 8,944 4,109
2000 5,504 8,256
------- ------
Total lease payments 14,448 12,365
Less amount representing interest 1,699 1,272
------- ------
Present value of lease payments $12,749 11,093
======= ======
</TABLE>
Total rental expense was $31,240 and $68,016 for the years ended
December 31, 1998 and 1997, respectively and $31,672 and $9,049 for the
six months ended June 30, 1999 and 1998, respectively.
(6) INCOME TAXES
The actual income tax benefit differs from the "expected" tax benefit,
computed by applying the U.S. Federal Corporate Income Tax Rate of 34%,
to the loss before income taxes, as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------
1998 1997
--------- --------
<S> <C> <C>
Income tax benefit computed at the federal
Statutory rate of 34% $ 243,000 254,000
State income tax benefit, net of federal
tax benefit 26,000 27,000
Nondeductible expenses (2,000) (10,000)
Increase in valuation allowances (267,000) (271,000)
--------- --------
$ -- --
========= ========
</TABLE>
F-14
(Continued)
<PAGE> 46
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(6) INCOME TAXES, CONTINUED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 1998
--------- -------
<S> <C> <C>
Income tax benefit computed at the federal
statutory rate of 34% $ 171,000 87,000
State income tax benefit, net of federal
tax benefit 18,000 10,000
Increase in valuation allowances (189,000) (97,000)
--------- -------
$ -- --
========= =======
</TABLE>
The components of the deferred income tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating losses $ 890,000 1,118,000
Start up costs capitalized for tax
purposes and amortized over a five year
period, expensed for
financial statement purposes 421,000 386,000
Unearned income 105,000 102,000
Other 3,000 2,000
----------- -----------
1,419,000 1,608,000
Valuation allowance (1,419,000) (1,608,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
At December 31, 1998, the Company had tax operating loss carryforwards
of approximately $2,366,000 available to reduce future federal income
taxes, which if unused, will expire from 2011 to 2018.
F-15
(Continued)
<PAGE> 47
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(7) ACCRUED LIABILITIES
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ---------
<S> <C> <C>
Estimated value of common stock to be
issued for services (note 10) $225,000 62,000
Accrued salaries including $100,961 due to
a principal beneficial owner of the
Company 105,356 105,356
Accrued interest 43,033 55,810
Accrued rent 74,385 69,960
Accrued commissions -- 87,775
Accrued property taxes 3,477 3,477
Other 937 4,961
-------- -------
$452,188 389,339
======== =======
</TABLE>
(8) LITIGATION
The Company is a nominal defendant in a legal action. While the results
of the legal action cannot be predicted with certainty, the Company
believes that the final outcome of such litigation will not have a
materially adverse effect on its financial condition.
(9) CONTINGENCY
At December 31, 1998, the Company has suffered recurring loses and has
a net capital deficiency of $3,777,656 and a working capital deficiency
of $3,156,695, which raises substantial doubt about its ability to
continue as a going concern. The Company is contemplating a public or
private offering of securities as a means of raising funds to implement
its business plan.
(10) STOCK ISSUED OR ISSUABLE
In March 1999, the Company began an offering of units consisting of
preferred stock and warrants, for gross proceeds of up to $1,008,000.
That offering is pending and only one Unit ($25,000) has been sold
during May 1999. The Unit consisted of one share of Series A Redeemable
Convertible Preferred Stock, one Class A Warrant and one Class B
Warrant. The preferred stock provides for a dividend of 10 1/2% per
year.
F-16
(Continued)
<PAGE> 48
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(10) STOCK ISSUED OR ISSUABLE, CONTINUED
During the year ended December 31, 1998, the Company issued 20,000
shares of common stock valued at $20,000 for consulting services from a
nonemployee. The Company also accrued $75,000 in 1998 for consulting
services rendered from a nonemployee. In April 1999 the Company issued
75,000 shares of common stock to satisfy this obligation. The Company
valued these transactions at the estimated fair value of the services
received.
In April 1999 the Company issued 150,000 shares of common stock to a
nonemployee in consideration for facilitating revisions in January and
February 1999 to the original agreement with PLC (see Note 1a) that had
not been complied with as of December 31, 1998. The Company recorded a
liability of $150,000 at December 31, 1998 for these services. The
$150,000 accrual was based on the trading price of the Company's common
stock in January and February 1999, less a discount for the restriction
on transferability of the shares.
Effective January 1, 1999, the Company entered into employment
agreements with two officers, which provided that each officer will
receive a base salary plus a cash bonus equal to two percent (2%) of
the Company's net profit after income taxes, subject to maximums of
$100,000, $150,000 and $200,000 in 1999, 2000 and 2001, respectively.
The employment agreements also provide common stock bonuses to each
officer of 100,000 shares in 1999, 2000 and 2001, respectively. Shares
to be issued as of January 1, 1999 amounting to 200,000 have been
reflected as compensation in the six months ended June 30, 1999. The
value of the shares to be issued was based on the estimated market
value, less a discount for the restriction on transferability of the
shares.
OTHER STOCK ISSUANCES
In February 1999, the Company sold a total of 323,334 shares of Common
Stock, for an aggregate of $485,000, pursuant to Rule 504 promulgated
under the Securities Act of 1933, as amended.
(11) ADDITIONAL CORPORATE EVENTS
In April 1999, the Company agreed to acquire HealthCare (see Note 4),
subject to certain conditions. Under the terms of the acquisition, to
be accounted for as a pooling of interests, the Company will exchange
approximately 2,000,000 shares of common stock for all of HealthCare's
outstanding shares. HealthCare operates a chiropractic group practice
in Central Florida and has affiliated chiropractic practices throughout
Florida.
The financial position and results of operations of the Company and
HealthCare will be combined in 1999 retroactive to January 1, 1999. In
addition, all prior periods presented will be restated to give effect
to the pooling.
F-17
(Continued)
<PAGE> 49
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(11) ADDITIONAL CORPORATE EVENTS, CONTINUED
Presented below are condensed combined pro forma financial statements
as of and for the year ended December 31, 1998 to give effect to the
transaction. The condensed combined financial statements reflect the
elimination of intercompany transactions.
Condensed balance sheet at December 31, 1998:
<TABLE>
<CAPTION>
COMPANY HEALTHCARE ELIMINATIONS COMBINED
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Assets:
Current assets $ 85,593 55,106 -- 140,699
Property & equipment, net 51,034 61,923 -- 112,957
Other assets 16,711 39,383 (39,383) 16,711
----------- ---------- ---------- ----------
153,338 156,412 (39,383) 270,367
=========== ========== ========== ==========
Liabilities:
Current liabilities 3,242,288 361,535 (39,383) 3,564,440
Unearned income 278,417 -- -- 278,417
Long-term obligations 5,226 179,926 -- 185,152
Minority interest 405,063 -- -- 405,063
----------- ---------- ---------- ----------
3,930,994 541,461 (39,383) 4,433,072
Stockholders' deficit (3,777,656) (385,049) -- (4,162,705)
----------- ---------- ---------- ----------
$ 153,338 156,412 (39,383) 270,367
=========== ========== ========== ==========
Condensed statement of operations:
Revenues $ 834,558 1,588,823 (36,517) 2,386,864
Operating costs and expenses 1,382,540 1,626,134 (36,517) 2,972,157
----------- ---------- ---------- ----------
Operating loss (547,982) (37,311) -- (585,293)
Other expenses 166,616 38,195 -- 204,811
----------- ---------- ---------- ----------
Net loss $ (714,598) (75,506) -- (790,104)
=========== ========== ========== ==========
Basic net loss per share $ (0.26)
==========
</TABLE>
F-18
(Continued)
<PAGE> 50
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(11) ADDITIONAL CORPORATE EVENTS, CONTINUED
Condensed balance sheet at June 30, 1999:
<TABLE>
<CAPTION>
COMPANY HEALTHCARE ELIMINATIONS COMBINED
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Assets:
Current assets $ 185,024 77,948 -- 262,972
Property & equipment, net 43,360 56,196 -- 99,556
Other assets 13,976 39,744 (39,744) 13,976
----------- -------- ---------- ----------
242,360 173,888 (39,744) 376,504
=========== ======== ========== ==========
Liabilities:
Current liabilities 3,135,885 344,326 (39,744) 3,440,467
Unearned income 239,417 -- -- 239,417
Long-term obligations 4,190 155,189 -- 159,379
Minority interest 405,063 -- -- 405,063
----------- -------- ---------- ----------
3,784,555 499,515 (39,744) 4,244,326
Stockholders' deficit (3,542,195) (325,627) -- (3,867,822)
----------- -------- ---------- ----------
$ 242,360 173,888 (39,744) 376,504
=========== ======== ========== ==========
Condensed statement of operations:
Revenues $ 335,869 907,872 (12,220) 1,231,521
Operating costs and expenses
787,313 822,315 (12,220) 1,597,408
----------- -------- ---------- ----------
Operating income (loss) (451,444) 85,557 -- 365,887
Other expenses 49,375 26,135 -- 75,510
----------- -------- ---------- ----------
Net income (loss) $ (500,819) 59,422 -- 441,397
=========== ======== ========== ==========
Basic net loss per share $ (0.13)
==========
</TABLE>
In April 1999, the Company agreed to acquire the minority interests in
HealthMax for restricted stock of the Company, at the rate of one share
of the Company's common stock for each share of HealthMax stock
exchanged. If all of the minority shareholders exchange their HealthMax
stock for the Company's stock, the Company would be required to issue
an additional approximate 430,000 shares of common stock. This
transaction is expected to conclude by the end of August 1999.
F-19
(Continued)
<PAGE> 51
ACCESS HEALTH ALTERNATIVES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Items referring to June 30, 1999 and June 30, 1998 are Unaudited)
(11) ADDITIONAL CORPORATE EVENTS, CONTINUED
In May 1999 the Company formed Access Health Assurance Plans, Inc., a
Florida corporation that will market the Company's member benefits
programs.
In June 1999 the Company entered into a market license agreement with
an individual that entitles the individual to participate in the
revenue earned from the sales of nutritional products in a certain
geographical area. The licensee agrees to fund "centers" in this area
in exchange for this revenue participation. Revenue of $80,000 has been
recognized in the financial statements as of June 30, 1999 relating to
this agreement.
F-20
<PAGE> 52
ACCESS HEALTHCARE, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
and June 30, 1999 and 1998 (Unaudited)
(With Independent Auditors' Report Thereon)
F-21
<PAGE> 53
Independent Auditors' Report
The Board of Directors
Access HealthCare, Inc.:
We have audited the accompanying consolidated balance sheet of Access
HealthCare, Inc. as of December 31, 1998, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the years
ended December 31, 1998 and 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Also, an audit includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the ov erall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Access HealthCare,
Inc. at December 31, 1998, the results of their operations and their cash flows
for the years ended December 31, 1998 and 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital and working capital deficiency, which raises substantial
doubt about their ability to continue as a growing concern. Management's plans
regarding those matters are described in Note 8. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Tedder, James, Worden & Associates, P.A.
Orlando, Florida
March 11, 1999
F-22
<PAGE> 54
ACCESS HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 754 191
Accounts receivable 54,352 77,607
Other current assets -- 150
--------- ---------
Total current assets 55,106 77,948
Property and equipment, net 61,923 56,196
Due from related parties-Access Health Alternatives, Inc.
and Subsidiaries 39,383 39,744
--------- ---------
Total assets 156,412 173,888
========= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Line of credit 25,000 25,000
Current obligations under capital leases 30,237 34,209
Current maturities of long-term debt 14,822 12,685
Bank overdraft 26,995 --
Accounts payable 129,089 140,040
Due to stockholders 57,179 54,179
Due to related parties-limited liability company 78,213 78,213
--------- ---------
Total current liabilities 361,535 344,326
Obligations under capital leases, less current portion 145,080 128,300
Long-term debt, less current portion 34,846 26,889
--------- ---------
Total liabilities 541,461 499,515
Stockholders' deficit:
Common stock, $.001 par value, 40,000,000 shares
authorized, 7,868,750 shares issued and outstanding 787 787
Capital in excess of par value 301,757 301,757
Accumulated deficit (687,593) (628,171)
--------- ---------
Total stockholders' deficit (385,049) (325,627)
--------- ---------
Total liabilities and stockholders' deficit $ 156,412 173,888
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 55
ACCESS HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended Six months ended
December 31, June 30,
---------------------------- ----------------------
1998 1997 1999 1998
----------- --------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Patient services, net $ 1,588,823 1,358,332 907,872 821,963
Expenses:
Selling, general and administrative 1,626,134 1,479,425 822,315 795,417
----------- --------- ------- -------
Operating income (loss) (37,311) (121,093) 85,557 26,546
Other income (expense):
Interest expense (35,515) (33,807) (26,135) (13,436)
Loss on sale of assets (2,847) (27,527) -- --
Miscellaneous income 167 -- -- 880
----------- --------- ------- -------
Total other expense (38,195) (61,334) (26,135) (12,556)
----------- --------- ------- -------
Net income (loss) $ (75,506) (182,427) 59,422 13,990
=========== ========= ======= =======
Basic net income (loss) per share $ (0.01) (0.02) 0.01 0.00
=========== ========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 56
ACCESS HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the years ended December 31, 1998 and 1997 and
six months ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stock Capital
-------------------- in Excess of Accumulated
Shares Amount Par Value Deficit Total
--------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996 7,868,750 $787 183,694 (429,660) (245,179)
Capital contribution -- -- 118,063 -- 118,063
Net loss, 1997 -- -- -- (182,427) (182,427)
--------- ---- ------- -------- --------
Balances, December 31, 1997 7,868,750 787 301,757 (612,087) (309,543)
Net loss, 1998 -- -- -- (75,506) (75,506)
--------- ---- ------- -------- --------
Balances, December 31, 1998 7,868,750 787 301,757 (687,593) (385,049)
Net income for six months
ended June 30, 1999
(Unaudited) -- -- -- 59,422 59,422
--------- ---- ------- -------- --------
Balances, June 30, 1999
(Unaudited) 7,868,750 $787 301,757 (628,171) (325,627)
========= ==== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 57
ACCESS HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended Six months ended
December 31, June 30,
------------------------ ---------------------
1998 1997 1999 1998
--------- ------ ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (75,506) (182,427) 59,422 13,990
Adjustments to reconcile net income
(loss) to net cash (used in) provided by
operating activities:
Depreciation 26,693 27,296 15,252 10,970
Loss on sale of assets 2,847 27,527 -- --
Cash provided by (used in) changes in:
Accounts receivable 8,348 1,844 (23,255) (14,224)
Other current assets -- 1,466 (150) (5,591)
Bank overdraft 26,995 -- (26,995) --
Accounts payable (12,634) 75,390 10,951 (33,590)
--------- -------- -------- --------
Net cash provided by (used in)
operating activities (23,257) (48,904) 35,225 (28,445)
Cash flows from investing activities:
Purchases of equipment (3,334) (38,330) (9,525) --
Proceeds from sale of equipment 1,500 -- -- --
--------- -------- -------- --------
Net cash used in investing activities (1,834) (38,330) (9,525) --
Cash flows from financing activities:
Proceeds from borrowings 342,635 31,076 1,299 119,886
Principal payments on borrowings (217,255) (202,834) (24,201) (52,510)
Due from related parties (87,500) -- 47,756 --
Due to stockholders 40,679 16,500 (3,000) 28,093
Due to related parties (55,733) 102,486 (48,117) (57,113)
Capital contribution -- 118,063 -- --
--------- -------- -------- --------
Net cash provided by (used in)
financing activities 22,826 65,291 (26,263) 38,356
--------- -------- -------- --------
Net increase (decrease) in cash (2,265) (21,943) (563) 9,911
Cash at beginning of period 3,019 24,962 754 3,019
--------- -------- -------- --------
Cash at end of period $ 754 3,019 191 12,930
========= ======== ======== ========
Supplemental disclosure:
Cash paid for interest $ 35,515 33,807 26,135 13,436
========= ======== ======== ========
Capital lease $ -- -- -- 17,927
========= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 58
ACCESS HEALTHCARE, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(Items referring to June 30, 1999 or June 30, 1998 are unaudited)
(1) Summary of Significant Accounting Policies
(a) Organization and Business
Access HealthCare, Inc. (the Company) was originally organized as
Daniel J. Pavlik, D.C., P.A., a corporation in the State of Florida in
April 1983. In October 1993 the name was changed to Access HealthCare,
Inc.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its affiliated entity, Pavlik Chiropractic
Group, P.A. All significant intercompany transactions and balances
have been eliminated in consolidation.
(c) Business
The Company operates a chiropractic group practice in Central Florida
and has affiliated chiropractic practices throughout Florida.
(d) Statement of Cash Flow
For purposes of the statement of cash flows, the Company considers all
short-term investments with a maturity of three months or less, at the
date of purchase, to be cash equivalents.
(e) Income Taxes
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes." Under Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
F-27
(Continued)
<PAGE> 59
ACCESS HEALTHCARE, INC.
Notes to Consolidated Financial Statements
(Items referring to June 30, 1999 or June 30, 1998 are unaudited)
(1) Summary of Significant Accounting Policies, Continued
(f) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amount of revenues and
expenses during the reporting period. Actual results could differ from
these estimates.
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the individual assets using the
straight-line method. Property under capital leases is amortized over
the lease terms.
(h) Basic Net Income (Loss) Per Share
Basic net income (loss) per share is based on the common shares
outstanding of 7,868,750.
(2) Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ --------
<S> <C> <C>
Computer equipment $ 37,251 45,495
Medical equipment 62,488 62,907
Furniture and fixtures 16,335 17,197
Vehicles 14,298 14,298
Leasehold improvements 32,158 32,158
-------- -------
162,530 172,055
Less accumulated depreciation 100,607 115,859
-------- -------
Total $ 61,923 56,196
======== =======
</TABLE>
For the years ended December 31, 1998 and 1997, depreciation expense
amounted to $26,693 and $27,296, respectively. For the six months ended
June 30, 1999 and 1998 the depreciation expense was $15,252 and
$10,970, respectively. The Company has reviewed its long-lived assets
for impairment and has determined that no adjustments to the carrying
value of long-lived assets is required.
F-28
(Continued)
<PAGE> 60
ACCESS HEALTHCARE, INC.
Notes to Consolidated Financial Statements
(Items referring to June 30, 1999 or June 30, 1998 are unaudited)
(3) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ---------
<S> <C> <C>
Notes payable to an individual with interest rates ranging
from 8.75% to 14.24%; with an aggregated
payment of $1,000 due monthly $38,264 30,538
Note payable to a bank, bearing
interest at 10.23%; $284 due
monthly, secured by vehicle 10,741 9,036
Other notes 663 --
------- ------
Total 49,668 39,574
Less current portion 14,822 12,685
------- ------
Long-term debt $34,846 26,889
======= ======
</TABLE>
The following is a schedule by year of principal payments on long-term
debt:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ --------
<S> <C> <C>
1999 $14,822 7,324
2000 13,121 10,719
2001 11,640 11,340
2002 8,823 8,928
2003 1,262 1,263
------- ------
Total principal payments $49,668 39,574
======= ======
</TABLE>
F-29
(Continued)
<PAGE> 61
ACCESS HEALTHCARE, INC.
Notes to Consolidated Financial Statements
(Items referring to June 30, 1999 or June 30, 1998 are unaudited)
(4) Transactions With Related Parties
The Company rents its administrative office and a chiropractic clinic
from a partnership in which the principal shareholder of the Company is
a partner. Lease expense relating to the lease was $50,100 for the
years ended December 31, 1998 and 1997, and $25,050 for the six months
ended June 30, 1999 and 1998. At December 31, 1998 and June 30, 1999
the Company had a liability for unpaid rent to the partnership of
$59,814 and $52,866, respectively, which is included in accounts
payable. Future minimum lease payments under this lease are $50,100 per
year through 2002.
The Company purchases nutritional products from a related party. Such
purchases are recorded at cost and amounted to $36,517 and $24,187 for
the years ended December 31, 1998 and 1997, respectively and $12,220
and $19,990 for the six months ended June 30, 1999 and 1998,
respectively.
(5) Leases
During 1998 the Company obligated existing equipment under long-term
capital leases. Total proceeds were $187,635. The following is a
schedule by year of future minimum lease payments under capital leases:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
-------- -------
<S> <C> <C>
1999 $ 74,844 37,422
2000 74,844 74,844
2001 71,619 71,619
2002 52,065 52,065
2003 22,395 22,395
-------- -------
Total lease payments 295,767 258,345
Less amount representing interest (11% to 35%) 120,450 95,836
-------- -------
Present value of lease payments 175,317 162,509
Less current obligations 30,237 34,209
-------- -------
Long-term capital lease obligations $145,080 128,300
======== =======
</TABLE>
F-30
(Continued)
<PAGE> 62
ACCESS HEALTHCARE, INC.
Notes to Consolidated Financial Statements
(Items referring to June 30, 1999 or June 30, 1998 are unaudited)
(6) Income Taxes
The actual income tax benefit differs from the "expected" tax expense
(benefit), computed by applying the U.S. Federal Corporate Income Tax
Rate of 34%, to the income (loss) before income taxes, as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Income tax (benefit) computed at the federal
statutory rate of 34% $(25,672) (62,026)
State income tax (benefit), net of federal
tax benefit (2,741) (6,622)
Nondeductible expenses 5,270 5,088
Increase in valuation allowance 23,143 63,560
-------- --------
$ -- $ --
======== ========
</TABLE>
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------
1999 1998
-------- -------
<S> <C> <C>
Income tax expense computed at the
federal statutory rate of 34% $ 20,203 4,757
State income tax expense, net of
federal tax expense 2,157 508
Nondeductible expenses 2,821 2,734
Decrease in valuation allowance (25,181) (7,999)
-------- -------
$ -- $ --
======== =======
</TABLE>
F-31
(Continued)
<PAGE> 63
ACCESS HEALTHCARE, INC.
Notes to Consolidated Financial Statements
(Items referring to June 30, 1999 or June 30, 1998 are unaudited)
(6) Income Taxes, Continued
The components of the deferred income tax asset are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ --------
<S> <C> <C>
Deferred tax assets:
Net operating losses $ 212,001 201,321
Accrual method (book) to cash method
(tax) adjustment 37,995 23,494
--------- --------
249,996 224,815
Valuation allowance (249,996) (224,815)
--------- --------
$ -- $ --
========= ========
</TABLE>
At December 31, 1999, the Company had tax operating loss carryforwards
of approximately $563,000 available to reduce future federal income
taxes, which expire from 2011 to 2018.
(7) Litigation
As of December 31, 1998 the Company was a defendant in a legal action
which was dismissed without prejudice in March 1999. Management
believes that if the plaintiff should refile and prevail, the final
outcome of such litigation will not have a materially adverse effect on
its financial condition.
(8) Contingency
At December 31, 1998, the Company has suffered recurring loses and has
a net capital deficiency of $385,049 and a working capital deficiency
of $306,429, which raises substantial doubt about its ability to
continue as a going concern. The Company is contemplating a public or
private offering of securities as a means of raising funds to implement
its business plan.
(9) Subsequent Event
During April 1999, the Company and its shareholders agreed that Access
Health Alternatives, Inc. would acquire the Company. Under the terms of
the acquisition, to be accounted for as a pooling of interests, the
shareholders of the Company will exchange 7,868,750 shares of common
stock for approximately 2,000,000 shares of common stock of Access
Health Alternatives, Inc.
F-32
<PAGE> 64
ACCESS HEALTH ALTERNATIVES, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND
JUNE 30, 1999 (UNAUDITED)
F-33
<PAGE> 65
ACCESS HEALTH ALTERNATIVES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
Company HealthCare Eliminations Combined
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 419 754 -- 1,173
Accounts receivable 16,206 54,352 -- 70,558
Inventories 68,968 -- -- 68,968
----------- -------- ------- ----------
Total current assets 85,593 55,106 -- 140,699
Property and equipment 51,034 61,923 -- 112,957
Due from related parties -- 39,383 (39,383) --
Other assets, net 16,711 -- -- 16,711
----------- -------- ------- ----------
Total assets 153,338 156,412 (39,383) 270,367
=========== ======== ======= ==========
LIABILITIES
Current liabilities:
Notes and commercial paper 1,155,723 39,822 -- 1,195,545
Obligations under capital leases 7,523 30,237 -- 37,760
Bank overdraft 101,357 26,995 -- 128,352
Accounts payable 284,637 129,089 -- 413,726
Accrued liabilities 452,188 -- -- 452,188
Due to related parties 1,240,860 135,392 (39,383) 1,336,869
----------- -------- ------- ----------
Total current liabilities 3,242,288 361,535 (39,383) 3,564,440
----------- -------- ------- ----------
Unearned income 278,417 -- -- 278,417
Long-term debt -- 34,846 -- 34,846
Obligation under capital leases,
Less current portion 5,226 145,080 -- 150,306
Minority interest in subsidiary 405,063 -- -- 405,063
----------- -------- ------- ----------
Total liabilities 3,930,994 541,461 (39,383) 4,433,072
Stockholders' deficit
Common stock 1,023 787 -- 1,810
Capital in excess of par value 26,477 301,757 -- 328,234
Accumulated deficit (3,805,156) (687,593) -- (4,492,749)
----------- -------- ------- ----------
Total stockholders' deficit (3,777,656) (385,049) -- (4,162,705)
----------- -------- ------- ----------
Total liabilities and stockholders' deficit $ 153,338 156,412 (39,383) 270,367
=========== ======== ======= ==========
</TABLE>
F-34
<PAGE> 66
ACCESS HEALTH ALTERNATIVES, INC.
PRO FORMA STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<CAPTION>
Company HealthCare Eliminations Combined
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Revenue:
Equipment and product sales $ 739,590 -- (36,517) 703,073
Patient services -- 1,588,823 -- 1,588,823
Other 94,968 -- -- 94,968
----------- ---------- ------- ----------
Total revenue 834,558 1,588,823 (36,517) 2,386,864
Costs and expenses:
Cost of sales 191,006 -- (36,517) 154,489
Selling, general and administrative 1,191,534 1,626,134 -- 2,817,668
----------- ---------- ------- ----------
Total costs and expenses 1,382,540 1,626,134 (36,517) 2,972,157
----------- ---------- ------- ----------
Operating loss (547,982) (37,311) -- (585,293)
Other expense:
Interest expense 164,057 35,515 -- 199,572
Other, net 2,559 2,680 -- 5,239
----------- ---------- ------- ----------
Total other expense 166,616 38,195 -- 204,811
----------- ---------- ------- ----------
Net loss $ (714,598) (75,506) -- (790,104)
=========== ========== ======= ==========
Basic net loss per share $ (0.26)
==========
</TABLE>
F-35
<PAGE> 67
ACCESS HEALTH ALTERNATIVES, INC.
PRO FORMA STATEMENT OF OPERATIONS
Year ended December 31, 1997
<TABLE>
<CAPTION>
Company HealthCare Eliminations Combined
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Revenue:
Equipment and product sales $ 652,217 -- (24,187) 628,030
Patient services -- 1,358,332 -- 1,358,332
Other 96,672 -- -- 96,672
----------- ---------- ------- ----------
Total revenue 748,889 1,358,332 (24,187) 2,083,034
Costs and expenses:
Cost of sales 245,608 -- (24,187) 221,421
Selling, general and administrative 1,010,221 1,479,425 -- 2,489,646
----------- ---------- ------- ----------
Total costs and expenses 1,255,829 1,479,425 (24,187) 2,711,067
----------- ---------- ------- ----------
Operating loss (506,940) (121,093) -- (628,033)
Other expense:
Interest expense 235,030 33,807 -- 268,837
Other, net 5,470 27,527 -- 32,997
----------- ---------- ------- ----------
Total other expense 240,500 61,334 -- 301,834
----------- ---------- ------- ----------
Net loss $ (747,440) (182,427) -- (929,867)
=========== ========== ======= ==========
Basic net loss per share $ (0.31)
==========
</TABLE>
F-36
<PAGE> 68
ACCESS HEALTH ALTERNATIVES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Company HealthCare Eliminations Combined
----------- ---------- ------------ -------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 80,857 191 -- 81,048
Accounts receivable 37,456 77,607 -- 115,063
Inventories 55,805 -- 55,805
Other current assets 10,906 150 -- 11,056
----------- ------- ------- -------
Total current assets 185,024 77,948 -- 262,972
Property and equipment, net 43,360 56,196 -- 99,556
Due from related parties -- 39,744 (39,744) --
Other assets, net 13,976 -- -- 13,976
----------- ------- ------- -------
Total assets 242,360 173,888 (39,744) 376,504
=========== ======= ======= =======
LIABILITIES
Current liabilities:
Notes and commercial paper 1,467,821 37,685 -- 1,505,506
Obligations under capital leases 6,903 34,209 -- 41,112
Bank overdraft -- -- -- --
Accounts payable 145,756 140,040 -- 285,796
Accrued liabilities 389,339 -- -- 389,339
Due to related parties 1,126,066 132,392 (39,744) 1,218,714
----------- ------- ------- -------
Total current liabilities 3,135,885 344,326 (39,744) 3,440,467
----------- ------- ------- -------
Unearned income 239,417 -- -- 239,417
Long-term debt -- 26,889 -- 26,889
Obligation under capital leases,
Less current portion 4,190 128,300 -- 132,490
Minority interest in subsidiary 405,063 -- -- 405,063
----------- ------- ------- -------
Total liabilities 3,784,555 499,515 (39,744) 4,244,326
Stockholders' deficit
Common stock 1,587 787 -- 2,374
Capital in excess of par value 762,193 301,757 -- 1,063,950
Accumulated deficit (4,305,975) (628,171) -- (4,934,146)
----------- ------- ------- -------
Total stockholders' deficit (3,542,195) (325,627) -- (3,867,822)
----------- ------- ------- -------
Total liabilities and stockholders' deficit $ 242,360 173,888 (39,744) 376,504
=========== ======= ======= =======
</TABLE>
F-37
<PAGE> 69
ACCESS HEALTH ALTERNATIVES, INC.
PRO FORMA STATEMENT OF OPERATIONS
Six months ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Company HealthCare Eliminations Combined
--------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Revenue:
Product sales $ 200,625 -- (12,220) 188,405
Patient services -- 907,872 -- 907,872
Other 135,244 -- -- 135,244
--------- ------- ------- ----------
Total revenue 335,869 907,872 (12,220) 1,231,521
Costs and expenses:
Cost of sales 79,574 -- (12,220) 67,354
Selling, general and administrative 707,739 822,315 -- 1,530,054
--------- ------- ------- ----------
Total costs and expenses 787,313 822,315 (12,220) 1,597,408
--------- ------- ------- ----------
Operating income (loss) (451,444) 85,557 -- (365,887)
Other expense:
Interest expense 49,375 26,135 -- 75,510
--------- ------- ------- ----------
Net income (loss) $(500,819) 59,422 -- (441,397)
========= ======= ======= ==========
Basic net loss per share $ (0.13)
==========
</TABLE>
F-38
<PAGE> 70
ACCESS HEALTH ALTERNATIVES, INC.
PRO FORMA STATEMENT OF OPERATIONS
Six months ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Company HealthCare Eliminations Combined
--------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Revenue:
Product sales $ 231,365 -- (19,990) 211,375
Equipment sales 215,133 -- -- 215,133
Patient services -- 821,963 -- 821,963
Other 49,803 -- -- 49,803
--------- -------- ------- ----------
Total revenue 496,301 821,963 (19,990) 1,298,274
Costs and expenses:
Cost of sales 124,382 -- (19,990) 104,392
Selling, general and administrative 524,097 795,417 -- 1,319,514
--------- -------- ------- ----------
Total costs and expenses 648,479 795,417 (19,990) 1,423,906
--------- -------- ------- ----------
Operating loss (152,178) 26,546 -- (125,632)
Other income (expense):
Interest expense (103,978) (13,436) -- (117,414)
Other income -- 880 -- 880
--------- -------- ------- ----------
Total other expense (103,978) (12,556) -- (116,534)
--------- -------- ------- ----------
Net loss $(256,156) 13,990 -- (242,166)
========= ======== ======= ==========
Basic net loss per share $ (0.08)
==========
</TABLE>
F-39
<PAGE> 71
ACCESS HEALTH ALTERNATIVES, INC.
NOTE TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On April 1999, Access Health Alternatives, Inc. (the "Company") entered into an
agreement to acquire Access HealthCare, Inc. ("HealthCare") subject to certain
conditions. Under the terms of the acquisition, to be accounted for as a pooling
of interests, the Company will exchange approximately 2,000,000 shares of common
stock for all of HealthCare's outstanding shares. HealthCare operates a
chiropractic group practice in Central Florida and has affiliated chiropractic
practices throughout Florida.
The financial position and results of operations of the Company and HealthCare
will be combined in 1999 retroactive to January 1, 1999. In addition, all prior
period presented will be restated to give effect to the pooling.
Immediately preceding are pro forma balance sheets as of December 31, 1998 and
June 30, 1999 (unaudited) and pro forma statements of operations for the years
ended December 31, 1998 and 1997 and the six months ended June 30, 1999 and 1998
(unaudited). The pro forma combined financial statements reflect the elimination
of intercompany transactions.
The pro forma basic loss per share, assumed that the estimated 2,000,000 shares
of common stock to be issued to HealthCare are outstanding for both periods
presented.
F-40
<PAGE> 1
Exhibit 11.1
ACCESS HEALTH ALTERNATIVES, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
Year ended December 31, 1997:
Net loss $ 747,440
----------
Shares considered to be outstanding for the entire
year to reflect the reverse acquisition in 1998 1,003,350
----------
Basic loss per share $ 0.74
==========
Year ended December 31, 1998:
Net loss $ 714,598
----------
Shares considered to be outstanding at the
beginning of the year 1,003,350
Weighted average outstanding of 20,000 shares
issued in 1998 for services 4,231
----------
Weighted average shares outstanding 1,007,581
----------
Basic loss per share $ 0.71
==========
<PAGE> 1
Exhibit 11.2
ACCESS HEALTH ALTERNATIVES, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
Six months ended June 30, 1998:
Net loss $ 256,156
----------
Shares considered to be outstanding at the
beginning of the period restated for the
entire period to reflect the reverse
acquisition in 1998 1,003,350
----------
Basic loss per share $ 0.26
==========
Six months ended June 30, 1999:
Net loss $ 500,819
----------
Shares considered to be outstanding at the
beginning of the period 1,023,350
Weighted average outstanding of 323,334 shares
issued in Rule 504 offering and 241,000
shares issued for services 322,314
----------
Weighted average shares outstanding 1,345,664
----------
$ 0.37
==========
