UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB 12G
Amendment No. 4
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)
4619 Parkbreeze Court, Orlando, Florida 32808
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(Address of principal executive offices) (zip code)
Issuer's telephone number, (407) 299-0629
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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 0.08 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. Following the Exchange, 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.
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. In October 1999, the Company
and HealthCare verbally agreed to delay the closing of this transaction until
the Securities and Exchange Commission has indicated it has no further comments
to this registration statement, the timing of which cannot be predicted by the
Company.
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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. This
transaction was substantially completed in May 1999, but documentation was not
completed until January 2000. Approximately 50 minority shareholders have
exchanged approximately 350,000 shares of HealthMax common stock for
approximately 350,000 restricted shares of Health Alternatives' common stock.
The Company currently operates as a holding company with two
subsidiaries. Operations of the nutritional health care business of the Company
are conducted under its HealthMax subsidiary. In May 1999 the Company formed
its second subsidiary, Access Health Assurance Plans, Inc. ("HAP"), a Florida
corporation that will market the Company's member benefits programs. 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. Unless the context indicates otherwise, references hereinafter to
"the Company" include HealthMax, HealthCare and HAP. The Company's principal
place of business is 4619 Parkbreeze Court, Orlando, Florida 32808. Its
telephone number is (407) 299-0629.
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 $822,135.
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 in 1997 to market the Company's
nutritional products in Minnesota, Illinois, Wisconsin, Iowa, North Dakota,
South Dakota, Kansas, Nebraska, Missouri, Texas, Oklahoma, Arkansas and
Louisiana. HealthMax Organized LLC III in 1998 to market the program in
Washington, D.C., Maine, New Hampshire, Vermont, Massachusetts, Rhode Island,
New Jersey, New York, Connecticut, Delaware, Maryland and Pennsylvania.
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 has been terminated, having raised gross proceeds of
$25,000. Funds raised in the Unit Offering have been recorded as a liability on
the Company's books, as they may be returned to the investor or converted to an
investment in a future offering by the Company, at the investor's election.
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 profits derived from operating revenue 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. Losses are allocated 99% to
the Economic Members and 1% to HealthMax, and are treated as a reduction of
HealthMax' selling, general and administrative expenses. When an LLC's account
balance has been reduced to zero, there are no further allocations of losses,
according to the Operating Agreement.
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
In March 1999, the Company decided to acquire HealthCare for
approximately two million shares of the Company's common stock. The
transaction is subject to the completion of definitive agreements and
additional due diligence. In October 1999, the parties agreed to defer closing
on this transaction until the Securities and Exchange Commission has indicated
that it has no further comments with respect to this registration statement.
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 through its four
HealthCare-owned locations in the Central Florida area and over 100
affiliated practices throughout the State of Florida. The
HealthCare-owned centers offer, to varying degrees, acupuncture,
massage therapy, nutrition and chiropractic services. Affiliated
practices all offer chiropractic services and may offer one or more
other complimentary and alternative service. Services are provided
under a range of reimbursement programs that include traditional
insurance plans, workers' compensation, personal injury, private pay,
HMOs, and PPOs.
HealthCare estimates that in excess of 90% of its revenue consistently
comes from the four HealthCare-owned clinics, while less than 10% of its
revenue is derived from the administrative fees generated by the affiliated
centers.
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 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."
In order to provide the breadth of geographic coverage required by the
nature of Managed Care and the relationships with third-party payors,
HealthCare established relationships with providers in the Central Florida area
in specific territories that were not otherwise serviced by HealthCare-owned
centers. This enables HealthCare and HealthCare affiliated clinics to service a
greater patient base, making the HealthCare enterprise, as a whole, more
attractive to larger participants in the Managed Care arena, because more
patients may be serviced through the relationships with HealthCare than could
be serviced through the HealthCare-owned clinics alone.
An affiliated clinic is a clinic not owned by HealthCare but
whose doctors and staff are under contract with HealthCare to provide
necessary services compensable through third-party payors, such as
Cigna, PruCare and HealthOptions. While the affiliated clinic
contracts directly with the third-party payors as part of that payor's
"panel" of healthcare providers, HealthCare serves as a liaison
between the third-party payors and the affiliated clinics, processing
and managing the claims and administrative aspects of their
relationships. For these services, HealthCare retains 10%-18% of
revenue collected by it on behalf of those providers from the
third-party payors, and pays the balance to the providers, whether the
provider's relationship with the payor calls for a capitated payment
or on a discounted fee for service basis, or otherwise. HealthCare has
no financial interest in the affiliated clinics, nor any
responsibility for the delivery of healthcare services. HealthCare
does oversee the clinics' utilization management and quality assurance
functions of patient care as part of its interaction between the
providers and the payors, however it does not take any role in the
day-to-day operations of the affiliated clinics.
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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 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.
Following the acquisition of HealthCare, the Company will offer complimentary
and alternative healthcare services, initially consisting of acupuncture,
massage therapy, nutrition, and chiropractic services in the Central Florida
region. The Company's newest subsidiary, HAP, offers an employer-directed
program of nutritional support to employees, providing discounts on HealthMax
products and services through the Access HealthMax Provider network.
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.
The additions of HealthCare and HAP to the Company are believed to add broader
dimensions to the delivery of wellness and preventive care.
As of January 2000, approximately 165 healthcare centers either offer or
have agreed to offer HealthMax products and services.
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
January 2000, 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 (designed to supply the body's daily need for vitamins,
minerals, plant enzymes and trace elements):
Digestyme - an enzyme complex that helps overall digestion and
assimilation of food and reduces fatigue
VitaDay - a whole food multi-vitamin and mineral complex that
supplies the body's daily need for vitamins, minerals
and trace elements
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Endocrine System (designed to increase hormone levels, boost immune function and
memory for women, and reduce and protect against prostate gland enlargement and
increase libido for men):
ProstateMax - a natural support for the prostate gland that protects
against prostate gland enlargement and imporoves
prostate function
YoungAgain - an anti-aging formula containing natural aging factors
that serves to increase hormone levels and boosts
immune function and memory
Circulatory System (designed as a natural appetite suppressant and to increase
metabolism of fat):
SlimMax - a fat and carbohydrate eliminator that binds dietary
lipids (fats), lowers dietary and serum cholesterol
and triglyceride levels and naturally reduces appetite
Thin-Ergy - a thermogenic herbal energy formula designed to
activate Metabolism of fat stored in the brown
adipose tissue
Detoxification System (designed to elimiante toxins from the blood stream and
waste products from the body and to improve absorption of nutrients from food):
LiverPure - a gentle and effective herbal liver detoxifier that
gradually removes excess and stored waste products
from the body
ColonPure - a gentle and effective intestinal purifier that
improves absorption of nutrients and helps remove
waste products from the colon
Musculo-skeletal System (designed to support tissue repair, reduce inflammation,
swelling, arthritic pain and soft tissue pain due to injury):
M.B.J. - (Muscle, Bone & Joint); an all natural support for the
musculoskeletal system that helps replace bone mineral
loss and provides nutritional building blocks for
joint surfaces
Inflammazyme - a natural anti-inflammation formula that reduces
swelling, joint pain, and soft tissue pain due to
injury
Digestive System (designed to replace digestive enzymes and the "good bacteria"
in the digestive tract):
Digestyme - (see above)
FloraPlus - a probiotic that replenishes the "good bacteria" in the
digestive tract
Immune System (designed to promote anti-bacterial and anti-viral action and
protects against free radical damage):
OxyAccess - an antioxidant that assists in protecting the body
against free radical damage and increases oxygen to
the cells
ImmuneMax - an immune boosting formula that promotes
anti-bacterial action, anti-viral action, and
anti-fungal action
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 presently under development: 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. Healthcare providers authorized to distribute HealthMax
products must be recognized and licensed diagnosticians in the states in which
they operate, and must be either chiropractors, allopaths, or osteopaths.
As of January 2000 , providers servicing approximately 165
centers offer, or have agreed to offer, HealthMax products and services.
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. Although the marketing of the Site License
Program has been discontinued, the Company continues to support the providers
who joined the Company's network under this 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.
A licensee in the Market License Program is expected to pay $200,000
for the rights to revenue derived from the licensed geographic region. The
licensee will be entitled to receive $2.50 per bottle of HealthMax product sold
in its territory during the five-year period of the license, plus $0.50 per
member enrolled in the Nutrition Options Plus Plan in that territory, up to
$200,000, after which the per-member price will be reduced to $0.25.
As of January 2000, three parties share a partial market license
for the Central Florida region. The license for this territory is slightly
different from the standard Market License. These parties have paid an aggregate
of $140,000 for the combined rights to receive three-quarters of the fees
payable to market licensees in this territory. Such fees will be derived from
sales of product by up to 20 provider practices in their territory and members
of HAP's member benefits plans in that territory, for a five year, non-renewable
period. Total revenue to licensees of this territory, when fully licensed, will
be as follows: $2.50 per bottle of HealthMax product sold in that territory; and
$0.50 per month for each HAP member in that territory, up to an aggregate of
$140,000, after which they will receive $0.25 per member per month.
A letter of intent for a market license for a large area in Arizona was
terminated in the summer of 1999, and the Company continues to solicit interest
for that and other territories throughout the U.S.
The Company believes that this program should accelerate the 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.
Access Health Assurance Plans, Inc. ("HAP")
HAP is the Company's newest subsidiary, and much if its business
remains under development. It offers two member benefits programs, briefly
described below.
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.
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.
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 an 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. One
such alliance has been formed with The BeneCom Group, a benefits enrollment
company, that has agreed to represent the Nutritional Options Plus plan to
employees of employers recruited through their efforts.
Access HealthCare, Inc.
The business, history and markets for HealthCare are described above,
under "Planned Acquisition of HealthCare." More particularly, HealthCare
presently provides chiropractic, acupuncture, massage therapy and nutritional
healthcare through its four HealthCare clinics in Central Florida and through
119 affiliated clinics throughout the State of Florida. HealthCare's principal
source of revenue is the delivery of chiropractic services through its own
clinics, which is responsible for over 90% of the company's revenue. Revenue
derived from management fees for billing, collection and administrative
services provided to the affiliated clinics account for less than 10% of
HealthCare's total revenue.
HealthCare provides no products other than certain nutritional
healthcare products of HealthMax that it distributes, and certain durable
medical equipment prescribed to patients during the normal course of patient
care. These products are not unique to nor proprietary to HealthCare.
HealthCare maintains a diverse customer base, with no predominant
payor or payor type. As a participant in the highly competitive field of
complimentary and alternative healthcare, it may be expected that this
company competes with other practice groups who may have greater financial
and human resources than HealthCare.
(3) Status of Any Publicly Announced New Product or Service.
Not applicable.
(4) Competition.
Although HealthMax products are sold nationally, the Company's
efforts (and the concentration of the networks associated with HealthMax, such
as the networks under development by HAP) are concentrated presently in
Minneapolis, Central Florida, Phoenix, Cincinnati, Nebraska, Utah, and
Colorado. HealthCare presently operates solely in Central Florida.
As of January 2000, HealthMax products are sold only through
participating members of the Company's provider network and, to a small
degree, direct to consumers. Plans are underway for a robust interactive
website that will facilitate sales and education, including an opportunity for
members of the Company's Nutritional Options Plus plan to interact with
members of the provider network.
With respect to competition for the consumers of HealthMax products
and services, 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. Moreover, while nutritional products, supplements and
vitamins are being sold over the internet by such enterprises as vitamins.com,
the Company is unaware of any website offering interaction with practitioners
on a membership basis.
During the past several years, a number of companies (such as Anabolic
Labs, Inc., and Metagenics, Inc.) have attempted to use healthcare providers as
a sales channel for the distribution of vitamins, supplements and other
nutritional healthcare products. Most of these competitors, the Company
believes, have used a multi-level marketing or network marketing approach, and
have offered practitioners no education, support or training related to the
delivery of the products. The Company believes that its ability to compete for,
and retain, the loyalty of its providers as vendors of HealthMax products will
be derived largely from a comprehensive approach to the market that features a
"closed loop" of mutually supportive activities. Providers are trained in the
HealthMax approach to nutritional services and receive support through visits
with HealthMax-trained provider representatives. These providers also
participate in the Nutritional Options Plus plan, which is designed to deliver
new patients to their practice. Provider retention is expected to be enhanced
by the inclusion of free services such as patient newsletters and an internet
presence that will be offered to practitioners who request it.
The Company believes it can effectively compete by establishing a
robust, and atypical, distribution channel through the offices of licensed
professionals who have been trained in the evaluation of patients from a
nutritional standpoint. This network of providers will create an underpinning
for the Company's program that communicates a significant point of difference
from nutritional retail operations and, as such, a competitive advantage for
HealthMax. In addition, HealthMax will distribute products containing only
pharmaceutical-grade raw material, which is not believed to be the case of most
mass-marketed nutritional supplements. Lastly, HealthMax products are a unique
blend of ingredients, which delivers in one bottle the ingredients often found
in multiple bottles. For example, OxyAccess contains 10 distinct anti-
oxidants, which are more commonly sold individually or in smaller combinations.
With respect to its ability to compete effectively for distributors (healthcare
providers who distribute the company's products), HealthMax believes that the
training and tools that it offers with respect to nutritional healthcare are
attractive incentives to professionals interested in expanding their scope
beyond the curriculum taught in school, while providing a means of enhancing
their revenue stream. Moreover, as the Nutritional Options Plans offered
through HAP develop more fully, HealthMax will deliver new patients to the
members of its provider network, an advantage the Company does not believe can
be offered by others in this industry.
With respect to HealthCare, the Company believes that its competitive
advantage will be derived from an ability to provide enhanced services,
improved quality and greater availability than other providers of complimentary
and alternative medicine (CAM). The Company believes that it is the only CAM
center in the Orlando, Florida area that offers chiropractic, podiatric and
osteopathic medicine, as opposed to single modality centers. Further, its
experience in managed care has resulted in the development of an administrative
infrastructure for credentialing, payment, and account processing as a means of
delivering "one stop" operations, from administrative support, to provider
availability to the managed care payor. Accordingly, while the managed care
environment makes competition on the basis of price insignificant, the Company
believes that HealthCare's infrastructure should enhance its ability to operate
more profitably.
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 Innovative Health
Products, Inc., of Largo, Florida on a per-order basis. The Company presently
does not have a manufacturing agreement with Innovative Health or any other
manufacturer. 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 Innovative Health Products is
the only manufacturer capable of meeting the Company's specifications.
There is no principal supplier or other third party on whose
business either HAP or HealthCare is dependent.
(6) Dependence on Major Customers.
The Company is not dependent on any major customer for a significant
portion of its business. Similarly, HealthCare is not dependent on any
predominant payor or payor type.
(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 January 2000, 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, and has not separately accounted for
research and development expenses, Management is of the view that until 1999,
virtually all of its expenditures were in the nature of research and
development. Total expenditures for each of the last two fiscal years were
$1,697,789 in the fiscal year ended December 31, 1998, and $1,373,562, in the
fiscal year ended December 31, 1997, virtually all of which were 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 January 1, 2000, Access Health Alternatives, Inc., had three
full-time employees all of whom were engaged in administrative capacities and
all of whom are considered executives. Access HealthMax, Inc., employed five
full-time people, and one part-time employee; two of HealthMax' full-time
employees are involved in distribution and the balance are in sales and support.
The part-time employee is engaged in administrative duties. HAP presently has
no employees, and its administrative and sales functions are being handled by
employees of either Access Health Alternatives or HealthMax.
None of the Company's employees is represented by labor unions. The
Company believes its relationship with its 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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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 approximately 33.0%, from $94,013 in 1997 to
$125,027 in 1998. More importantly, the cost of sales as a function of the sales
decreased substantially from 39.1% in 1997 to 28.4% in 1998. Similarly, gross
profit margins for the sale of products increased from 60.1% 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, 1% of the losses of the
limited liability companies is allocated to HealthMax which amounts are treated
as a reduction in the selling, general and administrative expenses of HealthMax.
Accordingly, in 1998 and 1997, respectively, the amounts of $506,255 and
$363,341, were reflected as a reduction of selling, general and administrative
expenses of the Company, and the amounts due to 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 $257,202 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 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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Cost of sales as a function of sales increases from approximately 25%
in the six months ended June 30, 1998, to approximately 31% during the six
months ended June 30, 1999. This is believed to be due, in large part, to the
Company's inability to take advantage of discounts for early payment in the
latter period, as a consequence of the Company's cash flow difficulties. This
is also believed to have been the major contributing factor to the decline in
the profit margins on the sales of the Company's products, from 74.9% during the
six months ended June 30, 1998, to 69.1% for the six months ended June 30, 1999.
Management believes that as the volume of sales recovers, profit margins should
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 $825,739, or a 57.6% increase. This
was in part the result of the addition of new members of management, (including
a compensation expense resulting from shares of the Company's common stock
issued to a new and ongoing 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 $532,339, 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.
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. In October 1999, the Company received an
additional working capital loan of $50,000. The inventory financing is expected
to be repaid from the sale of product during the next two years. It is
anticipated that the working capital loans will be repaid from the earlier to
occur of operating revenue or net proceeds of a private offering of equity
and/or debt securities, the terms of which offering have not been identified.
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The Company continues to experience negative cash flow, and anticipates
this continuing through the foreseeable future. Management believes that
additional funding will be necessary in order for it to continue as a going
concern. The Company is investigating several 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. Moreover, despite the ongoing best efforts
of Management, there presently is no firm plan in place for how the Company
intends to meet its liquidity and capital needs for the next year, or to
address its working capital deficit of approximately $3 million as of June 30,
1999.
The Company had no material commitments for capital expenditures as of
either December 31, 1998 or December 31, 1999.
In October 1999 HealthMax was advised by the Department of
Professional and Financial Regulation, Bureau of Banking, Securities Division
for the State of Maine that certain sales of the LLC's interests to Maine
residents were not covered by an exemption from registration, and were
effected with the assistance of a person not licensed to sell securities in
that state, and therefore are subject to rescission. Without admitting any
violations of applicable Maine securities laws, HealthMax, through counsel,
has confirmed that it will offer rescission to the Maine investors, but has
not yet determined the manner or method of this offer. Neither the LLC's,
HealthMax nor the Company has sufficient funds available to rescind the full
amount of the Maine investors' interests (approximately $763,750), should
they all elect to rescind their investment. The potential impact this action
may have on HealthMax or the Company as a whole, or on their financial
statements, cannot be determined at this time. The Company, however, has
recorded a liability in the amount of $763,750 on its books.
In December 1999 the Company became aware of an inquiry by the
Comptroller's Office of the State of Florida into the manner by which certain
LLC interests were sold to residents of Florida. The State has requested
certain documents and information from the Company, from the LLCs and from
HealthMax in what the Company believes is an effort to determine if
securities were sold without registration or without an exemption from
registration, or by persons not licensed to sell securities in the State.
The Company is cooperating with the State's inquiry, and is unable
to speculate at this time as to the outcome of such inquiry.
In addition to the states of Florida and Maine, where a total of
$1,472,298 and $763,750, were raised, respectively, LLC interests were sold
in other jurisdictions as follows: Utah, $80,000; Texas, $204,198; Missouri,
$197,704; Ohio, $65,500; California, $25,000; Minnesota, $51,000; New Jersey,
$25,000; Michigan, $50,000; and Canada, $50,000. Although the Company has
not received any communications from the regulators in the jurisdictions
other than Florida and Maine concerning the sale of LLC interests, further
inquiries are possible. It is impossible at this time to ascertain the
potential impact such inquiries may have on the LLC, HealthMax or the
Company. Without concurring that any improprieties occurred, the Company
believes that further rescission offerings may be required. The Company will
continue to evaluate avenues of satisfying any required rescission offerings,
and the advisability of offering rescission in jurisdictions where such
rescission is not required by the regulatory authorities. Although it was
believed at the time of the offerings that they were made substantially in
compliance with applicable state law, further evaluation on a state-by-state
basis would be required by the Company at this time before stating a position
with respect to whether it had actually complied in all material respects
with such state laws, which evaluation will be undertaken by the Company in
the near future.
It is premature to predict with any degree of certainty either the
magnitude of any rescission offering related to the LLCs, the number of LLC
investors that would accept such an offer, the dollar amount the Company
would be required to pay, or the cost of that money to the Company in terms
of time, expense and dilution of shares (in the event an equity offering is
needed to raise the needed funds). The Company presently does not have
the funds available to satisfy a cash rescission offer, and is considering
a number of methods of raising such funds. The allocation of funds to a
rescission may have a further impact on the Company's ability to continue as
a going concern. Further, it is expected that any rescission offering would
be made pursuant to a registration statement under the Securities Act of
1933, as amended, requiring additional expenses, including legal and
accounting expenses, for which the Company is presently unable to pay.
Year 2000 Impact Statement
The Company believes that it has analyzed its information technology
and non-information technology systems to determine the existence of any effect,
if any, of Year 2000 issues. The nature of the Company's business, as presently
conducted, is such that it is not dependent on any software other than
"off-the-shelf" Microsoft products and the Peachtree accounting programs, all of
which purport to be Year 2000 compliant. The Company has entered into hardware
and software support agreements in the normal course of its business, and
believes that those support arrangement are sufficient to handle any minor
issues that may arise as a result of the Year 2000, if any. The Company also
intends to create hard copy of all year-end accounting and management reports,
in the ordinary course of its business, which hard copy will serve as back up of
such data, if needed.
The Company has evaluated the Year 2000 readiness of the managed care
software that is used by HealthCare, and has spent between $5,000 and $10,000
upgrading the hardware and software package known as Medical Manager. The
Company has been advised by HealthCare that its significant third-party payors
are believed to be Year 2000 ready. Further, because HealthCare does not relieve
the patients from their ultimate obligation to pay, the Company believes that
any delay in payments by the third-party payors that may be caused by Year 2000
issues will be immaterial. Accordingly, the Company believes that HealthCare's
Year 2000 readiness is complete.
The Company is not aware of any significant non-IT systems employed in
its operation, the impairment of which would have a materially adverse impact on
the Company. Further, because the Company's internet plan is still under
development, it is not currently dependent on the internet for either
e-commerce, the dissemination of information, or data management, and therefore
does not anticipate any material impact from Year 2000 issues that may affect
the internet.
With respect to the Company's third-party relationships and the extent
to which their Year 2000 compliance may affect the Company, the Company believes
that the only potential relationship that may be of concern is its relationship
with its manufacturer of HealthMax products, Innovative Health Products. The
Company believes that it has purchased sufficient inventory of its proprietary
products to fill the Company's orders for the first 60 to 90 days of the new
year. Typical delivery of new orders requires four weeks, and Innovative Health
Products is not the only manufacturer capable of producing the Company's
products to its specification. Accordingly, the Company does not anticipate any
material adverse impact in the event Innovative Health Products is adversely
affected by Year 2000 issues.
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.
Effective November 1, 1999, the Company's corporate headquarters,
including administrative offices, distribution and research and development
facilities, the offices of HealthMax and of HAP, are located at 4619 Parkbreeze
Court, Orlando, Florida 32808. The facilities consists of approximately 1,500
square feet of office space and approximately 3,000 square feet of warehouse
space and are leased by Access HealthCare, Inc., under a three-year agreement
with Dr. Philips, Inc., an unaffiliated party, for a monthly rent of $1,950,
with cost of living increases in the second and third years. HealthCare provides
the space to the Company at the same rent and under the same terms applicable to
it under its lease with the landlord. Dr. Pavlik, the Company's president (and
the President of HealthCare) has personally guaranteed the lease.
Prior to November 1, 1999, the Company leased its offices on a
month-to-month basis from PSC Realty, an affiliated party, at a monthly rent of
approximately $1,500. HealthCare, which maintains a clinic and its principal
administrative office at the same address (2016 S. Orange Avenue, Orlando,
Florida), has assumed the Company's portion of the space, and, as of November 1,
1999, is obligated for monthly rent of $3,000.
The Company also maintains a regional sales office in Bloomington,
Minnesota. Prior to September 1, 1999, the Company had been renting that office
from an employee, Dr. Mark Leutem, on a month-to-month basis for $600 per month.
Dr. Leutem is no longer charging the Company rent, although it continues to
maintain a presence at that location.
Until October 1, 1999, the Company maintained a regional sales office
in Colorado Springs, Colorado, which it had rented from an unaffiliated third
party, Tim Rose as Receiver, for a monthly rent of $600.00. The Company has not
determined whether or to where it will relocate its Colorado office.
Until November 1, 1999, the Company utilized certain distribution
facilities in Norcross, Georgia, under a verbal agreement, for which it paid
$2,000 per month to Solos Management, an unaffiliated third party, through
Paideia Health, Inc., an affiliated party. This arrangement has been terminated.
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 present locations are as follows:
Florida: 4619 Parkbreeze Court, Orlando, FL 32808
Minnesota: 2850 Metro Drive, Suite 223, Bloomington, MN 55425
The location for the principal office of HealthCare is 2016 S. Orange
Avenue, Orlando, FL 32806.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
As of January 17, 2000, the Company had issued and outstanding 2,636,887
shares of its Common Stock. Instructions for the issuance of an additional
256,803 shares were subsequently delivered to the Company's transfer agent.
Accordingly, the percentages reflected below are based on 2,893,690 shares
outstanding.
NAME AND ADDRESS(1) # OF SHARES % OF TOTAL
- ------------------- ----------- ----------
The Daniel J. Pavlik Revocable Trust(2) 537,736 18.58
1602 Patton Avenue
Apopka, FL 32703
Donald Metchick(3) 445,265 15.39
106 Wisteria Drive
Longwood, FL 32792
Steven Miracle 300,000 10.37
3000 Old Alabama, Suite 119250
Alpharetta, Georgia 30022
Patricia Cohen 150,000 5.18
203 Waymouth Harbor Cove
Longwood, FL 32792
- -----------------
(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) Includes 218,618 shares owned of record by the Daniel J.
Pavlik Revocable Trust (trustee of which is Dr. Pavlik and
the beneficiary of which is Rebecca Pavlik). Also includes
218,618 shares owned of record by The Rebecca Pavlik
Revocable Trust (of which Mrs. Pavlik is the trustee and Dr.
Pavlik is the beneficiary), as to which Dr. Pavlik disclaims
beneficial ownership since he does not have the ability to
directly or indirectly vote or dispose of the shares owned by
this Trust. Does not include 715,000 shares issuable to The
Daniel J. Pavlik Revocable Trust upon closing of the
acquisition of HealthCare and does not include 715,000 shares
issuable to The Rebecca 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. Includes 60,000 shares sold in a
private transaction by Mr. Metchick in May 1999, as that
transaction has not yet been reflected on the Company's
transfer agent's records.
17
<PAGE>
(b) SECURITY OWNERSHIP OF MANAGEMENT.
As of January 17, 2000, the Company had issued and outstanding
2,636,887 shares of its Common Stock. Instructions for the issuance of an
additional 256,803 shares were subsequently delivered to the Company's transfer
agent. Accordingly, the information reflected below is based on 2,893,690
shares outstanding. The following table sets forth, as of January 19, 2000,
certain information regarding beneficial ownership of the Common Stock by
members of Management.
NAME AND ADDRESS(1) # OF SHARES % OF TOTAL
- ------------------- ----------- ----------
Daniel J. Pavlik(2) 537,736 18.58
1602 Patton Avenue
Apopka, FL 32703
Donald Metchick(3) 445,265 15.39
106 Wisteria Drive
Longwood, FL 32792
Steven Miracle 300,000 10.37
3000 Old Alabama, Suite 119250
Alpharetta, Georgia 30022
- --------------------
(1) Based on 2,893,690 shares outstanding.
(2) Includes 218,618 shares owned of record by The Daniel J. Pavlik
Revocable Trust (trustee of which is Dr. Pavlik and the beneficiary of which
is Rebecca Pavlik). Also includes 218,618 shares owned of record by The
Rebecca Pavlik Revocable Trust (of which Mrs. Pavlik is the trustee and Dr.
Pavlik is the beneficiary), as to which Dr. Pavlik disclaims beneficial
ownership since he does not have the ability to directly or indirectly vote
or dispose of the shares owned by this Trust. Does not include 715,000
shares issuable to The Daniel J. Pavlik Revocable Trust upon closing of the
acquisition of HealthCare and does not include 715,000 shares issuable to
The Rebecca 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. Includes 60,000 shares sold in a private transaction by Mr.
Metchick in May 1999, as that transaction has not yet been reflected on the
Company's transfer agent's records.
18
<PAGE>
(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 implemented nine full service physical rehabilitation facilities in a
multi-state forum. From 1987 through 1993 he founded and developed The Academy
of Industrial Health Consultants d/b/a The Academy, a chiropractic PPO. From
1980 through the present, Dr. Pavlik has been the President of Access
HealthCare. Since 1996, he has been the President and CEO of HealthMax, and
has been the President and CEO of Health Alternatives since completion of the
Exchange in September 1998.
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 served from July 1994 through July 1996 as the President
of AmHealth, Inc., an occupational health provider, taking it from near
bankruptcy, through a creditor work-out, consolidation, and successful sale.
From July 1996 through December 1998, he was the President of Paideia Health,
Inc., a healthcare and small business consulting and management company.
He has served as the Chief Operating Officer of The Company since January
1999.
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>
John Hancock Insurance Co. Mr. Metchick filed for and was discharged from
personal bankruptcy in the United States Bankruptcy Court in early 1994. From
January 1992 through February 1996, Mr. Metchick was the President of Preferred
Financial and Estate Planning Services, Inc., which provided life and health
Benefit consulting and estate planning services. From February 1996 through the
present he has been the Vice President of HealthMax, and in July 1999, he
became the President of HAP.
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 served as the Executive Vice President of Education
and Product Development for HealthMax from February 1996 until October 1999,
when he resigned his employment with HealthMax and became a key consultant.
By mutual verbal agreement, the parties have suspended their respective
obligations under their consulting agreement, until such time as the Company's
financial condition permits it to resume payments to Dr. Bradley. Dr. Bradley
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.
20
<PAGE>
(c) FAMILY RELATIONSHIPS.
None of the members of Management and/or other key employees or key
consultants is related to another.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
In April 1996, Donald Metchick was fined $2,500 by the National
Association of Securities Dealers, Inc. (the "NASD"), and barred from
association with any NASD member in any capacity, pursuant to an Offer of
Settlement in connection with allegations made by the NASD that he had
commingled customer funds from the sale of annuity and other insurance
products with other funds. Mr. Metchick agreed to the settlement, without
admitting the allegations made. No customer funds were misappropriated, nor
was any such allegation asserted against Mr. Metchick.
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 $100,000 in all forms of compensation. There
was no long-term compensation earned or paid to any party, nor was any other
form of reportable compensation earned or paid.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------------
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C>
Total
Annual
Compen-
sation
Name and Principal Position Year Salary ($) 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.
21
<PAGE>
(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
22
<PAGE>
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; 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 equivalent to approximately three times his annual base salary plus
taxes thereon.
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; 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 equivalent to approximately three
times his annual base salary plus taxes thereon.
The Company has no employment contracts with any other employees,
although it anticipates entering into an agreement with Dr. Daniel J. Pavlik,
the terms of which agreement have not been finalized.
(h) REPORT ON REPRICING OF OPTIONS/SARS.
Not applicable.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Prior to November 1, 1999, the Company leased 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.
Effective November 1, 1999, HealthCare became the sole tenant at this facility,
for a total monthly rent of $3,000. Prior to November 1st, the Company and
HealthCare shared this facility, each bearing monthly rent at the rate of
$1,500.
Prior to November 1, 1999, the Company's distribution facilities in
Norcross, Georgia, were 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. Effective November 1, 1999, the
Company is no longer utilizing this space, and no further payments will be
made or accrue in connection with this space.
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.
A portion of the Company's operations, specifically those related to
sales and distribution of HealthMax products, 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.
ITEM 8. LEGAL PROCEEDINGS.
On October 28, 1999, Marty Kass filed a lawsuit in the Circuit Court
for the Eighth Judicial Circuit for Alachua County, Florida, against
Dr. Daniel J. Pavlik, Access HealthMax, Inc., Access HealthCare, Inc., and
Access Health Alternatives, Inc. The action seeks repayment of a loan and
enforcement of a settlement agreement, for approximately $51,664, plus court
costs and fees. The Company believes the suit will be satisfied upon payment
of all outstanding amounts owed, and has recorded reflected a liability in the
amount of $52,000 on the balance sheet at September 30, 1999.
On January 4, 2000, an action was filed in the Circuit Court for the
Ninth Judicial Circuit for Orange County, Florida, by James Michaelides, the
Estate of Anna Michaelides and Andrew Nicolaides, against Innovative Health
Solutions, Inc., HealthMax, Inc. [sic], Pavlik Chiropractic Group, P.A.,
Richard A. Weaver and Daniel J. Pavlik. This action seeks the repayment of
four loans totalling $145,000 plus court costs and fees. The Company has not
yet determined its response to this action. The sums sought are reflected as
debt on the Company's books, and are among a series of loans with an
approximate present balance of $820,000, with respect to which the
Company may be in default, although the Company has not received any other
notices of default at this time.
In October 1999 HealthMax was advised by the Department of
Professional and Financial Regulation, Bureau of Banking, Securities Division
for the State of Maine that certain sales of the LLC's interests to Maine
residents were not covered by an exemption from registration, and were
effected with the assistance of a person not licensed to sell securities in
that state, and therefore are subject to rescission. Without admitting any
violations of applicable Maine securities laws, HealthMax, through counsel,
has confirmed that it will offer rescission to the Maine investors, but has
not yet determined the manner or method of this offer. Neither the LLC's,
HealthMax nor the Company has sufficient funds available to rescind the full
amount of the Maine investors' interests (approximately $763,750), should
they all elect to rescind their investment. The potential impact this action
may have on HealthMax or the Company as a whole, or on their financial
statements, cannot be determined at this time. The Company, however, has
recorded a liability in the amount of $763,750 on its books.
In December 1999 the Company became aware of an inquiry by the
Comptroller's Office of the State of Florida into the manner by which certain
LLC interests were sold to residents of Florida. The State has requested
certain documents and information from the Company, from the LLCs and from
HealthMax in what the Company believes is an effort to determine if
securities were sold without registration or without an exemption from
registration, or by persons not licensed to sell securities in the State.
The Company is cooperating with the State's inquiry, and is unable to
speculate at this time as to the outcome of such inquiry.
In addition to the states of Florida and Maine, where a total of
$1,472,298 and $763,750, were raised, respectively, LLC interests were sold
in other jurisdictions as follows: Utah, $80,000; Texas, $204,198; Missouri,
$197,704; Ohio, $65,500; California, $25,000; Minnesota, $51,000; New Jersey,
$25,000; Michigan, $50,000; and Canada, $50,000. Although the Company has
not received any communications from the regulators in the jurisdictions
other than Florida and Maine concerning the sale of LLC interests, further
inquiries are possible. It is impossible at this time to ascertain the
potential impact such inquiries may have on the LLC, HealthMax or the
Company. Without concurring that any improprieties occurred, the Company
believes that further rescission offerings may be required. The Company will
continue to evaluate avenues of satisfying any required rescission offerings,
and the advisability of offering rescission in jurisdictions where such
rescission is not required by the regulatory authorities. Although it was
believed at the time of the offerings that they were made substantially in
compliance with applicable state law, further evaluation on a state-by-state
basis would be required by the Company at this time before stating a position
with respect to whether it had actually complied in all material respects
with such state laws, which evaluation will be undertaken by the Company in
the near future.
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
23
<PAGE>
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.
In early August 1999, the Company's common stock became ineligible for
quotation on the Bulletin Board, and began being quoted on the "Pink Sheets" of
the National Quotation Bureau under the symbol, "AHMX."
The following table sets forth the range of high bid 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 Bid Low Bid
--------- --------
Quarter ended December 31, 1998 $55.00000 $0.62500
Quarter ended March 31, 1999 $ 5.62500 $0.15630
Quarter ended June 30, 1999 $ 2.75000 $1.62500
Quarter ended September 30, 1999 $ 1.87500 $0.90163
Quarter ended December 31, 1999 $ 0.48000 $0.25000
(b) HOLDERS.
As of January 17, 2000, the approximate number of record holders of the
Company's common stock was 132. 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. The Company
presently does not believe there are any such restrictions.
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>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
The following unregistered securities of the Company have
been issued in the period from September 2, 1998 (the Exchange Date) through
January 19, 2000 (with adjustments shown to reflect the Reverse Stock Split
declared in March 1999). Although the Company believes that an exemption from
registation under the federal and/or state securities laws was available for
each of these issuances, if it is otherwise determined at some future date,
the Company may be required to offer rescission of such issuance or issuances.
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. At the time of the transaction,
FCG was an accredited investor within the meaning of the Act, and although
Limited written disclosure was provided to it, Management was available to
answer all questions posed on behalf of FCG and to otherwise provide all
requested disclosure.
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. Money Purchase Plan 10,000 Shares
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 issuance of these shares was not tied to performance,
nor was it issued in lieu of cash compensation. Rather, the Company issued
these shares to the following persons (none of whom is believed to be an
accredited investor) in appreciation for their extraordinary service to the
Company. None of the recipients of this stock received the type of information
normally presented in a prospectus. 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>
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 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 rendered by her husband,
Michael, on behalf Public Acquisition Consultants, Inc. ("PAC"). Mr. Lewis is
the President of PAC and Ms. Lewis is its sole shareholder; the shares were
issued to Ms. Lewis personally at the request of PAC. The shares were issued
under Section 4(2), and were due to have been issued immediately following the
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. PAC was
instrumental in establishing and furthering the relationship between Access
HealthMax and PLC, and received this stock grant in appreciation for its
assistance. The Company does not believe that PAC is an accredited investor.
It was not provided with the type of information normally presented in a
prospectus.
In May 1999 the Company sold one Unit of its securities pursuant to
Rule 506 promulgated under the Act, for $25,000. The Unit consisted of one
shares of Series A Redeemable Convertible Preferred Stock, one Class A
Warrant and one Class B Warrant. As this was the only Unit sold in the
offering, the investor and the Company agreed that the Company would not
issue the Unit. Instead, the Company has recorded the $25,000 it received
from the investor as a liability, and, at the investor's election, the
Company will either return the funds or will apply it to an investment on the
Company's behalf in a future offering of securities by the Company.
In July 1999 the Company retained The Edge Unlimited, Inc.
("The Edge"), Orlando, Florida to provide certain investor relations and public
relations services, for which The Edge received 150,000 restricted shares of
the Company's common stock, under Section 4(2). The Company is unaware of
whether The Edge is an accredited investor. Although The Edge had access to
Management, and received such information concerning the Company as it
requested, it did not receive the type of information normally presented in
a prospectus.
From April 1999 through January 2000, the Company exchanged common
stock of HealthMax for common stock of Health Alternatives, under Section 4(2).
An aggregate of 353,503 shares of the Company's common stock were issued to
approximately 50 former shareholders of HealthMax, some of whom are not
accredited investors. Although all of these persons were provided with such
information concerning the Company as was reasonably available at the time,
and were invited to consult with their financial advisors and to request any
other information of the Company as they believed appropriate, the information
provided was not equivalent to the information that would normally be presented
in a prospectus.
Frank Aldridge 30,000 shares
Ambrosia Health Enterprises, Inc. 10,000 shares
John H. Brett, Jr. 10,000 shares
Albert K. Brinson, IRA 2,000 shares
Shelley D. Brown 10,000 shares
Philip and Linda Carland 5,000 shares
Ralph W. Catanese 20,000 shares
Dominick J. Costanzo 5,000 shares
Kenneth R. Crutchfield 2,000 shares
James D'Angelo 5,000 shares
Ralph L. Davis, Jr. 20,000 shares
Helen Decker 2,500 shares
Berton L. DeSelms 2,000 shares
Robert A. Foss 2,000 shares
Richard and Phyllis Gruosso 5,000 shares
Ronald and Kirai Hoffman 5,000 shares
Douglas Jordal 5,000 shares
Frederick J. Kollett, Jr. 5,000 shares
Gary S. Kuskin 10,000 shares
Pat E. Luse 2,500 shares
Michael and Charlene MacDonald 30,000 shares
Cathy and Thomas Machacyk 2,500 shares
Bruce and Kimberley Maddox 2,500 shares
Philip and Linda Mancusi 10,000 shares
Lillian and Peter Marcelli 2,500 shares
Luca and Yvonne Masciarelli 9,200 shares
Robert and Anne Micelotta 2,500 shares
Stanley Moreira 2,500 shares
Marcy Morgan 2,500 shares
Nelda and James Murray 2,500 shares
Patrick M. O'Neill 2,500 shares
Pensco Pension FBO Faye Miles 2,500 shares
Pensco Pension FBO Raymond D. Brown 3,803 shares
Brent Phillips 10,000 shares
Tina C. Piasio 6,000 shares
Palma Privitera Living Trust 2,500 shares
Sharon Procaccioanti 2,500 shares
Delvin E. Ressel Revocable Trust 5,000 shares
Retirements Accounts, Inc., FBO Philip J. Carland 5,000 shares
Paul Sember 25,000 shares
Michael D. Sember Trust 35,000 shares
William Stringer 3,500 shares
Armand & Marie Taddeo 5,000 shares
Karen Taddeo 6,000 shares
Wilburn D. Taylor 2,500 shares
Ronald P. Terrill 2,000 shares
Robert W. Yarber 10,000 shares
In November 1999, the Company issued 100,000 shares each to Donald
Metchick and Steven Miracle, which issuance was intended to occur in January
1999, pursuant to their respective employment agreements, pursuant to Section
4(2). Neither Mr. Metchick nor Mr. Miracle is an accredited investor, and
although neither received the type of information normally found in a
prospectus, as members of Management, they had access to such information.
In December 1999, the Company issued an aggregate of 400,000 shares
of common stock to certain employees as follows, under Section 4(2). The
issuance of these shares was not tied to performance, nor was it issued in lieu
of cash compensation. Rather, the Company issued these shares to the following
persons (none of whom is believed to be an accredited investor) in appreciation
for their extraordinary service to the Company. None of the recipients of this
stock received the type of information normally presented in a prospectus.
Mark Leutem 50,000 shares
Brent Philips 50,000 shares
Steven Miracle 100,000 shares
Daniel J. Pavlik 100,000 shares
Donald Metchick 100,000 shares
In January 2000, the Company issued 100,000 shares to each of Donald
Metchick and Steven Miracle pursuant to their respective employment
agreements, pursuant to Section 4(2). Neither Mr. Metchick nor Mr. Miracle
is an accredited investor, and although neither received the type of
information normally found in a prospectus, as members of Management, they
had access to such information.
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, 2,636,887 were outstanding as of
January 17, 2000, and an additional 2.0 million (approximately) of which have
been reserved in connection with the acquisition of HealthCare. The Company also
has reserved 400,000 shares for issuance under two employment agreements,
200,000 of which were issued after January 17, 2000, and 200,000 of which will
be issued in January 2001. In addition, approximately 57,000 shares were issued
subsequent to January 17, 2000, in connection with the share exchange with
certain minority shareholders of HealthMax. 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>
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 an offering that was terminated in September 1999
(the "Unit Offering"). Prior to the Unit Offering, no series of preferred stock
had been designated. Although one Unit was sold in the Unit Offering for
$25,000, the purchaser has agreed to accept an investment in the Company's next
offering, provided the terms are as favorable to him as were the terms of the
Unit Offering. No definitive terms have been established for the Company's next
offering, and it is possible that the $25,000 will be returned to the investor
at some future date. Funds raised in the Unit Offering have been recorded as a
liability on the Company's books, as they may be returned to the investor
or converted to an investment in a future offering by the Company, at the
investor's election.
27
<PAGE>
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>
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 and are filed
herewith.
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 filed herewith:
(i) For Access Health Alternatives, Inc., and Subsidiary F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets at June 30, 1999 (unaudited)
and December 31, 1998 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 June 30, 1999
(unaudited) and December 31, 1998 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>
(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 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 10.1.1 Amendment to Miracle Employment Agreement
Exhibit 10.2* Employment Agreement with Donald Metchick
Exhibit 10.2.1 Amendment to Metchick Employment Agreement
Exhibit 10.3* Form of LLC Operating Agreement (LLC II
given as example)
Exhibit 10.3.1* Schedule Pertaining to LLC Operating
Agreements
Exhibit 10.4* Form of Market License Agreement
Exhibit 10.5* Form of Affiliated Clinic Agreement
(Chiropractic Physician Agreement)
Exhibit 10.6* Consulting Agreement with Dr. Barry Bradley
Exhibit 10.7 Agreement with The Benecom Group
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>
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>
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.
Orlando, Florida
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>
ACCESS HEALTH ALTERNATIVES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 80,857 419
Receivables:
Trade 27,329 8,218
Other 10,127 7,988
------------ ------------
Total receivables 37,456 16,206
Inventories 55,805 68,968
Other current assets 10,906 --
------------ ------------
Total current assets 185,024 85,593
Property and equipment, net 43,360 51,034
Other assets, net 13,976 16,711
------------ ------------
Total assets 242,360 153,338
============ ============
Liabilities and Stockholders' Deficit
Current liabilities:
Notes and commercial paper 1,467,821 1,155,723
Current obligation under capital lease 6,903 7,523
Bank overdraft -- 101,357
Accounts payable 145,756 284,637
Accrued liabilities 532,339 452,188
Due to related parties:
Stockholders 22,708 117,378
Limited liability companies 1,063,614 1,084,099
Access Healthcare, Inc 39,744 39,383
------------ ------------
Total due to related parties 1,126,066 1,240,860
------------ ------------
Total current liabilities 3,278,885 3,242,288
Unearned income 318,084 278,417
Obligation under capital lease, less current portion 4,190 5,226
Minority interest in subsidiary 405,063 405,063
------------ ------------
Total liabilities 4,006,222 3,930,994
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 1,587 1,023
Capital in excess of par value 737,193 26,477
Accumulated deficit (4,502,642) (3,805,156)
------------ ------------
Total stockholders' deficit (3,763,862) (3,777,656)
------------ ------------
Total liabilities and stockholders' deficit $ 242,360 153,338
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
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 80,747 56,577 49,803
----------- ----------- ----------- ------------
Total revenues 834,558 732,964 257,202 496,301
Cost of sales:
Equipment 58,799 135,670 - 64,235
Products 125,027 94,013 77,114 56,347
Other 7,180 - 2,460 3,800
----------- ----------- ----------- ------------
Total cost of sales 191,006 229,683 79,574 124,382
----------- ----------- ----------- ------------
Gross profit 643,552 503,281 177,623 371,919
Selling, general and administrative 1,191,534 1,010,221 825,739 524,097
----------- ----------- ----------- ------------
Operating loss (547,982) (506,940) (648,111) (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) (697,486) (256,156)
=========== =========== =========== ============
Basic net loss per share $ (0.71) (0.74) (0.52) (0.26)
=========== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
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 -- -- 437,500 $ 437 7,063 (2,343,118) (2,335,618)
Net loss -- -- -- -- -- (747,440) (747,440)
------- ------- -------- ------ --------- ----------- -----------
Balances, December 31, 1997 -- -- 437,500 437 7,063 (3,090,558) (3,083,058)
Shares issued to reflect
recapitalization for reverse
acquisition (Note 1a) -- -- 565,850 566 (566) -- --
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>
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
Net loss for six months
ended June 30, 1999
(Unaudited) -- -- -- -- -- (697,486) (697,486)
----- ----- --------- ------ --------- ----------- ------------
Balances, June 30, 1999
(Unaudited) 1 -- 1,587,684 $1,587 737,193 (4,502,042) (3,763,862)
===== ===== ========= ====== ========= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
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) (697,486) (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) (40,333) (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) 80,151 68,854
---------- --------- --------- ---------
Net cash provided by (used in)
operating activities 337,071 (258,658) (586,068) 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 80,000 --
Proceeds from issuance of stock 405,063 -- 485,000 147,000
---------- --------- --------- ---------
Net cash provided by (used in)
financing activities (331,774) 313,975 674,444 (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>
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>
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 reflects in their
financial statements all of the sales and expenses related to
the operations being conducted for the LLC's.
Since the LLC's are currently operating at a loss, it is necessary to
reduce the LLC losses initially recorded in the financial statements
of HealthMax to comply with the terms of the LLC operating agreement.
Accordingly, HealthMax reflects 99% of the LLC losses as a reduction
of general and administrative expense until such time as the balance
due to an individual LLC is reduced to zero. Thereafter, in accordance
with the Operating Agreement, all losses are absorbed by HealthMax.
(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>
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 of $13,475 and $16,211 at June 30, 1999 and
December 31, 1998 are comprised primarily of product label development
costs that are being 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>
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) UNEARNED INCOME
Amounts received by HealthMax from the LLC's for opening regional
offices (see Note 4) and market license fees (see Note 11) are being
recognized over 60 months.
(n) 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>
June 30, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Computer equipment $ 78,515 71,944
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 2,748 1,381
--------- ------------
112,018 104,080
Less accumulated depreciation
and amortization 68,658 53,046
--------- ------------
Total $ 43,360 51,034
========= ============
</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>
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>
June 30, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Commercial paper, bearing interest
at 10 1/2%; collateralized by
inventory and accounts receivable
of Access HealthMax, Inc. $ 832,137 869,637
Notes payable, bearing interest
at 10 1/2%; unsecured 533,721 159,294
Lines of credit, bearing interest
at 10% to 22%; unsecured 22,350 29,277
Note payable, bearing interest
at 18%; unsecured 15,030 20,015
Note payable, non-interest bearing;
unsecured 64,583 77,500
---------- ------------
Total $1,467,821 1,155,723
========== ============
</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>
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, which provides
that 99% of the operating losses of the LLC's are to be allocated to
the LLC's, 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 $86,204 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>
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>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
1999 $ 4,109 8,944
2000 8,256 5,504
-------- ------------
Total lease payments 12,365 14,448
Less amount representing interest 1,272 1,699
-------- ------------
Present value of lease payments $11,093 12,749
======== ============
</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>
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% $ 237,000 87,000
State income tax benefit, net of federal
tax benefit 25,000 10,000
Increase in valuation allowances (262,000) (97,000)
---------- --------
$ -- --
========== ========
</TABLE>
The components of the deferred income tax asset are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating losses $ 1,191,000 890,000
Start up costs capitalized for tax
purposes and amortized over a five year
period, expensed for
financial statement purposes 386,000 421,000
Unearned income 102,000 105,000
Other 2,000 3,000
------------ -----------
1,681,000 1,419,000
Valuation allowance (1,681,000) (1,419,000)
------------ -----------
$ -- --
============ ===========
</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>
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>
June 30, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Estimated value of common stock to be
issued for services (note 10) $ 180,000 225,000
Accrued salaries including $100,961 due to
a principal beneficial owner of the
Company 105,356 105,356
Accrued interest 55,810 43,033
Accrued rent 69,960 74,385
Accrued commissions 87,775 --
Accrued property taxes 3,477 3,477
Other 29,961 937
--------- ------------
$ 532,339 452,188
========= ============
</TABLE>
(8) LITIGATION
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. In October 1999 HealthMax was advised by
the Department of Professional and Financial Regulation, Bureau of
Banking, Securities Division for the State of Maine that certain sales
of the LLCs' economic interests to Maine residents were not covered by
an exemption from registration, and were affected with the assistance
of a person not licensed to sell securities in that state, and
therefore are subject to rescission. Without admitting any violations
of applicable Maine securities laws, HealthMax, through counsel, has
confirmed that it will offer rescission to the Maine investors, but has
not yet determined the manner or method of this offer. Neither the
LLC's, HealthMax nor the Company has sufficient funds available to
return the full amount of the Maine investors' interests (approximately
$763,750), should they all elect to rescind their investment. The
potential impact this action may have on HealthMax or the Company as a
whole, or on their financial statements, cannot be determined at this
time.
(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
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 an
offering that was terminated in September 1999 (the "Unit Offering").
Prior to the Unit Offering, no series of preferred stock had been
designated. Although one Unit was sold in the Unit Offering for
$25,000, the purchaser has agreed to accept an investment in the
Company's next offering, provided the terms are as favorable to the
investor as were the terms of the Unit Offering. No definitive terms
have been established for the Company's next offering, and it is
possible that the $25,000 will be returned to the investor at some
future date. The $25,000 received has been recorded as an accrued
liability by the Company and is included in Accrued Liabilities at
June 30, 1999.
F-16
(Continued)
<PAGE>
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, since the Company had not
complied with the terms of the Original Agreement prior to that date.
The $150,000 accrual was based on the February 1999 cash sales price of
$1.00 per share.
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 in the
amount of $180,000 and has been included in accrued liabilities at June
30, 1999. The value of the shares to be issued was based on the
estimated market value of $1.00 per share, less a 10% 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, the
Company will exchange approximately 2,000,000 shares of common stock
for all of HealthCare's outstanding shares. Since the principal owners
of HealthCare are also the principal owners of the Company, the
acquisition of HealthCare will constitute a reorganization of entities
under common control to be accounted for similar to a pooling of
interests. 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>
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 accounted for similar to a pooling of interests. 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>
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 3,278,885 344,326 (39,744) 3,583,467
Unearned income 318,084 -- -- 318,084
Long-term obligations 4,190 155,189 -- 159,379
Minority interest 405,063 -- -- 405,063
------------ ----------- ------------- -----------
4,006,222 499,515 (39,744) 4,465,993
Stockholders' deficit (3,768,862) (325,627) -- (4,089,489)
------------ ----------- ------------- -----------
$ 242,360 173,888 (39,744) 376,504
============ =========== ============= ===========
Condensed statement of operations:
Revenues $ 257,202 907,872 (12,220) 1,152,854
Operating costs and expenses
905,313 822,315 (12,220) 1,715,408
------------ ----------- ------------- ----------
Operating income (loss) (648,111) 85,557 -- (562,554)
Other expenses 49,375 26,135 -- 75,510
------------ ----------- ------------- -----------
Net income (loss) $ (697,486) 59,422 -- (638,014)
============ =========== ============= ===========
Basic net loss per share $ (0.19)
===========
</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 October 1999 and
would result in the elimination of the minority interest of $405,063
and a decrease in stockholders' deficit of $405,063.
F-19
(Continued)
<PAGE>
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 5 year 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. A market license entitles the holder to revenue from
bottled sales generated through 20 clinics trained in the Access
HealthMax Nutritional Program. The current sales price for a market is
$160,000. In June 1999, the Company received $80,000 for the sale of
50% of a market. The required 10 clinics were operating as of June 30,
1999. The market license fee will be recognized over a five year
period. HealthMax is unable to separately identity the cost of
developing the 10 clinics.
(12) OTHER REVENUE
The details of other income are as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
------------------ ------------------
1998 1997 1999 1998
------- ------ ------- ------
<S> <C> <C> <C> <C>
Amortization of deferred income $78,000 33,583 39,000 39,000
Market license fee -- -- 1,333 --
Lease commissions 1,272 16,468 1,272 --
Shipping income 15,123 13,989 5,815 8,441
Other 573 16,707 9,157 2,362
------- ------ ------- ------
Total $94,968 80,747 56,577 49,803
======= ====== ======= ======
</TABLE>
F-20
<PAGE>
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>
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 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 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>
ACCESS HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 191 754
Accounts receivable 77,607 54,352
Other current assets 150 --
----------- ------------
Total current assets 77,948 55,106
Property and equipment, net 56,196 61,923
Due from related parties-Access Health Alternatives, Inc.
and Subsidiaries 39,744 39,383
----------- ------------
Total assets 173,888 156,412
=========== ============
Liabilities and Stockholders' Deficit
Current liabilities:
Line of credit 25,000 25,000
Current obligations under capital leases 34,209 30,237
Current maturities of long-term debt 12,685 14,822
Bank overdraft -- 26,995
Accounts payable 140,040 129,089
Due to stockholders 54,179 57,179
Due to related parties-limited liability company 78,213 78,213
----------- ------------
Total current liabilities 344,326 361,535
Obligations under capital leases, less current portion 128,300 145,080
Long-term debt, less current portion 26,889 34,846
----------- ------------
Total liabilities 499,515 541,461
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 (628,171) (687,593)
----------- ------------
Total stockholders' deficit (325,627) (385,049)
----------- ------------
Total liabilities and stockholders' deficit $ 173,888 156,412
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
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>
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>
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>
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>
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>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Computer equipment $ 45,495 37,251
Medical equipment 62,907 62,488
Furniture and fixtures 17,197 16,335
Vehicles 14,298 14,298
Leasehold improvements 32,158 32,158
-------- ------------
172,055 162,530
Less accumulated depreciation 115,859 100,607
-------- ------------
Total $ 56,196 61,923
======== ============
</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>
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>
June 30, December 31,
1999 1998
--------- ------------
<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 $ 30,538 38,264
Note payable to a bank, bearing
interest at 10.23%; $284 due
monthly, secured by vehicle 9,036 10,741
Other notes -- 663
--------- ------------
Total 39,574 49,668
Less current portion 12,685 14,822
--------- ------------
Long-term debt $ 26,889 34,846
========= ============
</TABLE>
The following is a schedule by year of principal payments on long-term
debt:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
1999 $ 7,324 14,822
2000 10,719 13,121
2001 11,340 11,640
2002 8,928 8,823
2003 1,263 1,262
-------- ------------
Total principal payments $ 39,574 49,668
======= ============
</TABLE>
F-29
(Continued)
<PAGE>
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>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
1999 $ 37,422 74,844
2000 74,844 74,844
2001 71,619 71,619
2002 52,065 52,065
2003 22,395 22,395
-------- ------------
Total lease payments 258,345 295,767
Less amount representing interest (11% to 35%) 95,836 120,450
-------- ------------
Present value of lease payments 162,509 175,317
Less current obligations 34,209 30,237
-------- ------------
Long-term capital lease obligations $128,300 145,080
======== ============
</TABLE>
F-30
(Continued)
<PAGE>
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>
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>
June 30, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating losses $201,321 212,001
Accrual method (book) to cash method
(tax) adjustment 23,494 37,995
--------- -----------
224,815 249,996
Valuation allowance (224,815) (249,996)
--------- -----------
$ -- --
========= ===========
</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>
ACCESS HEALTH ALTERNATIVES, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND
JUNE 30, 1999 (UNAUDITED)
F-33
<PAGE>
ACCESS HEALTH ALTERNATIVES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1998
(Unaudited)
<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>
ACCESS HEALTH ALTERNATIVES, INC.
PRO FORMA STATEMENT OF OPERATIONS
Year ended December 31, 1998
(Unaudited)
<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>
ACCESS HEALTH ALTERNATIVES, INC.
PRO FORMA STATEMENT OF OPERATIONS
Year ended December 31, 1997
(Unaudited)
<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>
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
Accounts payable 145,756 140,040 -- 285,796
Accrued liabilities 532,339 -- -- 532,339
Due to related parties 1,126,066 132,392 (39,744) 1,218,714
------------ ---------- ------------ -----------
Total current liabilities 3,278,885 344,326 (39,744) 3,583,467
------------ ---------- ------------ -----------
Unearned income 318,084 -- -- 318,084
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 4,006,222 499,515 (39,744) 4,465,993
Stockholders' deficit
Common stock 1,587 787 -- 2,374
Capital in excess of par value 737,193 301,757 -- 1,038,950
Accumulated deficit (4,502,642) (628,171) -- (5,130,813)
------------ ---------- ------------ -----------
Total stockholders' deficit (3,763,862) (325,627) -- (4,089,489)
------------ ---------- ------------ -----------
Total liabilities and stockholders' deficit $ 242,360 173,888 (39,744) 376,504
============ ========== ============ ===========
</TABLE>
F-37
<PAGE>
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 56,577 -- -- 56,577
---------- ---------- ------------ -----------
Total revenue 257,202 907,872 (12,220) 1,152,854
Costs and expenses:
Cost of sales 79,574 -- (12,220) 67,354
Selling, general and administrative 825,739 822,315 -- 1,648,054
---------- ---------- ------------ -----------
Total costs and expenses 905,313 822,315 (12,220) 1,715,408
---------- ---------- ------------ -----------
Operating income (loss) (648,111) 85,557 -- (562,554)
Other expense:
Interest expense 49,375 26,135 -- 75,510
---------- ---------- ------------ -----------
Net income (loss) $(697,486) 59,422 -- (638,064)
========== ========== ============ ===========
Basic net loss per share $ (0.19)
===========
</TABLE>
F-38
<PAGE>
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>
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, the Company will exchange
approximately 2,000,000 shares of common stock for all of HealthCare's
outstanding shares. Since the principal owners of HealthCare are also the
principal owners of the Company, the acquisition of HealthCare will constitute a
reorganization of entities under common control to be accounted for similar to a
pooling of interests. 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 all periods
presented.
F-40
<PAGE>
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: January 21, 2000 By: /s/ Daniel J. Pavlik
---------------------------------
Daniel J. Pavlik, President
<PAGE>
ACCESS HEALTH ASSURANCE PLANS (TM), INC.
GENERAL AGENT AGREEMENT
BETWEEN
ACCESS HEALTH ASSURANCE PLANS(TM), INC.
(Hereafter referred to as "the Company")
AND
THE BENECOM GROUP, INC
---------------------------------------------
Name / Entity
Who is hereby appointed as a General Agent of the Company
The General Agent is authorized to submit to the Company applications for the
Access Health Assurance Plans, Inc. membership programs.
In full compensation for his/her services, the Company will pay the General
Agent, or his/her executors or administrators, the Commission and Allowances
specified on the attached Schedule of Commission and Allowances.
Commission and Allowances will be paid in accordance with the Company's General
Agent Commission and Allowance rules in force when the new business is written
and submitted.
Either party without cause upon thirty (30) days written notice may terminate
this Agreement.
//s// Stewart Hall
- ---------------------------------------------- --------------------------------
General Agent Signature Title Date
//s// Steven Miracle
- ---------------------------------------------- --------------------------------
Company Signature Date
<PAGE>
ACCESS HEALTH ASSURANCE PLANS, INC. (TM)
GENERAL AGENT COMMISSION / ALLOWANCE SCHEDULE
GENERAL AGENT ENROLLMENT COMMISSION
An enrollment allowance equal to 15% (fifteen per cent) of each member's Access
Health Assurance Plans, Inc. membership fee will be paid to the General Agent.
The enrollment commission is only payable to the General Agent from Access
Health Assurance Plans, Inc. membership fees collected by the company from
members directly enrolled by the General Agent or Agents / Brokers that were
contracted by the General Agent for the purpose of enrolling and submitting
applications to the company.
================================================================================
EXAMPLE:
1,000 Enrolled members @ $ 5.00 per month = $ 750.00 Monthly Commission
2,500 Enrolled members @ $ 5.00 per month = $ 1,250.00 Monthly Commission
5,000 Enrolled members @ $ 5.00 per month = $ 2,500.00 Monthly Commission
10,000 Enrolled members @ $ 5.00 per month = $ 5,000.00 Monthly Commission
================================================================================
GENERAL AGENT DIRECT SALES ALLOWANCE (D.S.A)
A direct sales allowance (DSA) equal to 20% (twenty per cent) of nutritional
products purchased by Access Health Assurance Plans, Inc. members will be paid
to the General Agent. The DSA allowance is only payable to the General Agent
form nutritional products purchased from Access Health Assurance Plans, Inc.
members that were directly enrolled by the General Agent or Agents / Brokers
that were contracted by the General Agent for the purpose of enrolling and
submitting applications to the company.
================================================================================
EXAMPLE:
1,000 Members purchasing $40.00 of product monthly = $ 8,000.00 Monthly D.S.A.
2,500 Members purchasing $40.00 of product monthly = $ 20,000.00 Monthly D.S.A.
5,000 Members purchasing $40.00 of product monthly = $ 40,000.00 Monthly D.S.A.
10,000 Members purchasing $40.00 of product monthly = $ 80,000.00 Monthly D.S.A.
================================================================================
Enrollment Commissions and Direct Sales Allowances will be paid to the General
Agent on the 10th of each month. Enrollment Commissions and Direct Sales
Allowances (D.S.A.) due the General Agent from membership fees and nutritional
product purchases made by members and collected by the company between the 1st
and 31st of each month will be paid on the 10th of the following month.
<PAGE>
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
==========
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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 $ 697,486
----------
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
----------
$ 0.52
==========
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