<PAGE>2
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10SB
General Form for Registration of Securities of Small
Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Healthcomp Evaluation Services Corporation
(Exact name of Small Business Issuer in its charter)
NEVADA 88-0395372
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
7126 Beneva Road, Suite 200, Sarasota, FL 34238
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (941) 925-2625
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Forward-Looking Statements and Associated Risk. This Registration
Statement contains forward-looking statements including statements
regarding, among other items, Healthcomp's growth strategies, and
anticipated trends in Healthcomp's business and demographics. These
forward-looking statements are based largely on Healthcomp's
expectations and are subject to a number of risks and uncertainties,
certain of which are beyond Healthcomp's control. Actual results
could differ materially from these forward-looking statements as a
result of the factors, including among others, regulatory or economic
influences.
<PAGE>3
ITEM 1. DESCRIPTION OF BUSINESS
A. Healthcomp was incorporated on November 23, 1993, in the State of
Nevada under the name of Handell-Graff, Inc. Healthcomp acquired
Afton, Inc. (then doing business as Healthcomp Evaluation Services
Corporation) on March 15, 1999 and subsequently changed its name to
Healthcomp Evaluation Services Corporation. Healthcomp serves as a
holding company for operating divisions and subsidiaries, which provide
substance abuse testing, multi-site medical surveillance and related
health screening services. Healthcomp (through its divisions and its
subsidiaries) does not provide any diagnostics or treatment of medical
conditions.
On April 1, 1999, Healthcomp purchased all of the tangible and
intangible assets of Health Services of Florida, a Florida corporation.
Health Services of Florida was in the business of providing health
screening and wellness services. The assets were purchased in
consideration of 61,640 common shares of Healthcomp plus assumption of
liabilities totaling $4,000. These assets were contributed by
Healthcomp to its subsidiary, Afton, Inc.
On June 21, 1999, Healthcomp purchased all of the tangible and
intangible assets of UPMC Work Partners' mobile occupation health
testing business and all of the tangible and intangible assets of
Vehicle Specialty Services, Inc.'s specialty vehicle servicing business
conducted at 2323 Main Street, Pittsburgh, Pennsylvania 15125. The
assets were purchased in consideration of 188,000 common shares of
Healthcomp. These assets were contributed by Healthcomp to its second
tier subsidiary, Health Evaluation Programs.
Healthcomp currently has two wholly owned subsidiaries, Afton, Inc. and
Medical Drug Testing, Inc.
Afton, Inc. was incorporated on March 11, 1996 in Tennessee. Afton,
Inc. is a holding company for other companies which provide a broad
array of preventive health services including drug and alcohol testing
programs, on-site occupational health screening services, physical
examinations, and health risk assessments to corporate and government
clients. Afton's focus is continued growth through acquisitions of
existing profitable businesses in its target market and expansion
within existing sectors.
During 1998, Afton, Inc. acquired Quality Health Services, Inc., a
Kansas City, Missouri-based mobile medical surveillance firm. On
February 2, 1999, Afton, Inc. acquired Health Evaluation Programs,
Inc., a Chicago-based provider of mobile medical surveillance services.
Afton-North Dakota, Inc., a wholly owned subsidiary of Afton, Inc.
provides third party administrative services for customers' substance
abuse programs, including policy development, program management,
administration of collection, laboratory and medical review services
and compliance testing. In additional, Afton-North Dakota, Inc. acts
as Healthcomp's operations and customer service center for substance
abuse programs.
AmeriTest, Inc., a wholly owned subsidiary of Afton, Inc. provides
on-site specimen collection services nationally. AmeriTest operates a
24 hour per day, seven days a week dispatching center in Rock Springs,
Wyoming and manages a nationwide network of independent contracts who
supplement Healthcomp's personnel in providing collection services.
Healthcomp acquired all of the outstanding stock of Medical Drug
Testing, Inc., a Pennsylvania corporation on October 14, 1999 in
exchange for 416,215 common shares of Healthcomp. Medical Drug
Testing, Inc. provides substance abuse screening services.
Healthcomp currently serves more than 500 customers through 13 offices
in 11 states. Healthcomp is headquartered in Sarasota, Florida with
data processing centers located in Bismarck, North Dakota and
Clearwater, Florida.
Competition. There is significant competition in the healthcare
testing industry. However, the competition faced by Healthcomp in the
market for medical testing and health screening services is limited and
very fragmented. Related testing companies such as PSA and Hooper
Holmes are not yet focusing on this market niche. It is also likely
that other competitors will emerge in the near future. There is no
assurance that Healthcomp will compete successfully with new or other
established healthcare testing companies. Healthcomp shall compete on
<PAGE>4
the basis of quality and price. Inability to compete successfully
might result in increased costs, reduced yields and additional risks to
the investors herein.
Strategy. Healthcomp intends to become a leading provider of medical
testing and health screening services for corporations, government
agencies and insurance companies. Healthcomp currently conducts
approximately 4,300 medical tests and health screenings weekly.
Healthcomp has developed a four-part strategy to achieve this
objective.
- Acquire quality healthcare testing and screening companies to
provide the necessary market density to service national customers.
- Continue to improve customer service and lower costs by
incorporating specimen collection and medical review services into
Healthcomp's operations.
- Reduce operating costs through the implementation of
Healthcomp's back office systems and support within acquired companies.
- Offer a broader array of testing and screening services for
national clients and other service providers.
Products. Healthcomp's primary products include
- Employee substance abuse testing
- Physical exam processing and reporting
- Nationwide specimen collection
- Mobile health-related work site surveillance
- Occupational health and safety reporting
- Wellness testing and assessment programs.
Marketing. Healthcomp markets directly to national accounts, with a
particular focus on companies that are currently seeking a single
source supplier of medical testing and health screening services.
Healthcomp targets customers with available funds from Department of
Transportation testing revenue, non-mandated testing programs, workers'
compensation exposure and employer assistance programs.
Dependence on One or a Few Major Customers. Healthcomp does not
expect that any single customer will account for more than ten percent
of its business.
Employees. Healthcomp, through its subsidiaries, currently employs 90
full time persons and 85 part time persons. Healthcomp shall employ
individuals as required.
Healthcomp and its subsidiaries are not subject to any collective
bargaining agreement. It is anticipated that Healthcomp's employees
will be covered by an employee stock option plan; however, at this
stage, the terms of such a plan have not been determined.
Seasonal Nature of Business Activities. Healthcomp's business
activities are not seasonal.
Item 2. Management's Discussion and Analysis or Plan of Operation
Trends and Uncertainties. Demand for Healthcomp's products and
services will be dependent on, among other things, market acceptance of
Healthcomp's concept, its proposed operations and general economic
conditions that are cyclical in nature. Inasmuch as a major portion of
Healthcomp's activities will be the receipt of revenues from the sales
of its products and services, Healthcomp's business operations, upon
commencement, may be adversely affected by competitors.
Capital and Source of Liquidity.
For the year ended December 31, 1998, Healthcomp made capital
expenditures of $87,000 and had acquisition costs of $19,000. For the
year ended December 31, 1998, Healthcomp had an increase in other
assets of $26,000. As a result, Healthcomp had net cash used in
investing activities of $80,000 for the year ended December 31, 1998.
For the year ended December 31, 1997, Healthcomp made capital
expenditures of $61,000 and had acquisition costs of $40,000. For the
year ended December 31, 1997, Healthcomp had a decrease in other assets
of $7,000. As a result, Healthcomp had net cash used in investing
activities of $108,000 for the year ended December 31, 1997.
<PAGE>5
For the year ended December 31, 1998, Healthcomp made net repayments of
notes payable of $131,000. Additionally, for the year ended December
31, 1998, Healthcomp received $779,999 from the issuance of common
stock. As a result, Healthcomp had net cash provided by financing
activities of $648,000 for the year ended December 31, 1998.
For the year ended December 31, 1997, Healthcomp made net borrowings of
notes payable of $1,833,000 and received proceeds from the issuance of
common stock of $114,000. Additionally, for the year ended December
31, 1997, Healthcomp purchased treasury stock of $22,000 resulting in
net cash provided by financing activities of $1,925,000 for the year
ended December 31, 1997.
For the nine months ended September 30, 1999, Healthcomp made capital
expenditures of $768,000 and had acquisition costs of $376,000. In
addition, Healthcomp had a decrease in other assets of $243,000. As a
result, Healthcomp had net cash used in investing activities of
$901,000 for the nine months ended September 30, 1999. Most of the
changes occurred as a result of Healthcomp's acquisition activity.
For the nine months ended September 30, 1998, Healthcomp made capital
expenditures of $168,000 and acquisition adjustments of $70,000. In
addition, Healthcomp had an increase in other assets of $38,000. As a
result, Healthcomp had net cash used in investing activities of
$136,000 for the nine months ended September 30, 1998.
For the nine months ended September 30, 1999, Healthcomp made
repayments of settlements of notes payable of $1,307,000 and received
$5,371,000 from the issuance of common stock. As a result, Healthcomp
had net cash provided financing activities of 4,064,000 for the nine
months ended September 30, 1999.
For the nine months ended September 30, 1998, made net borrowings of
$72,000. In addition Healthcomp received $327,000 from the issuance
of its common stock. As a result, Healthcomp had net cash provided
by financing activities of $399,000 for the nine months ended September
30, 1998.
Results of Operations. For the year ended December 31, 1998,
Healthcomp had a net loss of $1,769,000. For the same period
Healthcomp had net sales of $9,459,999 and cost of sales of $4,512,000
resulting in a gross profit of $4,947,000. For the year ended
December 31, 1998, Healthcomp had selling, general and administrative
expenses of $5,296,000. These expenses included compensation and
benefits of $2,899,000, office expenses of $683,000, professional fees
of $469,000 and facilities costs of $302,000. All other miscellaneous
expenses totaled $943,000.
For the year ended December 31, 1997, Healthcomp had a net loss of
$2,439,000. For the same period Healthcomp had net sales of
$7,125,000 and cost of sales of $3,408,000 resulting in a gross profit
of $3,717,000. For the year ended December 31, 1997, Healthcomp had
selling, general and administrative expenses of $4,912,000. These
expenses included compensation and benefits of $2,628,000, office
expenses of $525,000, professional fees of $432,000 and facilities costs
of $314,000. All other miscellaneous expenses totaled $1,013,000
For the nine months ended September 30, 1999, Healthcomp had a net loss
of $1,622,000. For the same period, Healthcomp had net sales of
$6,971,000 and cost of sales of $$3,585,000 resulting in gross profit
of $3,386,000. For the nine months ended September 30, 1999,
Healthcomp had selling, general and administrative expenses of
$3,510,000. These expenses included compensation and benefits of
$2,067,000, office expenses of $642,000, facilities costs of $313,000,
advertising and marketing of $38,000 and all other miscellaneous
expenses of $450,000.
For the nine months ended September 30, 1998, Healthcomp had a net loss
of $735,000. For the same period, Healthcomp had net sales of
$$7,41,000 and cost of sales of $3,189,000 resulting in gross profit of
$3,852,000. For the nine months ended September 30, 1998, Healthcomp
had selling, general and administrative expenses of $3,854,000. These
expenses included compensation and benefits of $2,081,000, office
expenses of $519,000, professional fees of $233,000, and all other
miscellaneous expenses of $799,000.
Most of the changes from 1998 to 1999 occurred as a result of
Healthcomp's acquisition activity.
<PAGE>6
Year 2000 Compliance Issues. Healthcomp's Bismarck data processing
center utilizes a Pentium-based dual processor sequel server platform
running Windows NT. Healthcomp's local offices are connected via a
wide-area network ("WAN") and can interface directly with the
processing center. Healthcomp's network provides integrated
communications with collection sites, laboratories, medical review
officers (MROs), and clients. This system has complete redundancy and
is Year 2000 compliant. Healthcomp's Clearwater data processing
center utilizes a UNIX-based Oracle database running on multiple
Pentium servers. Internet connectivity to internal local area networks
is achieved by UNIX-based web servers. All systems are protected by
fire walls and virus checkers.
Based on the above, Healthcomp has a reasonable basis to conclude that
the Year 2000 issue will not materially affect future financial
results, or cause reported financial information not to be necessarily
indicative of future operating results or future financial conditions.
Additionally all contractors will be required to prove compliance to
relevant Year 2000 issues prior to commencing work for or with
Healthcomp.
Healthcomp has contacted all material customers, vendors, suppliers
and non-information technology suppliers (if any) regarding their Year
2000 state of readiness. Healthcomp's current contingency plan is
simplistic and involves operating on a manual basis for a short period
of time without interruption of service or quality. The Year 2000
compliance plan has been completed successfully.
ITEM 3. DESCRIPTION OF PROPERTY.
Healthcomp's executive offices consist of approximately 3200 square
feet, located at 7126 Beneva Road, Suite 200, Sarasota Florida. The
offices are leased by Healthcomp on a annual basis for $5,200 per month
commencing January 1, 1999.
Healthcomp's Bismarck data processing center consists of approximately
4800 square feet, located at 2301 University Drive, Bismarck, North
Dakota. These premises are leased by Healthcomp on a 4 year ten month
lease basis for $3,400 per month with escalation costs commencing on
March 1, 1996.
Healthcomp's Clearwater data processing center consists of 1933 square
feet, located at 18820 US highway 19 North, Clearwater Florida. These
premises are leased by Healthcomp on a 3-year lease for $2,014 per
month plus escalation costs commencing on September 1, 1999
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are currently 11,998,914 common shares outstanding and warrants
to purchase an additional 4,991,133 common shares. Assuming exercise
of all of the warrants, there will be 16,990,047 common shares
outstanding. The following tabulates holdings of shares and other
securities of Healthcomp by each person who, subject to the above, at
the date of this prospectus, holds of record or is known by management
to own beneficially more than 5.0% of the Common Shares and, in
addition, by all directors and officers of Healthcomp individually and
as a group. Each named beneficial owner has sole voting and
investment power with respect to the shares set forth opposite his
name.
Shareholdings
<TABLE>
<CAPTION>
Percentage of
Number & Class(1) Outstanding
Name and Address of Shares Common Shares
<S> <C> <C>
Martin J. Clegg 968,000 5.70%(3)
7303 Midnight Pass Rd 1,364,594(2) 8.03%(3)
Sarasota, FL 34242
John F. Thomas 695,538 4.09%(3)
206 Coconut Avenue 374,725(2) 2.21%(3)
Anna Maria, FL 34216
<PAGE>7
Jeffrey H. Lowrey 531,248 3.13%(3)
750 Bray Station Road 200,000(2) 1.18%(3)
Collierville, TN 38-17
Thomas M. Hartnett 278,000 2.64%(3)
9992 Cherry Hills Avenue Circle
Bradenton, FL 34202
Keith M. Fred 278,000 2.64%(3)
4152 Central Sarasota Parkway
#716
Sarasota, FL 34238
Philip D. Kaltenbacher 550,000 3.24%(3)
614 Owl Drive South 1,629,749(2) 6.36%(3)
Sarasota, FL 34236
Directors and Officers
as a group
(5 persons) 2,750,786 16.19 %(3)
1,939,319(2) 11.41%(3)
(1)Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the voting) and/or
sole or shared investment power (including the power to dispose or
direct the disposition) with respect to a security whether through a
contract, arrangement, understanding, relationship or otherwise.
Unless otherwise indicated, each person indicated above has sole power
to vote, or dispose or direct the disposition of all shares
beneficially owned, subject to applicable unity property laws.
(2)Represents warrants to purchase common shares of Healthcomp.
(3)Assumes exercise of all 4,991,133 outstanding warrants.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Board of Directors. The following persons listed below have been
retained to provide services as director until the qualification and
election of his successor. All holders of Common Stock will have the
right to vote for Directors of Healthcomp. The Board of Directors has
primary responsibility for adopting and reviewing implementation of the
business plan of Healthcomp, supervising the development business plan,
review of the officers' performance of specific business functions.
The Board is responsible for monitoring management, and from time to
time, to revise the strategic and operational plans of Healthcomp.
Directors receive no cash compensation or fees for their services
rendered in such capacity. The directors will serve until the next
annual meeting scheduled for the second quarter of 2000.
The Executive Officers and Directors are:
</TABLE>
<TABLE>
<CAPTION>
Name Position Term(s) of Office
<S> <C> <C>
Martin J. Clegg, age 61 President, Chief Operating April 1999
Officer, Director to present
John F. Thomas, age 63 Chief Executive March 1996 to present
Officer, Director
Keith M. Fred, Ed.D., age 58 Senior Vice President March 1996 to
present
Jeffrey H. Lowrey, M.D., age 46 Director March 1996 to present
Thomas M. Hartnett, age 50 Senior Vice President August 1998
Chief Financial Officer to present
Director
</TABLE>
All of the officers devote approximately 100% of their time to the
business.
<PAGE>8
RESUMES
Martin J. Clegg. Mr. Clegg has been president, chief operating
officer and a director of Healthcomp since April 1999. From 1994 to
1999, Mr. Clegg was president and chief executive officer of Beverage
Marketing International, a consulting firm involved in developing and
implementing multi-national consumer product and services joint
ventures. From 1990 to 1994, Mr. Clegg was the chief executive
officer of Benjamin Shaw's Ltd., a private label bottler in the United
Kingdom.
John F. Thomas. Mr. Thomas has been chief executive officer and
chairman of the Board of Directors of Healthcomp since 1996. From 1987
to 1996, Mr. Thomas was a senior partner at Management Equities, Inc.,
a company which provides interim management acting as CEO for over 20
companies. From 1991 to 1993, Mr. Thomas was president and chief
operating officer of Metrex Research Corporation, a medical device
producer. Mr. Thomas earned a Bachelor of Arts degree in 1958 from
Earlham College and attended graduate school in 1959 at the University
of Connecticut and in 1963 at Syracuse University.
Keith M. Fred, Ed.D. has been senior vice president of operations of
Healthcomp from March 1996 to present. Dr. Fred has also been president
of AmeriTest, Inc. for that same period. From 1995 to 1996, Dr. Fred
was vice president of Risk Assessment Systems, Inc., a health/wellness
service provider. Dr. Fred earned a Bachelor of Art and Masters degree
in 1965 from Eastern New Mexico University. In 1970, Dr. Fred
received a doctorate in education from the University of Southern
Mississippi.
Thomas M. Hartnett. Mr. Hartnett has been senior vice president and
chief financial officer of Healthcomp from 1998 to present. From 1996
to 1998, Mr. Hartnett was president of DFG Management, Inc., an
advisory services and investment banking firm. From 1994 to 1996, Mr.
Hartnett was vice president of Finance and Administration for Florida's
Choice Juice & Beverage Co., Inc., an exporter of juices and fruit-
flavored beverages. Mr. Hartnett earned a Bachelor of Arts degree in
1971 from Dartmouth College. Mr. Hartnett attended classes in
strategic financial planning at Kellogg School, Northwestern University
in 1981 and in mergers and acquisitions at Wharton School, University
of Pennsylvania in 1985.
Jeffrey H. Lowrey, M.D. Dr. Lowrey has been a director of Healthcomp
since March 1996. From 1980 to present, Dr. Lowrey has been Executive
Medical Director and a member of the Board of Directors of Baptist
Minor Medical Center, an occupational medicine provider throughout the
state of Tennessee. During that same time, Dr. Lowrey has been
Medical Director of Baptist CompTrac Workers' Compensation Program, a
provider of workers' compensation services; Medical Director of
Occupational Medicine of Baptist Memorial health Care Corporation, a
provider of comprehensive occupational medical services; and Medical
Director of Addiction Services for Parkwood Hospital. Dr. Lowrey
earned a Bachelor of Arts in 1975 from the University of Arkansas and
doctorate in medicine from the University of Arkansas for Medical
Sciences in 1980.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 1, 1999, Healthcomp entered into a purchase agreement with
John Thomas, Healthcomp's chairman of the Board of Directors to acquire
a vehicle to provide mobile mammography screening services for
Healthcomp's wellness business. Consideration paid totaled $14,000;
the value was based on an arms-length purchase transaction from the
vehicle's previous owner.
On September 1, 1997, the Company entered into an agreement with DFG
Management, Inc. ("DFGM") to perform strategic planning and operational
analysis services. DFGM is a related party, as the Company's chief
financial officer was employed by DFGM and had rendered certain
services to the Company until being hired by the Company in August
1998. Fees paid to DFGM totaled $11,000 and $67,000 during the years
ended December 31, 1998 and 1997, respectively. Furthermore, DFGM also
provides management advisory services under an agreement with Dominion
Financial Group International, LDC ("DFGI"). DFGI owned 359,000 shares
of the Company's stock at December 31, 1998 and 1997. Under the
agreement with DFGI, the Company paid a monthly retainer of $5,000 for
services rendered reimbursement of out-of-pocket expenses, and the
granting of warrants to purchase 60,000 shares of common stock at an
exercise price of $1 per share.
<PAGE>9
During July 1997, the Company entered into an agreement with Sackville
Advisors, Ltd. ("Sackville") to provide financial advisory services for
the Company. Sackville's chairman was a member of the Company's board
of directors until February 1999. The agreement was effective until
canceled during May 1998. The Company paid Sackville fees of $34,000
and $74,000 during the years ended December 31, 1998 and 1997,
respectively, and reimbursed certain expenses of $19,000 in the year
ended December 31, 1997. During June 1998, Sackville's chairman was
granted warrants to purchase 12,500 shares of the Company's common
stock at an exercise price of $1 per share.
The Company entered into an agreement with MJC International, Inc.
("MJC") to provide management and financial advisory services during
July 1998. MJC is owned by the Company's current president. The
agreement provided for a monthly retainer of $10,000 and performance
bonuses of up to $40,000 and was renewable quarterly. The agreement
was terminated on March 31, 1999 prior to the president's joining the
Company during April 1999.
ITEM 8. DESCRIPTION OF SECURITIES
Qualification. The following statements constitute brief summaries of
Healthcomp's Certificate of Incorporation and Bylaws, as amended. Such
summaries do not purport to be complete and are qualified in their
entirety to the full text of the Certificate of Incorporation and
Bylaws.
Common Shares. Healthcomp's articles of incorporation authorize it to
issue up to 50,000,000 Common Shares, $.001 par value per Common Share.
All outstanding Common Shares are legally issued, fully paid and non-
assessable.
Liquidation Rights. Upon liquidation or dissolution, each outstanding
Common Share will be entitled to share equally in the assets of
Healthcomp legally available for distribution to shareholders after the
payment of all debts and other liabilities.
Dividend Rights. There are no limitations or restrictions upon the
rights of the Board of Directors to declare dividends out of any funds
legally available therefor. Healthcomp has not paid dividends to date
and it is not anticipated that any dividends will be paid in the
foreseeable future. The Board of Directors initially may follow a
policy of retaining earnings, if any, to finance the future growth of
Healthcomp. Accordingly, future dividends, if any, will depend upon
among other considerations, Healthcomp's need for working capital and
its financial conditions at the time.
Voting Rights. Holders of common shares of Healthcomp are entitled to
voting rights. Holders may cast one vote for each share held at all
shareholders meetings for all purposes.
Other Rights. Common shares are not redeemable, have no conversion
rights and carry no preemptive or other rights to subscribe to or
purchase additional common shares in the event of a subsequent
offering.
Transfer Agent. Alpha Tech Stock Transfer located in Salt Lake City
acts as Healthcomp's transfer agent.
<PAGE>10
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Healthcomp's common shares began trading on the NASD Bulletin Board on
April 6, 1999. The following table sets forth the range of high and
low bid quotations for Healthcomp's common stock for each quarter since
Healthcomp commenced trading as reported on the NASD Bulletin Board, by
First Level Capital, Night Securities, Mueller and Company, Paragon
Capital Corporation, Sharpe Capital, Wien Securities Corp. Wm V.
Frankel, Will Thompson Magid & Company and W. R. Company, Healthcomp's
market makers. The quotations represent inter-dealer prices without
retail markup, markdown or commission, and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
<S> <C> <C>
June 30, 1999 $10.00 $4.00
September 30, 1999 $4.375 $1.062
</TABLE>
Healthcomp has never paid any cash dividends nor does it intend, at
this time, to make any cash distributions to its shareholders as
dividends in the near future.
As of September 30, 1999, the number of holders of Healthcomp's common
shares was approximately 174.
ITEM 2. LEGAL PROCEEDINGS
Healthcomp is not a party to any legal proceedings nor is Healthcomp
aware of any disputes that may result in legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
During Healthcomp's two most recent fiscal years or any later interim
period, there have been no changes in or disagreements with
Healthcomp's principal independent accountant or a significant
subsidiary's independent accountant.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In 1997, Healthcomp sold 115,835 common shares to the following
individuals and entities at $1.00 per common share in cash:
Name Date Number of Shares
Phoenix Partners 1/97 60,000
John F. Thomas 6/97 25,000
7/97 25,000
Robin M. Stevenson 12/97 5,835
All of the listed sales were made in reliance upon the exemption from
registration offered by Section 4(2) of the Securities Act of 1933, as
amended and applicable state private offering exemptions.
Based upon the pre-existing relationship between the shareholders
and Healthcomp, Healthcomp believes it had reasonable grounds to
believe immediately prior to making an offer to the private investors,
and did in fact believe, when such subscriptions were accepted, that
such purchasers (1) were purchasing for investment and not with a view
to distribution, and (2) had such knowledge and experience in financial
and business matters that they were capable of evaluating the merits
and risks of their investment and were able to bear those risks. The
purchasers had access to pertinent information enabling them to ask
informed questions. The shares were issued without the benefit of
registration. An appropriate restrictive legend is imprinted upon each
of the certificates representing such shares, and stop-transfer
instructions have been entered in Healthcomp's transfer records. All
such sales were effected without the aid of underwriters, and no sales
commissions were paid.
In September 1997, Healthcomp issued 60,000 Warrants to DFG Management,
Inc. for partial payment of financial advisory services
The sale was made in reliance upon the exemption from
registration offered by Section 4(2) of the Securities Act of 1933, as
amended and applicable state private offering exemptions.
<PAGE>11
Based upon the pre-existing relationship between the shareholder
and Healthcomp, Healthcomp believes it had reasonable grounds to
believe immediately prior to making an offer to the private investor,
and did in fact believe, when such subscription was accepted, that
such purchaser (1) was purchasing for investment and not with a view
to distribution, and (2) had such knowledge and experience in financial
and business matters that it was capable of evaluating the merits
and risks of its investment and was able to bear those risks. The
purchaser had access to pertinent information enabling it to ask
informed questions. The shares were issued without the benefit of
registration. An appropriate restrictive legend is imprinted upon each
of the certificates representing such shares, and stop-transfer
instructions have been entered in Healthcomp's transfer records. The
sale was effected without the aid of underwriters, and no sales
commissions were paid.
In 1997, Healthcomp issued 654,494 warrants in conjunction with debt
financing received from existing shareholders.
Name Date Number of Warrants
Dominion Financial
Group International, LDG 2/97 33,663
4/97 16,831
6/97 10,000
9/97 122,000
John F. Thomas 7/97 20,000
Jeffrey H. Lowrey 7/97 100,000
John R. Emmett 7/97 100,000
Richard Luscomb 7/97 10,000
Aubrey Smith 7/97 12,000
Thomas E. Elkin 8/97 30,000
William k. Bryan, Sr. 10/97 200,000
All of the listed sales were made in reliance upon the exemption from
registration offered by Section 4(2) of the Securities Act of 1933, as
amended and applicable state private offering exemptions.
Based upon the pre-existing relationship between the shareholders
and Healthcomp, Healthcomp believes it had reasonable grounds to
believe immediately prior to making an offer to the private investors,
and did in fact believe, when such subscriptions were accepted, that
such purchasers (1) were purchasing for investment and not with a view
to distribution, and (2) had such knowledge and experience in financial
and business matters that they were capable of evaluating the merits
and risks of their investment and were able to bear those risks. The
purchasers had access to pertinent information enabling them to ask
informed questions. The shares were issued without the benefit of
registration. An appropriate restrictive legend is imprinted upon each
of the certificates representing such shares, and stop-transfer
instructions have been entered in Healthcomp's transfer records. All
such sales were effected without the aid of underwriters, and no sales
commissions were paid.
In December 1997 and January 1998, Healthcomp issued 812,117 common
shares at a conversion rate of $1.00 per common share to the following
individuals and entities for debt and interest conversion of $780,000
and $32,117, respectively.
Name Number of Shares
Jeffrey H. Lowrey 117,690
John R. Emmett 117,690
Thomas E. Elkin 117,690
Jeremiah Upshaw 96,833
Richard Luscomb 117,690
Aubrey Smith 30,000
Henry L. Adkins 96,834
Harris L. Smith 117,690
John F. Thomas 50,000
All of the listed sales were made in reliance upon the exemption from
registration offered by Section 4(2) of the Securities Act of 1933, as
amended and applicable state private offering exemptions.
Based upon the pre-existing relationship between the shareholders
and Healthcomp, Healthcomp believes it had reasonable grounds to
believe immediately prior to making an offer to the private investors,
and did in fact believe, when such subscriptions were accepted, that
such purchasers (1) were purchasing for investment and not with a view
<PAGE>12
to distribution, and (2) had such knowledge and experience in financial
and business matters that they were capable of evaluating the merits
and risks of their investment and were able to bear those risks. The
purchasers had access to pertinent information enabling them to ask
informed questions. The shares were issued without the benefit of
registration. An appropriate restrictive legend is imprinted upon each
of the certificates representing such shares, and stop-transfer
instructions have been entered in Healthcomp's transfer records. All
such sales were effected without the aid of underwriters, and no sales
commissions were paid.
During the first and second quarters of 1998, Healthcomp issued 90,000
warrants in conjunction with debt financing.
Name Date Number of Warrants
Charles N. Lafasciano 3/98 40,000
KFS Group, Inc. 4/98 20,000
Alfred D. Cobb 5/98 20,000
Martin J. Clegg 7/98 10,000
The issuances were made in reliance upon the exemption from
registration offered by Section 4(2) of the Securities Act of 1933, as
amended and applicable state private offering exemptions.
Based upon the pre-existing relationship between the shareholders
and Healthcomp, Healthcomp believes it had reasonable grounds to
believe immediately prior to making an offer to the private investors,
and did in fact believe, when such subscriptions were accepted, that
such purchasers (1) were purchasing for investment and not with a view
to distribution, and (2) had such knowledge and experience in financial
and business matters that they were capable of evaluating the merits
and risks of their investment and were able to bear those risks. The
purchasers had access to pertinent information enabling them to ask
informed questions. The shares were issued without the benefit of
registration. An appropriate restrictive legend is imprinted upon each
of the certificates representing such shares, and stop-transfer
instructions have been entered in Healthcomp's transfer records. All
such sales were effected without the aid of underwriters, and no sales
commissions were paid.
In June 1998, Healthcomp issued 12,500 warrants as partial
compensation to Ronald L. Wallace for consulting services.
The sale was made in reliance upon the exemption from
registration offered by Section 4(2) of the Securities Act of 1933, as
amended and applicable state private offering exemptions.
Based upon the pre-existing relationship between the shareholder
and Healthcomp, Healthcomp believes it had reasonable grounds to
believe immediately prior to making an offer to the private investor,
and did in fact believe, when such subscription was accepted, that
such purchaser (1) was purchasing for investment and not with a view
to distribution, and (2) had such knowledge and experience in financial
and business matters that it was capable of evaluating the merits
and risks of its investment and was able to bear those risks. The
purchaser had access to pertinent information enabling it to ask
informed questions. The shares were issued without the benefit of
registration. An appropriate restrictive legend is imprinted upon each
of the certificates representing such shares, and stop-transfer
instructions have been entered in Healthcomp's transfer records. The
sale was effected without the aid of underwriters, and no sales
commissions were paid.
In 1998, Healthcomp sold 750,000 common shares to the following
individuals and entities at $1.00 per common share:
Name Date Number of Shares
William E. Whitman 8/98 12,500
Earl Silvers 8/98 12,500
John R. Mader 8/98 35,000
Lillian T. Kreiger 8/98 25,000
Kenneth E. Hoskinson, Jr. 8/98 15,000
Elmo J. Muzzi
Revocable Trust 9/98 30,000
James M. Muzzi 9/98 20,000
Declan Huber 9/98 20,000
Philip D. Schwanz 9/98 20,000
<PAGE>13
Earl J. & Doris R.
Armbruster 9/98 50,000
Donald A. Muzzi 9/98 30,000
Joel Wantman 9/98 20,000
Federbush Family Trust 9/98 50,000
Richard A. Brindley Trust 11/98 80,000
Aaron & Marianne Siegal 11/98 30,000
Craig Gonzales 11/98 50,000
Jerome P. Groom IRA 11/98 50,000
Leonard H. &
Nancy B. Johnson 12/98 10,000
Vernon G. Buchanan 12/98 90,000
Frederick A. Ahlborn 12/98 25,000
Thomas F. Kelly 12/98 50,000
W. David Corbett IRA 12/98 25,000
These issuances were made in compliance with Rule 506, Regulation D of
the Securities Act of 1933 by Healthcomp's management and selected
broker/dealers. No commissions or other remuneration was paid to
anyone. The determination of whether an investor was accredited or
nonaccredited was based on the responses in the subscription agreement
filled out by each investor.
During December 1998, Healthcomp issued 28,799 common shares upon the
exercise of outstanding warrants.
Name Number of shares
Henry L. Adkins 280
Thomas E. Elkin 5,625
Robin M. Stevenson 350
Jeffrey H. Lowrey 10,735
Richard L. Luscomb 6,045
John R. Emmett 4,785
Herman A. Crisler, Jr. 979
The issuances were made in reliance upon the exemption from
registration offered by Section 4(2) of the Securities Act of 1933, as
amended and applicable state private offering exemptions.
Based upon the pre-existing relationship between the shareholders
and Healthcomp, Healthcomp believes it had reasonable grounds to
believe immediately prior to making an offer to the private investors,
and did in fact believe, when such subscriptions were accepted, that
such purchasers (1) were purchasing for investment and not with a view
to distribution, and (2) had such knowledge and experience in financial
and business matters that they were capable of evaluating the merits
and risks of their investment and were able to bear those risks. The
purchasers had access to pertinent information enabling them to ask
informed questions. The shares were issued without the benefit of
registration. An appropriate restrictive legend is imprinted upon each
of the certificates representing such shares, and stop-transfer
instructions have been entered in Healthcomp's transfer records. All
such sales were effected without the aid of underwriters, and no sales
commissions were paid.
During the first quarter of 1999, Healthcomp issued 1,500,000 common
shares for net cash proceeds of $1,500,000. In addition, the
following investors received five-year warrants to purchase 2,900,000
common shares at an exercise price of $.01 per common share.
Name Number of Shares Number of Warrants
Martin J. Clegg 690,000 1,354,594
Paul W. Horton 15,000 29,448
Philip D. Kaltenbacher 550,000 1,079,749
Carolyn T. Macumber 10,000 19,632
Cynthina C. Thomas 10,000 19,632
John F. Thomas 17,538 31,725
Ralph W. Thomas 10,000 19,632
Gail Kurz 37,500 73,619
Laura Ross 37,500 73,619
Trust for the Children
of Gail Kurz 37,500 73,619
Trust for Children
of Laura Ross 37,500 73,619
Mark Green 25,000 49,080
Perry Trechak 25,000 49,080
<PAGE>14
These issuances were made in compliance with Rule 506, Regulation D of
the Securities Act of 1933 by Healthcomp's management and selected
broker/dealers. No commissions or other remuneration was paid to
anyone. The determination of whether an investor was accredited or
nonaccredited was based on the responses in the subscription agreement
filled out by each investor.
During March 1999, notes totaling $1,300,000 were converted into
1,040,000 common shares and related accrued interest totaling $176,000
was forgiven. In connection with conversion, Healthcomp issued five-
year warrants to purchase 520,000 common shares at an exercise price of
$.01 per share.
Name Number of Shares Number of Warrants
William k. Bryan, Sr. 400,000 200,000
Alfred D. Cobb 40,000 20,000
Thomas E. Elkin 60,000 30,000
John R. Emmett 200,000 100,000
Charles N. Lafasciano 60,000 30,000
John R. Stanton 60,000 30,000
Jeffrey H. Lowrey 200,000 100,000
Richard L. Luscomb 20,000 10,000
The issuances were made in reliance upon the exemption from
registration offered by Section 4(2) of the Securities Act of 1933, as
amended and applicable state private offering exemptions.
Based upon the pre-existing relationship between the shareholders
and Healthcomp, Healthcomp believes it had reasonable grounds to
believe immediately prior to making an offer to the private investors,
and did in fact believe, when such subscriptions were accepted, that
such purchasers (1) were purchasing for investment and not with a view
to distribution, and (2) had such knowledge and experience in financial
and business matters that they were capable of evaluating the merits
and risks of their investment and were able to bear those risks. The
purchasers had access to pertinent information enabling them to ask
informed questions. The shares were issued without the benefit of
registration. An appropriate restrictive legend is imprinted upon each
of the certificates representing such shares, and stop-transfer
instructions have been entered in Healthcomp's transfer records. All
such sales were effected without the aid of underwriters, and no sales
commissions were paid.
In March 1999, Healthcomp issued 60,000 common shares to Charles N.
Lafasciano and 60 common shares to John R. Stanton upon exercise of a
total of 120,000 warrants.
In April 1999, Healthcomp issued 75,000 common shares to Gulf Atlantic
Publishing, Inc. and 25,000 common shares to Corporate Relations Group,
Inc. for public relations services provided to Healthcomp valued at $
The above issuances in March and April were made in reliance upon the
exemption from registration offered by Section 4(2) of the Securities
Act of 1933, as amended and applicable state private offering
exemptions.
Based upon the pre-existing relationship between the shareholders
and Healthcomp, Healthcomp believes it had reasonable grounds to
believe immediately prior to making an offer to the private investors,
and did in fact believe, when such subscriptions were accepted, that
such purchasers (1) were purchasing for investment and not with a view
to distribution, and (2) had such knowledge and experience in financial
and business matters that they were capable of evaluating the merits
and risks of their investment and were able to bear those risks. The
purchasers had access to pertinent information enabling them to ask
informed questions. The shares were issued without the benefit of
registration. An appropriate restrictive legend is imprinted upon each
of the certificates representing such shares, and stop-transfer
instructions have been entered in Healthcomp's transfer records. All
such sales were effected without the aid of underwriters, and no sales
commissions were paid.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification. Healthcomp shall indemnify to the fullest extent
permitted by, and in the manner permissible under the laws of the State
of Nevada, any person made, or threatened to be made, a party to an
action or proceeding, whether criminal, civil, administrative or
<PAGE>15
investigative, by reason of the fact that he is or was a director or
officer of Healthcomp, or served any other enterprise as director,
officer or employee at the request of Healthcomp. The Board of
Directors, in its discretion, shall have the power on behalf of the
Company to indemnify any person, other than a director or officer, made
a party to any action, suit or proceeding by reason of the fact that
he/she is or was an employee of Healthcomp.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of Healthcomp,
Healthcomp has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by Healthcomp of expenses incurred or paid by a director,
officer or controlling person of Healthcomp in the successful defense
of any action, suit or proceedings) is asserted by such director,
<PAGE>16
officer, or controlling person in connection with any securities being
registered, Healthcomp will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issues.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING THE CORPORATION FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE
AGAINST PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS
THEREFORE UNENFORCEABLE.
<PAGE>17
PART F/S
The following financial statements required by Item 310 of Regulation
S-B are furnished below:
Healthcomp Evaluation Services Corporation Unaudited Balance Sheet
dated September 30, 1999
Healthcomp Evaluation Services Corporation Unaudited Statement of
Operations for the nine months ended September 30, 1999 and 1998
Healthcomp Evaluation Services Corporation Unaudited Statement of Cash
Flows for the nine months ended September 30, 1999 and 1998
Healthcomp Evaluation Services Corporation Notes to Unaudited
Consolidated Financial Statements
Independent Auditor's Report dated May 15, 1999
Consolidated Balance Sheets - December 31, 1998
Consolidated Statement of Operations for the year ended December 31,
1998
Consolidated Statement of Changes In Stockholders' Equity for the year
ended December 31, 1998
Consolidated Statement of Cash Flows for the
Year Ended December 31, 1998
Notes to Consolidated Financial Statements
<PAGE>18
Healthcomp Evaluation Services Corporation
Balance Sheet
September 30,
--------------------------
1999 1998
---- ----
Current Assets
Cash $55 $145
Accounts receivable (net) 2,018 1,597
Inventory 143 101
Other current assets 1,654 126
------ ------
Total Current Assets 3,870 1,969
------ ------
Property and equipment (net) 1,253 881
Intangibles (net) 2,319 2,069
Deposits - -
------ ------
Total Assets $7,442 $4,919
====== ======
Current Liabilities
Short-term debt $1,560 $595
Accounts payable 2,117 1,709
Other costs accrued 652 605
Interest payable 176 119
Taxes payable - -
Other current liabilities 3 70
------ ------
Total Current Liabilities 4,508 3,098
------ ------
Long-term debt 584 2,700
Other long-term liabilities 12 15
Shareholders' Equity
Common stock 12 4
Paid in capital 9,098 2,843
Treasury stock (142) (142)
Retained earnings (6,630) (3,598)
------- ------
Total Shareholders' Equity 2,338 (894)
------ -----
Total Liabilities and Equity $7,442 $4,919
====== ======
<PAGE>19
Healthcomp Evaluation Services Corporation
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30
1999 1998 1999 1998
------ ------ ------ ------
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
Sales $2,568.6 $2,467.9 $6,971.4 $7,041.1
Cost of goods sold 1,291.8 1,083.4 3,585.1 3,189.4
-------- -------- -------- --------
Gross Profit 1,276.8 1,384.5 3,386.3 3,851.7
Expenses
Comp & benefits 698.1 745.6 2,066.9 2,080.9
Professional fees 35.6 91.5 126.6 233.0
Advertising/mktg. 17.0 14.3 38.2 37.9
Office expenses 234.5 183.3 642.2 519.6
Facilities 130.3 79.0 312.7 221.8
Other 225.8 240.9 323.0 761.0
-------- -------- ------- -------
Total 1,341.3 1,354.6 3,509.6 3,854.3
-------- -------- -------- -------
EBITDA (64.5) 29.9 (123.3) (2.6)
Interest 123.4 149.1 376.9 448.4
Other (Income)/Expense 105.4 (15.4) 755.4 32.8
Depr./Amort. 134.3 115.5 366.5 326.3
------- ------- ------- -------
Total 363.1 249.2 1,498.8 807.5
------- ------- -------- -------
Income taxes - - - -
------- ------- ------- -------
Net income $(427.6) $(204.8) $(1,622.1) $(735.3)
======= ======= ========= =======
Earnings per share $(0.04) $(0.05) $(0.16) $(0.18)
</TABLE>
<PAGE>20
Healthcomp Evaluation Services Corporation
Statement of Cash Flows
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net Income/(Loss) $(1,622) $(735)
Adjustments to reconcile net
loss to net cash
used in operating activities:
Depreciation and amortization 367 326
Amortization of debt issuance costs - -
Deferred income tax provision - -
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable, net (710) (624)
Prepaid expenses and other
current assets (1,907) 215
Accounts payable and accrued expenses 307 578
------ -----
Net cash used in operating activities (3,565) (240)
------ ----
Cash flows from investing activities:
Capital expenditures (768) (168)
Acquisitions (376) 70
Change in other assets 243 (38)
----- -----
Net cash used in investing activities (901) (136)
----- -----
Cash flows from financing activities:
Net (repayments) borrowings of
notes payable (1,307) 72
Proceeds from the issuance of
common stock 5,371 327
Purchase of treasury stock - -
----- ----
Net cash provided by financing
activities 4,064 399
----- ----
Net Change in Cash and Cash Equivalents (403) 23
Cash and Cash Equivalents, beginning of year 457 122
----- ----
Cash and Cash Equivalents, end of period $55 $145
===== ====
<PAGE>21
HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
Healthcomp Evaluation Services Corporation (the "Company" or "HESc") is
an occupational health services company that provides a broad array of
preventive health services, including drug and alcohol testing
programs, on-site occupational health screening services, physical
examinations, and health risk assessments, to corporate and government
clients. The Company (formerly Handell-Graff, Inc.) was incorporated
on November 23, 1993. The Company's focus is continued growth through
acquisitions of existing profitable businesses in the Company's target
market and expansion within existing sectors.
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
During 1998, the Company merged with Quality Health Services, Inc.
("QHS"), a Kansas City, Missouri-based mobile medical surveillance
firm, through an exchange of common stock. The transaction was
accounted for using the pooling-of-interests method of accounting.
Accordingly, all financial results of the periods presented have been
restated to include the operating results of QHS.
On February 2, 1999, the Company merged with Health Evaluation
Programs, Inc. ("HEP"), a Chicago-based provider of mobile medical
surveillance services, through the exchange of common stock. The
transaction was accounted for using the pooling-of-interests method of
accounting, and all financial results of the periods presented have
been restated to include the operating results of HEP.
Additionally, the Company acquired certain companies discussed in
Note 3. These acquisitions were accounted for using the purchase
method of accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The Company's management has made a number of estimates and assumptions
(relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities) to prepare these financial
statements in conformity with generally accepted accounting principles.
Although these estimates represent, to the best of management's
knowledge and belief, those adjustments necessary to present fairly the
Company's financial position and results of operations for the periods
reported, the actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
Accounts Receivable
An allowance for uncollectible accounts has been established based on
the Company's collection experience and an assessment of the
collectibility of specific accounts.
Inventory
Inventory is stated at the lower of cost or market using the first-in,
first-out method.
Property and Equipment
Property and equipment are stated at cost. When assets are retired or
otherwise disposed of, the related costs and accumulated depreciation
are removed from the accounts and any resulting gain or loss is
reflected in the statements of operations.
The Company utilizes the straightline method of depreciation over the
following estimated useful lives:
Computer hardware and software Three years
Machinery and equipment Three to ten years
<PAGE>22
Intangibles
Intangibles, primarily goodwill, are amortized on a straight-line basis
for periods ranging from 15 to 20 years. The Company recorded
amortization expense of $134,000 and $118,000 in 1999 and 1998,
respectively. At September 30, 1999, accumulated amortization of
goodwill was $459,000. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the
Company periodically evaluates whether events and circumstances have
occurred that indicate that the remaining estimated useful life of the
intangibles may warrant revision or that the remaining balance of
intangibles may not be recoverable. When factors (such as a change in
law or regulatory environment or forecasts showing changing long-term
profitability) indicate that intangibles should be evaluated for
possible impairment, the Company uses an estimate of the related
business unit's undiscounted net income over the remaining life of the
intangibles to measure whether the intangibles are recoverable.
Income Taxes
The Company provides for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires recognition of
deferred tax assets and liabilities using currently enacted tax rates.
Financial Instruments
The fair value of the Company's debt is based on the current rates
available to the Company for debt of the same remaining maturity and,
as of September 30, 1999, approximates the carrying amounts.
Earnings Per Common Share and Common Share Equivalent
In accordance with SFAS No. 128, "Earnings Per Share," basic earnings
per share ("EPS") are computed based on the weighted average number of
shares of the Company's common stock outstanding. Since the impact of
the Company's common equivalent shares from stock options, warrants,
and convertible securities is antidilutive, they are not included in
the computation of diluted EPS.
New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards
for the reporting of comprehensive income and its components.
Comprehensive income includes all changes in a company's equity during
the period that result from transactions and other economic events
other than transactions with its stockholders. SFAS No. 130 was
effective for the year beginning January 1, 1998. For the Company,
comprehensive income (loss) equals net income (loss).
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information," which requires that an
enterprise disclose certain information about operating segments. SFAS
No. 131 was effective for financial statements for the Company's year
ended December 31, 1998. SFAS No. 131 did not require additional
disclosure or revision of prior disclosures. The Company operates in
one segment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments. The provisions of SFAS No. 133 are effective
for financial statements for the Company's fiscal year beginning
January 1, 2001. The Company does not expect SFAS No. 133 to have a
significant effect on its current financial reporting.
3. BUSINESS COMBINATIONS
During 1999, the Company acquired certain assets of companies involved
in the medical screening and wellness assessment industry using the
purchase method of accounting. The Company recorded the assets and
liabilities of the acquired companies at their estimated fair values
with the excess of the purchase price over these amounts being recorded
as goodwill. The results of operations of these acquired companies
have been included in the Company's consolidated operations from the
date of acquisition forward.
On April 1, 1999, the Company acquired the assets of Health Services of
Florida, Inc., a Clearwater, Florida-based wellness testing firm, for a
purchase price of $187,000, which included the assumption of
liabilities of $4,000. The excess of the purchase price over the
fair value of the identifiable assets acquired of $110,000 has been
recorded as an
<PAGE>23
intangible and is being amortized on a straight-line basis over 20
years. The allocation of the purchase price to the assets acquired and
liabilities assumed has been recorded based on the fair value, as
follows:
Working capital, net $ 31,000
Property and equipment 50,000
Intangibles 110,000
Liabilities assumed (4,000)
----------
$ 187,000
On June 1, 1999, the Company acquired certain mobile health testing
services assets from UPMC Diversified Health Services, Inc., a unit of
the University of Pittsburgh health system, for a purchase price of
$814,000. The excess of the purchase price over the fair value of the
identifiable assets acquired of $251,000 has been recorded as an
intangible and is being amortized on a straight-line basis over 20
years. The allocation of the purchase price to the assets acquired and
liabilities assumed has been recorded based on the fair value, as
follows:
Working capital, net $ 125,000
Property and equipment 438,000
Intangibles 251,000
-----------
$ 814,000
Pro forma results related to the 1999 acquisitions have not
been presented, as the effects are not material.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30,
1999:
Computer hardware and software $ 773,000
Machinery and equipment 2,557,000
------------
3,330,000
Less accumulated depreciation (2,077,000)
-------------
Property and equipment, net $ 1,253,000
Depreciation expense totaled $234,000 for the nine months ended
September 30, 1999.
<PAGE>24
5. LONG-TERM DEBT
At September 30, 1999, long-term debt consisted of the following:
Note payable to third party, due July 2007, payable in monthly
installments of $10,000, bearing interest at 14%
$ 535,000
Note payable to bank, due May 1999, payable in monthly installments of
$4,226, bearing interest at 9.75%
71,000
Note payable to bank, due April 2006, payable in monthly installments
of $692, bearing interest at 9.75%
39,000
Note payable to bank, due June 2004, payable in monthly installments of
$465, bearing interest at 9.75%
20,000
Note payable to bank, due September 2001, payable in monthly
installments of $448, bearing interest at 8.75%
10,000
9% capital leases, due in monthly installments of $1,786, including
interest, through November 2000
9,000
Note payable to bank, due October 2000, payable in monthly installments
of $520, bearing interest at 9.25%
6,000
Note payable to bank, due May 2000, payable in monthly installments of
$321, bearing interest at 9.25%
3,000
--------
Total long-term debt 693,000
Less current portion (109,000)
--------
Total long-term debt, less current portion $ 584,000
Maturities of long-term debt as of September 30, 1999 are as follows
(in thousands):
2000 $ 89,000
2001 10,000
2002 - 0 -
2003 and beyond 594,000
-----------
$ 693,000
===========
In connection with debt issued in 1998 and 1997, warrants were issued
with aggregate estimated values of $38,000 and $263,000, respectively.
The value of the warrants was recorded as deferred loan costs and is
being amortized as interest expense using the effective interest
method. Accordingly, amortization of the related deferred loan costs
of $131,000 and $186,000 for the years ended December 31, 1998 and 1997
has been charged to interest expense. As of September 30, 1999, the
deferred loan cost related to the warrants was $13,000 and is included
in other assets in the accompanying balance sheet.
A summary of the status of the Company's outstanding warrants as of
September 30, 1999 and December 31, 1998 and changes during the
periods is presented below:
1998 1997
----------------- -----------------
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
(000s) (000s)
Warrants:
Outstanding at beginning
of year 857 $1.00 827 $1.00
<PAGE>25
Granted -0- - - 103 1.00
Exercised (120) 0.01 (29) 1.00
Forfeited -0- - (44) 1.00
Outstanding at
end of period 637 1.00 857 1.00
6. STOCK-BASED COMPENSATION
At September 30, 1999, the Company has one stock-based compensation
plan, which is described below. The Company follows Accounting
Principles Board Opinion No. 25 and related interpretations in
accounting for its plan. Accordingly, no compensation cost has been
recognized for this plan. If the Company had accounted for this plan
in accordance with SFAS No. 123, the Company's reported pro forma net
loss and loss per share for the years ended December 31, 1998 and 1997
would have been as follows:
1998 1997
----------- -----------
Net loss:
As reported $(1,769,000) $(2,439,000)
Pro forma (1,893,000) (2,795,000)
Basic and diluted
earnings per share:
As reported $(0.43) $(0.79)
Pro forma (0.46) (0.90)
The fair value of each option grant, for pro forma purposes, is
estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants
in 1998 and 1997, respectively: dividend yield of 0%, expected
volatility of 47%, risk-free interest rate of 6%, and expected life of
three years.
Under the 1996 Employee Stock Option Plan, the Company may grant
options to its employees for up to 4.5 million shares of common stock.
The exercise price of each option equals the market price of the
Company's stock on the date of grant, and an option's maximum term is
ten years.
A summary of the status of the Company's stock option plan as of
December 31, 1998 and 1997 and changes during the years ending on those
dates is presented below:
1998 1997
----------------- -----------------
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
(000s) (000s)
Options: $1.00 $1.00
Outstanding at beginning
of year 630 $1.00 656 $1.00
Granted 1,915 0.01 0 -
Exercised (1,487) 0.01 0 -
Forfeited (630) 1.00 (26) -
Outstanding at end of year 428 1.00 630 1.00
Options exercisable at year-end 145 457
Weighted average fair value of
options granted during year - -
The weighted average remaining contractual life of fixed stock options
outstanding at December 31, 1998 is 7.26 years.
During February 1999, the Company granted approximately 2 million
options to employees with an exercise price below the estimated market
price on the date of grant. The grants vest over varying periods up to
three years. The total estimated compensation charge related to the
grants is $750,000, which will be recognized over the respective
vesting period.
<PAGE>26
7. EQUITY OFFERINGS
During January 1999, the Company issued 1.5 million shares of common
stock to private investors for net cash proceeds of $1.5 million. In
addition, the investors received five-year warrants to purchase 2.9
million shares of common stock at an exercise price of $0.01 per share.
During March 1999, notes totaling $1.3 million were converted into 1.04
million shares of common stock, and related accrued interest totaling
$176,000 was forgiven. In connection with the conversion, the Company
issued five-year warrants to purchase 520,000 shares of common stock at
an exercise price of $0.01 per share. In addition, 532,000 warrants
related to the converted notes were repriced to $0.01 per share.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain office facilities and office equipment under
operating leases. Management expects that in the normal course of
business, leases that expire will be renewed or replaced by other
leases.
The minimum future rental payments under all leases as of September 30,
1999 were as follows:
1999 $ 72,000
2000 162,000
2001 38,000
2002 20,000
---------
$292,000
Litigation
The Company is subject to various claims and legal actions that arise
in the ordinary course of business. The Company believes that the
ultimate resolution of such matters will not have a material adverse
effect on the Company's financial position or results of operations.
9. SAVINGS PLANS
401(k) Plan
The Company has a 401(k) savings and profit-sharing plan to which the
Company has no obligation to make contributions. Eligible participants
are limited to employees of HEP.
10. SUBSEQUENT EVENTS
Acquisition of Medical Drug Testing, Inc.
As of October 1, 1999, the Company acquired substantially all of the
assets of Medical Drug Testing, Inc., a Pittsburgh-based substance
abuse testing company for a purchase price of $390,000. The excess of
the purchase price over the fair value of the identifiable assets
acquired will be recorded as an intangible and amortized on a
straight-line basis over 20 years.
Related-Party Transactions
On December 1, 1999, the Company entered into a purchase agreement with
the Company's Chairman to acquire a vehicle to provide mobile
mammography screening services for the Company's wellness business.
Consideration paid totaled $14,000; the value was based on an arms-
length purchase transaction from the vehicle's previous owner.
<PAGE>27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Healthcomp Evaluation Services Corporation:
We have audited the accompanying consolidated balance sheet of
HEALTHCOMP EVALUATION SERVICES CORPORATION (a Tennessee corporation)
AND SUBSIDIARIES as of December 31, 1998 and the related consolidated
statements of operations, shareholders' equity (deficit), and cash
flows for the years ended December 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our 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 financial statements referred to above present
fairly, in all material respects, the financial position of Healthcomp
Evaluation Services Corporation and subsidiaries as of December31, 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.
Arthur Andersen LLP
Atlanta, Georgia
May 15, 1999
<PAGE>28
Healthcomp Evaluation Services Corporation
and subsidiaries consolidated balance sheet
December 31, 1998
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 457,000
Accounts receivable, net of allowance for doubtful accounts of $44,000 1,308,000
Inventory 9,000
Prepaid expenses and other current assets 83,000
-----------
Total current assets 1,857,000
PROPERTY AND EQUIPMENT, net 719,000
INTANGIBLES, net 2,077,000
OTHER ASSETS 41,000
-----------
Total assets $4,694,000
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt and notes payable $1,638,000
Accounts payable 1,499,000
Accrued liabilities 747,000
Interest payable 278,000
Deferred tax liabilities 75,000
Other 54,000
----------
Total current liabilities 4,291,000
LONG-TERM DEBT, less current portion (includes $1,285,000 to shareholders) 1,813,000
----------
Total liabilities 6,104,000
----------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $0.001 par value, 50,000,000 shares authorized,
4,776,000 shares issued 5,000
Paid-in capital 3,729,000
Treasury stock, 964,000 shares (142,000)
Accumulated deficit (5,002,000)
---------
Total shareholders' deficit (1,410,000)
---------
$4,694,000
==========
</TABLE>
The accompanying notes are an integral part of this consolidated
balance sheet.
<PAGE>29
HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
NET SALES $ 9,459,000 $ 7,125,000
COST OF SALES 4,512,000 3,408,000
----------- -----------
Gross profit 4,947,000 3,717,000
----------- -----------
OPERATING EXPENSES:
Selling, general, and administrative expenses 5,296,000 4,912,000
Depreciation and amortization expense 447,000 338,000
---------- ----------
Total operating expenses 5,743,000 5,250,000
---------- ----------
OPERATING LOSS (796,000) (1,533,000)
INTEREST EXPENSE 739,000 548,000
OTHER EXPENSE 118,000 405,000
--------- ---------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT) (1,653,000) (2,486,000)
INCOME TAX PROVISION (BENEFIT) 116,000 (47,000)
----------- ---------
NET LOSS $(1,769,000) $(2,439,000)
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $(0.43) $(0.79)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING $ 4,104,000 $ 3,102,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>31
HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-In Accumulated Treasury
Shares Amount Capital Deficit Stock Total
=========== ======== =========== ============== =========== =============
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 3,020,000 $3,000 $1,674,000 $ (794,000) $(120,000) $ 763,000
Sale of common stock 115,000 0 115,000 0 0 115,000
Debt conversion 812,000 1,000 811,000 0 0 812,000
Issuance of stock warrants 0 0 263,000 0 0 263,000
Stock repurchase 0 0 0 0 (22,000) (22,000)
Net loss 0 0 0 (2,439,000) 0 (2,439,000)
---------- ----- --------- ---------- -------- ---------
BALANCE, December 31, 1997 3,947,000 4,000 2,863,000 (3,233,000) (142,000) (508,000)
Sale of common stock 750,000 1,000 749,000 0 0 750,000
Debt conversion 50,000 0 50,000 0 0 50,000
Issuance of stock warrants 0 0 38,000 0 0 38,000
Shares issued in exercise
of warrant 29,000 0 29,000 0 0 29,000
Net loss 0 0 0 (1,769,000) 0 (1,769,000)
--------- ------ ---------- ----------- --------- -----------
BALANCE, December 31, 1998 4,776,000 $5,000 $3,729,000 $(5,002,000) $(142,000) $(1,410,000)
========== ====== ========== =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>32
HEALTHCOMP EVALUATION SERVICES CORPORATIONAND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,769,000) $(2,439,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 447,000 338,000
Amortization of debt issuance costs 117,000 186,000
Deferred income tax provision (benefit) 116,000 (47,000)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net (336,000) (146,000)
Prepaid expenses and other current assets 67,000 124,000
Accounts payable and accrued expenses 1,125,000 82,000
--------- ---------
Net cash used in operating activities (233,000) (1,902,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (87,000) (61,000)
Acquisitions (19,000) (40,000)
Change in other assets 26,000 (7,000)
--------- ---------
Net cash used in investing activities (80,000) (108,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings of notes payable (131,000) 1,833,000
Proceeds from the issuance of common stock 779,000 114,000
Purchase of treasury stock 0 (22,000)
--------- ---------
Net cash provided by financing activities 648,000 1,925,000
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 335,000 (85,000)
CASH AND CASH EQUIVALENTS, beginning of year 122,000 207,000
--------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 457,000 $ 122,000
========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 446,000 $ 348,000
========== ==========
NONCASH TRANSACTIONS:
Debt converted to common stock $ 50,000 $ 812,000
========== ==========
Warrants issued in connection with debt $ 38,000 $ 263,000
========== ==========
Liabilities assumed in acquisition $ 0 $ 337,000
========== ==========
Notes payable issued in acquisitions $ 0 $ 679,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>33
HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. BASIS OF PRESENTATION
Healthcomp Evaluation Services Corporation (the "Company" or "HESC") is
an occupational health services company that provides a broad array of
preventive health services, including drug and alcohol testing
programs, on-site occupational health screening services, physical
examinations, and health risk assessments, to corporate and government
clients. The Company (formerly Afton, Inc.) was incorporated on
March 11, 1996. The Company's focus is continued growth through
acquisitions of existing profitable businesses in the Company's target
market and expansion within existing sectors.
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
During 1998, the Company merged with Quality Health Services, Inc.
("QHS"), a Kansas City, Missouri-based mobile medical surveillance
firm, through an exchange of common stock. The transaction was
accounted for using the pooling-of-interests method of accounting.
Accordingly, all financial results of the periods presented have been
restated to include the operating results of QHS.
On February 2, 1999, the Company merged with Health Evaluation
Programs, Inc. ("HEP"), a Chicago-based provider of mobile medical
surveillance services, through the exchange of common stock. The
transaction was accounted for using the pooling-of-interests method of
accounting, and all financial results of the periods presented have
been restated to include the operating results of HEP.
Additionally, the Company acquired certain companies discussed in Note
3. These acquisitions were accounted for using the purchase method of
accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The Company's management has made a number of estimates and assumptions
(relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities) to prepare these financial
statements in conformity with generally accepted accounting principles.
Although these estimates represent, to the best of management's
knowledge and belief, those adjustments necessary to present fairly the
Company's financial position and results of operations for the periods
reported, the actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
Accounts Receivable
An allowance for uncollectible accounts has been established based on
the Company's collection experience and an assessment of the
collectibility of specific accounts.
Inventory
Inventory is stated at the lower of cost or market using the first-in,
first-out method.
Property and Equipment
Property and equipment are stated at cost. When assets are retired or
otherwise disposed of, the related costs and accumulated depreciation
are removed from the accounts and any resulting gain or loss is
reflected in the statements of operations.
The Company utilizes the straight-line method of depreciation over the
following estimated useful lives:
Computer hardware and software Three years
Machinery and equipment Three to ten years
<PAGE>34
Intangibles
Intangibles, primarily goodwill, are amortized on a straight-line basis
over 15 years. The Company recorded amortization expense of $158,000
and $119,000 in 1998 and 1997, respectively. At December 31, 1998,
accumulated amortization of goodwill was $325,000. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Company periodically evaluates whether
events and circumstances have occurred that indicate that the remaining
estimated useful life of the intangibles may warrant revision or that
the remaining balance of intangibles may not be recoverable. When
factors (such as a change in law or regulatory environment or forecasts
showing changing long-term profitability) indicate that intangibles
should be evaluated for possible impairment, the Company uses an
estimate of the related business unit's undiscounted net income over
the remaining life of the intangibles to measure whether the
intangibles are recoverable.
Income Taxes
The Company provides for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires recognition of
deferred tax assets and liabilities using currently enacted tax rates.
Financial Instruments
The fair value of the Company's debt is based on the current rates
available to the Company for debt of the same remaining maturity and,
as of December 31, 1998, approximates the carrying amounts.
Earnings Per Common Share and Common Share Equivalent
In accordance with SFAS No. 128, "Earnings Per Share," basic earnings
per share ("EPS") are computed based on the weighted average number of
shares of the Company's common stock outstanding. Since the impact of
the Company's common equivalent shares from stock options, warrants,
and convertible securities is antidilutive, they are not included in
the computation of diluted EPS.
New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards
for the reporting of comprehensive income and its components.
Comprehensive income includes all changes in a company's equity during
the period that result from transactions and other economic events
other than transactions with its stockholders. SFAS No. 130 was
effective for the year beginning January 1, 1998. For the Company,
comprehensive income (loss) equals net income (loss).
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information," which requires that an
enterprise disclose certain information about operating segments. SFAS
No. 131 was effective for financial statements for the Company's year
ended December 31, 1998. SFAS No. 131 did not require additional
disclosure or revision of prior disclosures. The Company operates in
one segment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments. The provisions of SFAS No. 133 are effective
for financial statements for the Company's fiscal year beginning
January 1, 2001. The Company does not expect SFAS No. 133 to have a
significant effect on its current financial reporting.
3. BUSINESS COMBINATIONS
During 1997 and 1998, the Company acquired certain assets of companies
involved in the substance abuse testing and wellness assessment
industry using the purchase method of accounting. The Company recorded
the assets and liabilities of the acquired companies at their estimated
fair values with the excess of the purchase price over these amounts
being recorded as goodwill. The results of operations of these
acquired companies have been included in the Company's consolidated
operations from the date of acquisition forward.
On February 20, 1997, the Company acquired the assets of National
AmeriTest, Inc., a Rock Springs, Wyoming-based specimen collection
firm, for a purchase price of $1,484,000, which included the assumption
of liabilities of $337,000. The excess of the purchase price over the
fair value of the identifiable assets acquired of $1,003,000 has been
recorded as an intangible and is being amortized on a straight-line
basis over 15 years. The allocation of the purchase price to the
assets acquired and liabilities assumed has been recorded based on the
fair value, as follows:
<PAGE>35
Working capital, net $ (205,000)
Property and equipment 199,000
Intangibles 1,003,000
Liabilities assumed (337,000)
-----------
$ 660,000
============
During 1997, the Company acquired certain assets of Prairie Home
Medical Equipment, Inc. (d.b.a. Occupational Testing Services), a
Gillette, Wyoming-based occupational testing firm, Aries Medical, a
Dallas, Texas-based substance abuse testing company, and Substance
Abuse Solutions, Inc., a Charlotte, North Carolina-based drug and
alcohol screening firm, for a total purchase price of $215,000. The
purchase price was allocated primarily to intangibles which are being
amortized on a straight-line basis over 15 years.
Pro forma results related to the 1997 acquisitions have not been
presented, as the effects are not material.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998:
Computer hardware and software $ 621,000
Machinery and equipment 1,941,000
-----------
2,562,000
Less accumulated depreciation (1,843,000)
-----------
Property and equipment, net $ 719,000
===========
Depreciation expense totaled $289,000 and $219,000 for the years ended
December 31, 1998 and 1997, respectively.
5. LONG-TERM DEBT
At December 31, 1998, long-term debt consisted of the following:
<TABLE>
<S> <C>
Notes payable primarily to shareholders, due on various dates through
May 2001, bearing interest between 8.5% and 13%, converted to equity
subsequent to year-end (Note 11) $1,300,000
Note payable to third party, due September 2002, payable in monthly
installments of $17,608, bearing interest at 11% 647,000
Note payable to bank, due May 1999, payable in monthly installments of
$4,226, bearing interest at 9.75% 71,000
Note payable to third party, due September 1999, payable in monthly
installments of $5,000 45,000
9% capital leases, due in monthly installments of $1,786, including
interest, through November 2000 30,000
Note payable to bank, due September 2001, payable in monthly
installments of $448, bearing interest at 8.75% 13,000
Note payable to bank, due May 2000, payable in monthly installments of
$321, bearing interest at 9.25% 5,000
---------
Total long-term debt 2,111,000
Less current portion (298,000)
----------
Total long-term debt, less current portion $1,813,000
==========
</TABLE>
<PAGE>36
Maturities of long-term debt as of December 31, 1998 are as
follows (in thousands):
1999 $ 298,000
2000 1,474,000
2001 188,000
2002 151,000
-----------
$2,111,000
===========
In connection with debt issued in 1998 and 1997, warrants were issued
with aggregate estimated values of $38,000 and $263,000, respectively.
The value of the warrants was recorded as deferred loan costs and is
being amortized as interest expense using the effective interest
method. Accordingly, amortization of the related deferred loan costs
of $131,000 and $186,000 for the years ended December 31, 1998 and 1997
has been charged to interest expense. As of December 31, 1998, the
deferred loan cost related to the warrants was $13,000 and is included
in other assets in the accompanying balance sheet.
A summary of the status of the Company's outstanding warrants as of
December 31, 1998 and 1997 and changes during the years is presented
below:
1998 1997
----------------- -----------------
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
(000s) (000s)
Warrants:
Outstanding at beginning
of year 827 $1.00 133 $1.00
Granted 103 1.00 694 1.00
Exercised (29) 1.00 0 -
Forfeited (44) 1.00 0 -
----- ----
Outstanding at end of year 857 1.00 827 1.00
==== ==== ==== ====
6. STOCK-BASED COMPENSATION
At December31, 1998, the Company has one stock-based compensation plan,
which is described below. The Company follows Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its
plan. Accordingly, no compensation cost has been recognized for this
plan. If the Company had accounted for this plan in accordance with
SFAS No. 123, the Company's reported pro forma net loss and loss per
share for the years ended December31, 1998 and 1997 would have been as
follows:
1998 1997
------ ------
Net loss:
As reported $(1,769,000) $(2,439,000)
Pro forma (1,893,000) (2,795,000)
Basic and diluted earnings
per share:
As reported $(0.43) $(0.79)
Pro forma (0.46) (0.90)
The fair value of each option grant, for pro forma purposes, is
estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants
in 1998 and 1997, respectively: dividend yield of 0%, expected
volatility of 47%, risk-free interest rate of 6%, and expected life of
three years.
Under the 1996 Employee Stock Option Plan, the Company may grant
options to its employees for up to 4.5 million shares of common stock.
The exercise price of each option equals the market price of the
Company's stock on the date of grant, and an option's maximum term is
ten years.
A summary of the status of the Company's stock option plan as of
December 31, 1998 and 1997 and changes during the years ending on those
dates is presented below:
1998 1997
----------------- -----------------
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
(000s) (000s)
Options:
Outstanding at beginning
of year 656 $1.00 662 $1.00
Granted 0 - 20 1.00
Exercised 0 - 0 -
Forfeited (26) - (26) -
------ ----
Outstanding at end of year 630 1.00 656 1.00
====== ====
Options exercisable at
year-end 457 290
Weighted average fair value of
options granted during year - $0.38
The weighted average remaining contractual life of fixed stock options
outstanding at December 31, 1998 is 7.26 years.
Subsequent to year-end, the Company granted approximately 2 million
options to employees with an exercise price below the estimated market
price on the date of grant. The grants vest over varying periods up to
three years. The total estimated compensation charge related to the
grants is $750,000, which will be recognized over the respective
vesting period
7. INCOME TAXES
The provision (benefit) for income taxes was as follows as of
December 31, 1998 and 1997:
1998 1997
------- --------
Current:
Federal $ 0 $ 0
State 0 0
Deferred:
Federal 87,000 (35,000)
State 29,000 (12,000)
-------- -------
Provision (benefit) for
income taxes $116,000 $(47,000)
======== ========
The difference between the statutory federal income tax rate and the
Company's effective income tax rate is summarized as follows as of
December 31, 1998 and 1997:
1998 1997
----- -----
Statutory federal income tax rate (15)% (15.0)%
State income tax rate,
net of federal benefit (5) (5.0)
Impact of permanent differences 1 1.0
Change in valuation allowance 26 17.1
---- -----
Effective income tax rate 7% (1.9)%
==== =====
There were no cash payments for income taxes in 1998 and 1997.
The Company's net deferred tax liability consisted of the following
major items:
Deferred tax assets:
Net operating losses $970,000
Loss of disposition of assets 37,000
Accounts receivable 2,000
Valuation allowance (963,000)
----------
Total deferred tax assets 46,000
Deferred tax liabilities:
Property, plant, and equipment (121,000)
----------
Net deferred tax liabilities $ (75,000)
<PAGE>37
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain office facilities and office equipment under
operating leases. Management expects that in the normal course of
business, leases that expire will be renewed or replaced by other
leases.
The minimum future rental payments under all leases as of December 31,
1998 were as follows:
1999 $288,000
2000 162,000
2001 38,000
2002 20,000
--------
$508,000
========
Litigation
The Company is subject to various claims and legal actions which arise
in the ordinary course of business. The Company believes that the
ultimate resolution of such matters will not have a material adverse
effect on the Company's financial position or results of operations.
9. SAVINGS PLANS
401(k) Plan
The Company has a 401(k) savings and profit-sharing plan to which the
Company has no obligation to make contributions. Eligible participants
are limited to employees of HEP.
10. RELATED-PARTY TRANSACTIONS
On September 1, 1997, the Company entered into an agreement with DFG
Management, Inc. ("DFGM") to perform strategic planning and operational
analysis services. DFGM is a related party, as the Company's chief
financial officer was employed by DFGM and had rendered certain
services to the Company until being hired by the Company in August
1998. Fees paid to DFGM totaled $11,000 and $67,000 during the years
ended December 31, 1998 and 1997, respectively. Furthermore, DFGM also
provides management advisory services under an agreement with Dominion
Financial Group International, LDC ("DFGI"). DFGI owned 359,000 shares
of the Company's stock at December 31, 1998 and 1997. Under the
agreement with DFGI, the Company paid a monthly retainer of $5,000 for
services rendered reimbursement of out-of-pocket expenses, and the
granting of warrants to purchase 60,000 shares of common stock at an
exercise price of $1 per share.
During July 1997, the Company entered into an agreement with Sackville
Advisors, Ltd. ("Sackville") to provide financial advisory services for
the Company. Sackville's chairman was a member of the Company's board
of directors until February 1999. The agreement was effective until
canceled during May 1998. The Company paid Sackville fees of $34,000
and $74,000 during the years ended December 31, 1998 and 1997,
respectively, and reimbursed certain expenses of $19,000 in the year
ended December 31, 1997. During June 1998, Sackville's chairman was
granted warrants to purchase 12,500 shares of the Company's common
stock at an exercise price of $1 per share.
The Company entered into an agreement with MJC International, Inc.
("MJC") to provide management and financial advisory services during
July 1998. MJC is owned by the Company's current president. The
agreement provided for a monthly retainer of $10,000 and performance
bonuses of up to $40,000 and was renewable quarterly. The agreement
was terminated on March 31, 1999 prior to the president's joining the
Company during April 1999.
11. SUBSEQUENT EVENTS
Equity Offering
On January 31, 1999, the Company issued 1.5 million shares of common
stock to private investors for net cash proceeds of $1.5 million. In
addition, the investors received five-year warrants to purchase 2.9
million shares of common stock at an exercise price of $0.01 per share.
The proceeds of the offering were used to close two acquisitions and
for working capital in furtherance of the Company's operating
objectives.
<PAGE>38
Reverse Merger
On March 15, 1999, the Company entered into an agreement with Handell-
Graff, Inc. ("HGI"), providing for the exchange of common stock. The
agreement provides that HGI will acquire all of the outstanding shares
of HESC common stock in exchange for 5,408,784 shares of HGI common
stock. HGI has changed its name to Healthcomp Evaluation Services
Corporation and will continue the business of HESC.
Debt Conversion
Debt in the form of notes payable totaling $1,300,000 at December 31,
1998 was converted into 1,040,000 shares of common stock in March 1999.
Related accrued interest of $176,072 was also forgiven. In connection
with the debt conversions, 532,500 related warrants to purchase common
stock were repriced to $0.01 per share, resulting in a charge against
earnings in 1999 of approximately $173,000.
<PAGE>39
PART III
ITEM 1. INDEX TO EXHIBITS
(3) Charter and By-Laws
(4) Instruments defining the rights of security holders
(10) Material Contracts
(27) Financial Data Schedule
ITEM 2. DESCRIPTION OF EXHIBITS
(3.1) Articles of Incorporation
(3.2) Bylaws
(4) Common Stock Certificate
(27) Financial Data Schedule
<PAGE>40
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.
Healthcomp Evaluation Services Corporation
Date: December 8, 1999 /s/ Martin J. Clegg
-------------------------
By: Martin J. Clegg, President
<PAGE>41
FILED
IN THE OFFICE OF THE
SECRETART OF STATE OF THE
STATE OF NEVADA
NOV 23 1993
ARTICLES OF INCORPORATION
CHERYL A. LAB SECRETARY OF STATE
NO. 015147-93
ARTICLES OF INCORPORATION
Handell-Graff, Inc.
Know all men by these present;
That the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a corporation under and pursuant
to the provisions of Nevada Revised Statutes 78.010. to Nevada Revised
Statues 78.010 inclusive, as amended, and certi4, that;
1. The name of this corporation is:
Handell-Graff, Inc.
2. Offices for the transaction of any business of the Corporation,
and where meetings of the Board of Directors and of Stockholders may
be held, may be established and maintained in any part of the State of
Nevada, or in any other state, territory, or possession of the United
States.
3. The nature of the business is to engage in any lawful activity.
4. The Capital Stock shall consist of 50,000,000 shares of common
stock, $0.001 par value.
5. The members of the governing board of the corporation shall be
styled director of which there shall be no less than 1. The Directors
of this corporation need not be stockholders. The first Board of
Directors is: Raymond Girard, whose address is 1700 E. Desert Inn Rd.,
Suite 100, Las Vegas NV 89109.
6. This corporation shall have perpetual existence.
7. This Corporation shall have a president, a secretary, a treasurer,
and a resident agent, to be chosen. by the Board of Directors, any
person may hold two or more offices.
8. The resident agent of this Corporation shall be Raymond Girard,
1700 E. Desert Inn Rd., Suite 100, Las Vegas, NV 89109.
9. The Capital Stock of the corporation after the fixed consideration
thereof has been paid or performed, shall not be subject to
assessment, and the individual liable for the debts and liabilities of
the Corporation, and the Articles of Incorporation shall never be
amended as the aforesaid provisions.
10. No director or officer of the corporation shall be personally
liable to the corporation of any of its stockholders for damages for
breach of fiduciary duty as a director or officer involving any act or
omission of any such director or officer provided, however, that the
foregoing provision shall not eliminate or limit the liability of a
director or officer for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or the payment of
dividends in violation of Section 79.300 of the Nevada Revised
Statutes. Any repeal or modification of this Article of the
Stockholders of the Corporation shall be prospective only, and shall
not adversely affect any limitation on the personal liability of a
director of officer of the Corporation for acts or omissions prior to
such r@ or modification.
11. Except to the extent limited or denied by Nevada Revised Statutes
78.265 Shareholders have a preemptive right to acquire unissued
shares, treasury shares or securities convertible into such shares, of
this corporation.
<PAGE>42
I, the Undersigned, being the incorporator herein above named for the
purpose of forming a corporation pursuant to the general corporation
law of the State of Nevada, do make and file these Articles of
Incorporation, hereby declaring and certifying that the facts within
stated are true, and accordingly have hereunto set my hand this day of
28th day of October, 1993.
Raymond Girard
1700 E. Desert Inn Rd., Suite 100
Las Vegas, NV 89109
State of NEVADA
)Ss
County of CLARK
On October 28, 1993 personally appeared before me, a notary public,
personally known to me to be the person whose name is subscribed to
the above instrument who acknowledged that he/she executed the
instrument.
Signature
E.V. STAMBRO
Notary Public-State of Nevada
My Comm. Expires May 14, 1996
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT
BY RESIDENT AGENT
In the matter of Handell-Graff, Inc., I, Raymond Girard, with address
at: 1700 E. Desert Inn Rd., Suite 100, City of LAS VEGAS, County of
CLAR& State of NEVADA 89109, hereby accept appointment as Resident
Agent of the above submitted corporation in accordance with NRS
78.090.
FURTHERMORE, that the principal office in this State is located at
1700 E. Desert Inn Rd., Suite 100, City of LAS VEGAE, County of State
of NEVADA 89109.
IN WRMSS WHEREOF, I have hereunto set my hand this 28th day of October,
1993.
RESIDENT AGENT
NRS 78.090 Except any period of vacancy described in NRS 78.097, every
corporation shall have a resident agent, who may wither a natural
person or a corporation, resident or located in this state, in charge
of its principal office. The resident agent may be any bank or
banking corporation, or other corporation, located and doing business
in this state ... The certificate of acceptance must be filed at the
time of the initial filing of the corporate papers.
RECEIVED
NOV 04 1993
SECRETARY OF STATE
MAR 16, 1998
NO. C151477-93
DEAN HELLER
SECRETARY OF STATE
<PAGE>43
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
Handell-Graff, Inc.
(the Corporation)
We the undersigned, Bruce N. Barton (President/Director) and Andrew W.
Berney (Secretary/ Director) of the Corporation do hereby certify:
That the board of Directors of the Corporation at a meeting duly
convened and held on the 25th day of November, 1997, adopted a
resolution to amend the original articles as follows:
Article 11 is hereby RESCINDED.
The number of shares of the Corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation are 5,000,000;
that the said change and amendment has been consented to and approved
by a majority vote of the stockholders holding at least a majority of
each class of stock outstanding and entitled to vote thereon."
Bruce N. Barton Andrew W. Berney
President Secretary
State of Nevada
}ss
County of Clark
The undersigned Notary Public certified, deposes and states that Bruce
N. Barton and Andrew W. Berney, personally appeared before me and
executed the foregoing on behalf of the Corporation as it's President
and Secretary respectively, this 16th day of March, 1998.
NOTARY PUBLIC
STATE OF NEVADA
COUNTY OF CLARK
BRIDGET E. RICHARDS
NO. 96-4099-1
My Appointment Expires Sept. 5, 2000
<PAGE>44
FILED # C15147-93
MAR 17 l999
IN THE OFFICE OF
DEAN HELLER
DEAN HELLER SECRETARY OF STATE
CERTIFICATE OF AMENDMIENT TO ARTICLES OF INCORPORATION
OF
HANDELL-GRAFF, INC.
Andrew W. Berney and Bruce Barton certify that:
1. The original articles were filed with the Office of the Secretary
of State on Nov.23,1993.
2. As of the date of this certificate, 5,000,000 shares of stock of
the corporation have been issued.
3. Pursuant to a shareholders meeting at which in excess of 5 1 %
voted in favor of the following amendment, the company hereby adopts
the following amendments to the amendment of the Articles of
Incorporation of this Corporation:
First: Name of Corporation
The name of the corporation is Healthcomp Evaluation Services
Corporation (the "Corporation")
Andrew W. Berney, Secretary/Director
Bruce N. Barton, President/Director
State of Nevada)
)Ss.
County of Clark)
On 3-17-99, Personally appeared before me, a Notary public, Andrew W.
Berney and Bruce N. Barton, who acknowledged that they executed the
above in instrument.
Loree Richards
A Notary Public in and for said
County and State
NOTARYPTJBUC
STATE OF NEVADA
County of Clark
LOREE RICHARDS
My Appointment Expires April 25, 1999
<PAGE>45
Bylaws
of
Handell-Graff, Inc.
(the "Corporation')
Article I
Office
The Board of Directors shall designate and the Corporation shall
maintain a principal office. The location of the principal office may
be changed by the Board of Directors. The Corporation also may have
offices in such other places as the Board may from time to time
designate. The location of the initial principal office of the
Corporation shall be designated by resolution.
Article II
Shareholders Meetings
1. Annual Meetings
The annual meeting of the shareholders of the Corporation shall be
held at such place within or without the State of Nevada as shall be
set forth in compliance with these Bylaws. The meeting shall be held
on the Last Tuesday of November of each year. If such day is a legal
holiday, the meeting shall be on the next business day. This meeting
shall be for the election of Directors and for the transaction of such
other business as may properly come before it.
2. Special Meetings
Special meetings of shareholders, other than those regulated by
statute, may be called by the President upon written request of the
holders of 50% or more of the outstanding shares entitled to vote at
such special meeting. Written notice of such meeting stating the
place, the date and hour of the meeting, the purpose or purposes for
which it is called, and the name of the person by whom or at whose
direction the meeting is called shall be given.
3. Notice of Shareholders Meeting
The Secretary shall give written notice stating the place, day, and
hour of the meeting, and in the case of a special meeting, the purpose
or purposes for which the meeting is called, which shall be delivered
not less than ten or more than fifty days before the date of the
meeting, either personally or by mail to each shareholder of record
entitled to. Vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at their address as it appears on the
books of the Corporation, with postage thereon prepaid. Attendance at
the meeting shall constitute a waiver of notice thereof.
4 Place of Meeting
The Board of Directors may designate any place, either within or
without +the State of Nevada, as the place of meeting for any annual
meeting or for any special meeting called by the Board of Directors.
A waiver of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without the State of
Nevada, as the place for the holding of such meeting. If no
designation is made, or if a special meeting is otherwise called, the
place of meeting shall be the principal office of the Corporation.
5. Record Date
The Board of Directors may fix a date not less than ten nor more than
fifty days prior to any meeting as the record date for the purpose of
determining shareholders entitled to notice of and to vote at such
me6tings of the shareholders. The transfer books may be closed by the
Board of Directors for a stated period not to exceed fifty days for
the purpose of determining shareholders entitled to receive payment of
and dividend, or in order to make a determination of shareholders for
any other purpose.
<PAGE>46
6. Quorum
A majority of the outstanding shares of the Corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at
a meeting of shareholders. If less than a majority of the outstanding
shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further
notice. At a meeting resumed after any such adjournment at which a
quorum shall be present or represented, any business may be
transacted, which might have been transacted at the meeting as
originally noticed.
7 . Voting
A holder of outstanding shares, entitled to vote at a meeting, may
vote at such meeting in person or by proxy. Except as may otherwise
be provided in the currently filed Articles of Incorporation, every
shareholder shall be entitled to one vote for each share standing
their name on the record of shareholders. Except as herein or in the
currently filed Articles of Incorporation otherwise provided, all
corporate action shall be determined by a majority of the votes cast
at a meeting of shareholders by the holders of shares entitled to vote
thereon.
8. Proxies
At all meeting of shareholders, a shareholder may vote in person or by
proxy executed in writing by the shareholder or by their duly
authorized attorney-in-fact. Such proxy shall be filed with the
Secretary of the Corporation before or at the time of the meeting. No
proxy shall be valid after six months from the date of its execution.
9. Informal Action by Shareholders
Any action required to be taken at a meeting of the shareholders, may
be taken without a meeting if a consent in writing, setting forth the
action so taken, shall be signed by a majority of the shareholders
entitled to vote with respect to the subject matter thereof.
Article III
Board of Directors
1. General Powers
The business and affairs of the Corporation shall be managed by its
Board of Directors. The Board if Directors may adopt such rules and
regulations for the conduct of their meetings and the management of
the Corporation as they appropriate under the circumstances. The
Board shall have authority to authorize changes in the Corporation's
capital structure.
2 . Number, Tenure and Qualification
The number of Directors of the Corporation shall be a number between
one and five, as the Directors may by resolution determine from time
to time. Each of the Directors shall hold office until the next
annual meeting of shareholders and until their successor shall have
been elected and qualified.
3 . Regular Meetings
A regular meeting of the Board of Directors shall be held without
other notice than by this Bylaw, immediately after and, at the same
place as the annual meeting of shareholders. The Board of Directors
may provide, by resolution, the time and place for the holding of
additional regular meetings without other notice than this resolution.
4 Special Meetings
Special meetings of the Board of Directors may be called by order of
the Chairman of the Board or the President. The Secretary shall give
notice of the time, place and purpose or purposes of each special
meeting by mailing the same at least two days before the meeting or by
telephone, telegraphing or telecopying the same at least one day
before the meeting to each Director. Meeting of the Board of
Directors may be held by telephone conference call.
<PAGE>47
5. Quorum
A majority of the members of the Board of Directors shall constitute a
quorum for the transaction of business, but less than a quorum may
adjourn any meeting from time to time until a quorum shall be present,
whereupon the meeting may be held, as adjourned, without further
notice. At any meeting at which every Director shall be present, even
though without any formal notice any business may be transacted
6 . Manner of Acting
At all meetings of the Board of Directors, each Director shall have
one vote. The act of a majority of Directors present at a meeting
shall be the act of the full Board of Directors, provided that a
quorum is present.
7. Vacancies
A vacancy in the Board of Directors shall be deemed to exist in the
case of death, resignation, or removal of any Director, or if the
authorized number of Directors is increased, or if the shareholders
fail, at any meeting of the shareholders, at which any Director is to
be elected, to elect the full authorized number of Directors to be
elected at that meeting.
8 . Removals
Directors may be removed, at any time, by a vote of the shareholders
holding a majority of the shares outstanding and entitled to vote.
Such vacancy shall be filled by the Directors entitled to vote. Such
vacancy shall be filled by the Directors then in office, though less
than a quorum, to hold office until the next annual meeting or until
their successor is duly elected and qualified, except that any
directorship to be filled by election by the shareholders at, the
meeting at which the Director is removed. No reduction of the
authorized number of Directors shall have the effect of removing any
Director prior to the expiration of their term of office.
9. Resignation
A director may resign at any time by delivering written notification
thereof to the President or Secretary of the Corporation. A
resignation shall become effective upon its acceptance by the Board of
Directors; provided, however, that if the Board of Directors has not
acted thereon within ten days from the date of its delivery, the
resignation shall be deemed accepted.
10 . Presumption of Assent
A Director of the Corporation who is present at a meeting of the Board
of Directors at whom action on any corporate matter is taken shall be
presumed to have assented to the action(s) taken unless their dissent
shall be placed in the minutes of the meeting or unless he or she
shall file their written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such
right to dissent shall not apply to a Director who voted in favor of
such action.
11. Compensation
By resolution of the Board of Directors, the Directors may be paid
their expenses, if any, of attendance at each meeting of the Board of
Directors or a stated salary as Director. No such payment shall
preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
12. Emergency Power
When, due to a national disaster or death, a majority of the Directors
are incapacitated or otherwise unable to attend the meetings and
function as Directors, the remaining members of the Board of Directors
shall have all the powers necessary to function as a complete Board,
and for the purpose of doing business and filling vacancies shall
constitute a quorum, until such time as all Directors can attend or
vacancies can be filled pursuant to these Bylaws.
<PAGE>48
13. Chairman
The Board of Directors may elect from its own number a Chairman of the
Board, who shall preside at all meetings of the Board of Directors,
and shall perform such other duties as may be prescribed from time to
time by the Board of Directors. The Chairman may by appointment fill
any vacancies on the Board of Directors.
Article IV
Officers
1. Number
The officers of the Corporation shall be a President, one or more Vice
Presidents, a Secretary, and a Treasurer, each of whom shall be
elected by a majority of the Board of Directors. Such other Officers
and assistant Officers as may be deemed necessary may be elected or
appointed by the Board of Directors. In its discretion, the Board of
Directors may leave unfilled for any such period as it may determine
any office except those of President and Secretary. Any two or more
offices may be held by the same person. Officers may or may not be
Directors or shareholders of the Corporation.
2 . Election and Term of Office
The Officers of the Corporation to be elected by the Board of
Directors shall be elected annually by the Board of Directors at the
first meeting of the Board of Directors held after each annual meeting
of the shareholders. If the election of Officers shall not be held at
such meeting, such election shall be held as soon thereafter as
convenient. Each Officer shall hold office until their successor
shall have been duly elected and shall have qualified or until their
death or until they shall resign or shall have been removed in the
manner hereinafter provided.
3 . Resignations
Any Officer may resign at any time by delivering a written resignation
either to the President or to the Secretary. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
4 . Removal
Any Officer or agent may be removed by the Board of Directors whenever
in its judgment the best interests Corporation will be served thereby,
but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an Officer
or agent shall not of itself create contract rights. Any such removal
shall require a majority vote of the Board of Directors, exclusive of
the Officer in question if he or she is also a Director.
5 . Vacancies
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, or is a new office shall be created,
may be filled by the Board of Directors for the unexpired portion of
the term.
6 President
The president shall be the chief executive and administrative Officer
of the Corporation. He or she shall preside at all meetings of the
stockholders and, in the absence of the Chairman of the Board, at
meetings of the Board of Directors. He or she shall exercise such
duties as customarily pertain to the office of President and shall
have general and active supervision over the property, business, and
affairs of the Corporation and over its several Officers, agents, or
employees other than those appointed by the Board of Directors. He or
she may sign, execute and deliver in the name of the Corporation
powers of attorney, contracts, bonds and other obligations, and shall
perform such other duties as may be prescribed from time to time by
the Board of Directors or by the Bylaws.
7 . Vice President
The Vice President shall have such powers and perform such duties as
may be assigned to him by the Board of Directors or the President. In
the absence or disability of the President, the Vice President
<PAGE>49
designated by the Board or the President shall perform the duties and
exercise the powers of the President. A Vice President may sign and
execute contracts any other obligations pertaining to the regular
course of their duties.
8 . Secretary
The Secretary shall keep the minutes of all meetings of the
stockholders and of the Board of Directors and, to the extent ordered
by the Board of Directors or the President, the minutes of meeting of
all committees. He or she shall cause notice to be given of meetings
of stockholders, of the Board of Directors, and of any committee
appointed by the Board. He or she shall have custody of the corporate
seal and general charge of the records, documents and papers of the
Corporation not pertaining to the performance of the duties vested in
other Officers, which shall at all reasonable times be open to the
examination of any Directors. He or she may sign or execute contracts
with the President or a Vice President thereunto authorized in the
name of the Corporation and affix the seal of the Corporation thereto.
He or she shall perform such other duties as may be prescribed from
time to time by the Board of Directors or by the Bylaws.
9 . Treasurer
The Treasurer shall have general custody of the collection and
disbursement of funds of the Corporation. He or she shall endorse on
behalf of the Corporation for collection check, notes and other
obligations, and shall deposit the same to the credit of the
Corporation in such bank or banks or depositories as the Board of
Directors may designate. He or she may sign, with the President or
such other persons as may be designated for the purpose of the Board
of Directors, all bills of exchange or promissory notes of the
Corporation. He or she shall enter or cause to be entered regularly
in the books of the Corporation full and accurate account of all
monies received and paid by him on account of the Corporation; shall
at all reasonable times exhibit his (or her) books and accounts to any
Director of the Corporation upon application at the office of the
Corporation during business hours; and, whenever required by the Board
of Directors or the President, shall render a statement of his (or
her) accounts. The Treasurer shall perform such other duties as may
be prescribed from time to time by the Board of Directors or by the
Bylaws.
10 . Other Officers
Other Officers shall perform such duties and shall have such powers as
may be assigned to them by the Board of Directors.
11. Salaries
Salaries or other compensation of the Officers of the Corporation
shall be fixed from time to time by the Board of Directors, except
that the Board of Directors may delegate to any person or group of
persons the power to fix the salaries or other compensation of any
subordinate Officers or agents. No Officer shall be prevented from
receiving any such salary or compensation by reason of the fact the he
or she is also a Director of the Corporation
12. Surety Bonds
In case the Board of Directors shall so require, any Officer or agent
of the Corporation shall execute to the Corporation a bond in such
sums and with such surety or sureties as the Board of Directors may
direct, conditioned upon the faithful performance of his (or her)
duties to the Corporation, including responsibility for negligence and
for the accounting for all property, monies or securities of the
Corporation, which may come into his (or her) hands.
Article V
Contracts, Loans, Checks and Deposits
1. Contracts
The Board of Directors may authorize any Officer or Officers, agent or
agents, to enter into any contract or execute and deliver any
<PAGE>50
instrument in the name of and on behalf of the Corporation and such
authority may be general or confined to specific instances.
2. Loans
No loan or advance shall be contracted on behalf of the Corporation,
no negotiable paper or other evidence of its obligation under any loan
or advance shall be issued in its name, and no property of the
Corporation shall be mortgaged, pledged, hypothecated or transferred
as security for the payment of any loan, advance, indebtedness or
liability of the Corporation unless and except as authorized by the
Board of Directors. Any such authorization may be general or confined
to specific instances.
3. Deposits
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board of Directors may
select, or as may be selected by an Officer or agent of the
Corporation authorized to do so by the Board of Directors.
4. Checks and Drafts
All notes, drafts, acceptances, checks, endorsements and evidence of
indebtedness of the Corporation shall be signed by such Officer or
Officers or such agent or agents of the Corporation and in such manner
as the Board of Directors from timer to time may determine.
Endorsements for deposits to the credit of the Corporation in any of
its duly authorized depositories shall be made in such manner as the
Board of Directors may from time to time determine.
5. Bonds and Debentures
Every bond or debenture issued by the Corporation shall be in the form
of an appropriate legal writing, which shall be signed by the
President or Vice President and by the Treasurer or by the Secretary,
and sealed with the seal of the Corporation. The seal may be
facsimile, engraved or printed. Where such bond or debenture is
authenticated with the manual signature of an authorized Officer of
the Corporation or other trustee designated by the indenture of trust
or other agreement under which such security is issued, the signature
of any of the Corporation's Officers named thereon may be facsimile.
In case any Officer who signed, or whose facsimile signature has been
used on any such bond or debenture, shall cease to be an Officer of
the Corporation for any reason before the same has been delivered by
the Corporation, such bond or debenture may nevertheless by adopted by
the Corporation and issued and delivered as though the person who
signed it or whose facsimile signature has been used thereon had not
ceased to be such Officer.
Article VI
Capital Stock
Certificate of Share
The shares of the Corporation shall be represented by certificates
prepared by the Board of Directors and signed by the President. The
signatures of such Officers upon a certificate may be facsimiles if
the certificate is countersigned by a transfer agent or registered by
a registrar other than the Corporation itself or one of its employees.
All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the
shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for
transfer shall be canceled except that in case of a lost, destroyed or
mutilated certificate, a new one may be issued therefor upon such
terms and indemnity to the Corporation as the Board of Directors may
prescribe.
2. Transfer of Shares
Transfer of shares of the Corporation shall be made only on the stock
transfer books of the Corporation by the holder of record thereof or
by his (or her) legal representative, who shall furnish proper
evidence of authority to transfer, or by his (or her) attorney
thereunto authorized by power of attorney duly executed and filed with
the Secretary of the Corporation, and on surrender for cancellation of
<PAGE>51
the certificate for such shares. The person in whose name shares
stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.
3 . Transfer Agent and Registrar
The Board of Directors of the Corporation shall have the power to
appoint one or more transfer agents and registrars for the transfer
and registration of certificates of stock of any class, and may
require that stock certificates shall be countersigned and registered
by one or more of such transfer agents and registrars.
4 . Lost or Destroyed Certificates
The Corporation may issue a new certificate to replace any certificate
theretofore issued by it alleged to have been lost or destroyed. The
Board of Directors may require the owner of such a certificate or his
(or her) legal representative to give the Corporation a bond in such
sum and with such sureties as the Board of Directors may direct to
indemnify the Corporation as transfer agents and registrars, if any,
against claims that may be made on account of the issuance of such new
certificates. A new certificate may be issued without requiring any
bond.
5. Registered Shareholders
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder thereof, in fact, and shall not
be bound to recognize any equitable or other claim to or on behalf of
this Corporation to any and all of the rights and powers incident to
the ownership of such stock at any such meeting, and shall have power
and authority to execute and deliver proxies and consents on behalf of
this Corporation in connection with the exercise by this Corporation
of the rights and powers incident to the ownership of such stock. The
Board of Directors, from time to time, may confer like powers upon any
other person or persons.
Article VII
Indemnification
No Officer or Director shall be personally liable for any obligations
of the Corporation or for any duties or obligations arising out of any
acts or conduct of said Officer or Director performed for or on behalf
of the Corporation. The Corporation shall and does hereby indemnify
and hold harmless each person and their heirs and administrators who
shall serve at any time hereafter as a Director or Officer of the
Corporation from and against any and all claims, judgments and
liabilities to which such persons shall become subject by reason of
their having heretofore or hereafter been a Director or Officer of the
Corporation, or by reason of any action alleged to have heretofore or
hereafter taken or omitted to have been taken by him as such Director
or Officer, and shall reimburse each such person for all legal and
other expenses reasonably incurred by him in connection with any such
claim or liability, including power to defend such persons from all
suits or claims as provided for under the provisions of the Nevada
Revised Statutes; provided, however, that no such persons shall be
indemnified against, or be reimbursed for, any expense incurred in
connection with any claim or liability arising out of his (or her) own
negligence or willful misconduct. The rights accruing to any person
under the foregoing provisions of this section shall not exclude any
other right to which he or she may lawfully be entitled, nor shall
anything herein contained restrict the right of the Corporation to
indemnify or reimburse such person in any proper case, even though not
specifically herein provided for. The Corporation, its Directors,
Officers, employees and agents shall be fully protected in taking any
action or making any payment, or in refusing so to do in reliance upon
the advice of counsel.
Article VIII
Notice
Whenever any notice is required to be given to any shareholder or
Director of the Corporation under the provisions of the Articles of
Incorporation, or under the provisions of the Nevada Statutes, a
waiver thereof in writing signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be
<PAGE>52
deemed equivalent to the giving of such notice. Attendance at any
meeting shall constitute a waiver of notice of such meetings, except
where attendance is for the express purpose of objecting to the
holding of that meeting.
Article IX
Amendments
These Bylaws may be altered, amended, repealed, or new Bylaws adopted
by a majority of the entire Board of Directors at any regular or
special meeting. Any Bylaw adopted by the Board may be repealed or
changed by the action of the shareholders.
Article X
Fiscal Year
The fiscal year of the Corporation shall be fixed and may be varied by
resolution of the Board of Directors.
Article XI
Dividends
The Board of Directors may at any regular or special meeting, as they
deem advisable, declare dividends payable out of the surplus of the
Corporation.
Article XII
Corporate Seal
The seal of the Corporation shall be in the form of a circle and shall
bear the name of the Corporation and the year of incorporation per
sample affixed hereto.
Dated Tuesday, November 30, 1993
Handell-Graff, Inc.
Bruce N. Barton
<PAGE>53
NUMBER SHARES
HEALTHCOMP EVALUATION SERVICES CORPORATION
Incorporated Under the Laws of the State of Nevada
Common Stock Par Value $.001 CUSIP
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID and NONASSESSABLE Shares of Healthcomp Evaluation Services
Corporation, transferable only on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender
of this Certificate properly endorsed. This certificate is not valid
unless countersigned and registered by the Transfer Agent and Registrar
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Secretary President
LEASE
THIS LEASE, made and entered into and effective this day of October
1999, by RRODNEY DESSBERG (hereinafter called "Landlord") and Health
Comp Evaluation Service Corp address is 2001 Siesta Drive, Suite 302,
Sarasota, Florida 34239 (hereinafter called "Tenant").
WITNESSETH
That for and in consideration of the mutual contained hereinafter
contained and the sums off money paid and hereinafter agreed to be paid
by Tenant to Landlord, and for other valuable considerations, Landlord
does hereby demise and lease to Tenant and Tenant does hereby hire and
let from Landlord office space m the building owned by Landlord
(hereinafter the "Building), located at 2001 Siesta Drive, Sarasota,
Florida 34239 and as may be more particularly discussed in Exhibit "A"
amended hereto and made a part hereof.
Tenant's space is hereinafter referred to as the "Demised Premises" and
has a total floor area of approximately 6815 square feet (total floor
area includes 6086 useable plus 120% BOMA for rentable square feet).
Such floor area is measured to the exterior faces of exterior walls and
the centers of party walls. Upon completion of all new construction,
BOMA factor and actual rentable space may be adjusted.
1. TERM. Tenant shall have and hold the Demised Premises for a term of
five (5) years (hereinafter the "initial term"), to commence on the day
after the Demised Premises are delivered to Tenant, or on the first day
of December, 1999, whichever date shall occur first, and continuing
thereafter uninterrupted until November 30, 2004 unless such term is
sooner terminated as hereinafter provided.
2. RENT. Tenant agrees to pay Landlord an annual fixed minimum rent
for the Demised Premises equal to one-hundred, twelve-thousand, one-
hundred six dollars and seventy-five cents ($112,106.75) per annum
during the initial term hereof, payable as follows: February 1 , 1999
through November 30, 2000, the rent shall be nine-thousand three-
hundred, forty-two dollars and twenty-two cents ($9,342.22) (the "fixed
monthly rent") payable to Landlord on the first day of each and every
month thereafter during the metal term hereof, in advance, without
demand, free from all claims, demands or set-offs against Landlord of
any kind or character. In the event that the premises are not ready for
occupancy by the Tenant by December 1, 1999, rent for the month of
December shall be pro-rata abated for the same number of days of
occupancy lost m December 1999 due to non-completion of the Landlord
's improvements. Each and every payment of rent and additional rent
and other payments required to be paid by Tenant to Landlord under this
Lease shall be accompanied by the payment of all applicable sales taxes
and assessments in the nature of sales taxes required by law from time
to time in the State of Florida or in the county or municipality in
which the Demised Premises are located, and shall be payable to
Landlord in lawful money of the United States of America at 3935 N.
Washington Blvd. , Sarasota, Florida 34234, or at such other place as
Landlord may designate in writing, Tenant shall pay Landlord a late fee
equal to five percent (5%) of any monthly rental payment not received
by Landlord within five (5) days after the payment is due as an
additional handling fee.
If on February 1, 2000, construction of entryway or installation of new
second, over existing bank floor, is not complete there will be a
thirty (30%) percent reduction in rent until completion. This does not
refer to Tenant improvements.
Tenant agrees to pay S4.45 per square foot, common area charges during
December 1999 and January 2000 (2,527.23 per month plus 7% tax,
2,704.13 total each mouth, for 2 months).
The parties agree that the annual fixed minimum rent specified above is
computed on the basis of twelve dollars ($12. 00 per square foot rent
and $4.45 common area charges. Simultaneously with the execution and
delivery hereof, Tenant has paid Landlord the sum of nine-thousand,
three-hundred, forty-two dollars and twenty-two cents ($9,342.22)
receipt of which is hereby acknowledged, representing a deposit for
the last month's rent at ten thousand, five hundred fourteen dollars
and seventy-five cents ($10,514.75). Sales tax in the amount of
seven-hundred, thirty-six dollars and three cents ($736.03) shall also
be payable on said deposit toward the rental obligation of the Tenant
due Landlord for the last month hereunder.
<PAGE>55
3. ANNUAL RENT INCREASES. Beginning with the month of February, 2001,
the annual fixed minimum rent nine-thousand, three-hundred, forty-two
dollars and twenty-two cents ($9,342.22) for the initial period) shall
be increased by a sum of three percent (3%) over the previous year's
annual fixed minimum rent.
4 SECURITY DEPOSIT. Tenant, simultaneously with the execution of this
Lease, has deposited with the Landlord, the sum of five-thousand
dollars ($5,000.00), receipt of which is hereby acknowledged by
Landlord, which sum shall be retained by Landlord as security for the
payment by Tenant of the rents and other sums herein agreed to be paid
by Tenant and for the faithful performance by Tenant of the terms and
covenants of this Lease. It is agreed that Landlord, at Landlord's
option, may at any time apply said sum or any part thereof, towards the
payment of the rent and all other sums by Tenant under this Lease and
towards the performance of each and every of Tenant's covenants under
this Lease, but such covenants and Tenant's liability under this Lease
shall thereby be discharged only to that extent that Tenant shall
remain liable for any amounts that such sum shall be insufficient to
pay, that Landlord may any or all rights and remedies against Tenant
before resorting to said sum, but nothing herein contained shall
require or be deemed to require Landlord to do so, that, in the event
this deposit shall not be for any such purposes, then such deposit
shall be returned to Tenant, with interest, within twenty (20) days
after the expiration of this Lease, provided that Tenant shall have
vacated the Demised Premises leaving same in the condition that existed
at the commencement of this Lease, reasonable wear and tear excepted.
The security deposit may be commingled with Landlord's funds without
accounting therefor to Tenant. If Landlord does elect to apply the
deposit, as set forth above, Tenant shall, upon demand of Landlord,
deposit with Landlord the amount so applied, so that Landlord shall
have the full security deposit on hand at all times during the entire
term of this Lease. In the event of a sale of the building containing
the Demised Premises (the "building"), or lease of the land on which it
stands, Landlord shall have the right to transfer the deposit to the
new landlord, and Landlord shall, upon such transfer, be relieved by
Tenant from all liability for the return of such security deposit
5. UTELITIES AND TAXES.
(A) UTILITIES: Owner shall, at its sole expense, fully and promptly pay
for all water, gas, air conditioning, heat, light, power, and other
public utilities of every kind furnished to the Demised Premises out
the term hereof, and all other costs and expenses of every kind
whatsoever of or in connection the use, operation and maintenance of
the Demised Premises and the activities conducted thereon.
(B) REAL ESTATE- TAXES: Landlord will pay all real estate taxes.
6. PREPARATION AND ACCEPTANCE OF DEMISED PREMISES.
(A) Landlord, at its own cost and expense, will complete construction
of the Demised Premises, and shall provide additional improvements to
the Demised Premises, if any, as specified in Exhibit "B"; any and all
other improvements to the Demised Premises shall be made by and at the
sole expense of Tenant. Landlord reserves the right from time to time
to make changes, additions and eliminations in and to the Building,
provided same does not unreasonably interfere with Tenant's use of the
Demised Premises.
(B) Tenant, having examined the Building, as well as the fixtures
attached thereto, is familiar with the condition the and is relying
solely upon such examination in entering into this Lease and shall
accept the Demised Premises in their existing condition at the
commencement of the term of this Lease Upon physical occupancy of the
Demised Premises, Tenant shall be deemed to have accepted same in their
then existing condition and Landlord shall be deemed to have complied
with all its undertakings relative to the condition thereof. Landlord
shall not be liable to tenant for any damage to Tenant's property due
to rain, flood, or any act of God. No representation, statement or
warranty, express or implied, has been made by or on behalf of Landlord
as to such condition, or as to the use that may be made of the Demised
Premises, and in no event shall the Landlord be liable for any defect
in same or for any limitation upon its use. Likewise, Tenant shall not
be liable for damage to Landlord's property due to flood, or any act of
God.
<PAGE>56
7. RULE'S AND REGULATIONS. Tenant and its servants, agents, employees,
invitees and guests, shall abide by and adhere to any and all rules and
regulations, now or hereafter promulgated by Landlord, in its sole
discretion, for the sole discretion, for the safety, appearance, care,
cleanliness, and use of the Demised Premises, common areas, and the
Building, and the preservation of good order therein, and for the most
efficient and advantageous use of the automobile parking spaces
provided by Landlord. The existing Rules and Regulations are attached
hereto as Exhibit "C" (to be executed by Tenant), and all such further
rules and regulations as may be promulgated in the future by Landlord,
and all amendments thereto, are y made a part hereof. No rules or
regulations shall be inconsistent with the reasonable use of the
Demised Premises by Tenant, its agents, employees, invitees and
visitors for the permitted by this Lease. Any violation of the Rules
and Regulations shall be deemed a default hereunder. Landlord shall
not be liable to Tenant for violation of any said Rules and Regulations
by any other tenant or persons.
8.QUIET EMJOYMENT. Landlord agrees that Tenant, upon timely paying the
rent and other amounts due hereunder, and performing all the covenants
and conditions on Tenant's part to be observed and performed, shall and
may peaceably and quietly have, hold and enjoy the Demised Premises for
the term hereof, subject only to the terms and conditions hereof,
reservations and restrictions of record, and applicable zoning and
other governmental regulations.
9. USE OF PREMISES.
(A) Tenant shall use and occupy the Demised Premises solely for the
operation of Administration of company business, and no other use shall
be made thereof without the prior, express and written consent of
Landlord. Tenant shall not engage in any activity that violates any
rules, regulations or ordinances of any governmental authority having
jurisdiction over the Demised Premises or of the terms and conditions
of this Lease. In the event Tenant uses the Demised Premises for
purposes not expressly permitted herein Landlord may terminate this
Lease, or, without notice to Tenant, restrain said improper use by
injunction without warning any other rights and remedies conferred on
Landlord by the of this Lease or as otherwise provided by law. It is
expressly acknowledged that Tenants business activity includes drug
testing.
(B) Tenant shall have a non-exclusive right to the use of all streets,
driveways and alleys that are adjacent to the Building. Tenant hereby
acknowledges that the public parking areas provided by Landlord in and
about the Building are intended primarily for use by customers of the
Building, Tenant, within five (5) days of request from Landlord, shall
furnish Landlord with a written statement of the names of all
employees, agents and representatives employed in or at the Demised
Premises by Tenant, and the license registration number of all vehicles
owned or used by Tenant and its employees, agents, or representatives.
(C) Tenant shall comply with the requirements of all laws, orders,
ordinances and regulations of all governmental authorities having
jurisdiction over the Demised Premises, shall not use the Demised
Premises in violation of the Certificate of Occupancy for the Building,
and shall not do or permit any act upon the Demised Premises which
might subject Landlord to any liability or responsibility for injury to
any person or damage to any property. Tenant shall comply with all
rules, orders or requirements of the National Board of Fire
Underwriters or any other similar body or any subdivision thereof and
shall not do or permit or bring or keep anything m the Demised which
shall increase the rate of insurance on the Building or on the property
kept therein over that in effect at the commencement of the term and
should Tenant fail to do so, Tenant shall Landlord on demand as
additional rental hereunder for the increase on all insurance premiums
thereafter payable and winch shall be charged because of such violation
by Tenant. In any action or proceeding wherein Landlord and Tenant are
parties, a schedule or makeup of rates for the Building or the Demised
Premises issued by the Florida Rating and Inspection Bureau or other
similar body shall be conclusive of the facts therein stated and of the
items and charges in the in insurance rate then applicable to the said
premises.
10. TENANT'S MAINTENANCE. Tenant shall maintain and repair, at
Tenant's sole expense, the interior of the Demised Premises, including
interior ceilings, walls, floors, exposed plumbing and electrical,
other fixtures, doors, all windows, including plate glass windows, as
<PAGE>57
well as any other in a safe, clean, sightly and sanitary condition, in
good and substantial repair and in the same condition, order and repair
as they were at the inception of this Lease, ordinary wear and tear
excepted. Tenant shall be solely responsible for all damages to the
Demised Premises, or parts thereof, resulting from the negligence or
misuse by Tenant, its employees, agents, invitees, licensees or guests.
Tenant shall be responsible for janitorial services, in the interior of
the demised premises.
11. LANDLORD MAINTENANCE and COMMON AREA CONTROL.
(A) Landlord shall maintain the exterior of the Building, including
exterior walls, in wall utility service lines, pavement, parking areas,
driveways and landscaping, in a clean and sightly condition and in good
and substantial repair, provided that Tenant shall be solely
responsible for all repairs, replacements and maintenance resulting
from the misuse, negligence or default of itself, its employees,
agents, invitees, licensees or guests. Landlord will be responsible
for all in-wall plumbing, pipes and electric wires.
(B) All common areas and other facilities in or about the Building
provided by Landlord shall be subject to the exclusive control and
management of Landlord. Landlords control shall include, but not be
limited to, the right to construct, maintain and operate lighting and
other facilities on all said areas and improvements; to police the
same; to change the area, level, location and arrangement of parking
areas and other facilities; to restrict parking by Tenant and its
officers, agents and employees, to close all or any portion of said
areas or facilities to such extent as may be legally sufficient to
prevent a dedication thereof or the accrual of any right to any person
or the public therein to close temporarily all or any portion of the
parking areas or facilities to non-customer parking, Landlord shall
operate and maintain the common facilities in such manner as Landlord
in its discretion shall determine, and Landlord shall have full right
and authority to employ and discharge all personnel with respect
thereto.
12. FIXTURES AND ALERATIONSIONS. Tenant shall not make any
alterations, additions or improvements to the Demised Premises in
excess of $500.00, or which would change or alter the exterior
appearance or damage the integrity of the Building (including signs on
exterior walls), without the prior written consent of Landlord. All
such work done by or for Tenant shall be performed in such a manner as
to comply with all laws, ordinances, rules and regulations of all
agencies and authorities having jurisdiction over the Demised Premises.
Unless otherwise provided by written agreement, all additions,
fixtures, improvements and modifications to the Demised Premises made
by Tenant during the term hereof shall become the property of Landlord
and remain upon and be surrendered with Demised Premises at the
termination of this Lease. Landlord gets permission to Tenant to make
the alterations, additions or improvements to the Demised Premises
listed on the attached Exhibit E. Included in Exhibit E is the
installation of a sign on the exterior of the Demised Premises which
shall remain the property of the Tenant and shall be removable by
Tenant at the termination of this Lease.
If any mechanic's lien be filed against the Demised Premises or the
Building for work claimed to have been done for or material claimed to
have been furnished to Tenant, same shall be discharged by Tenant
within ten (10) days thereafter at Tenant's expense, by bond or other
manner bylaw. Under no circumstances shall Tenant have any right to
cause or create a mechanic's lien to be filed against Landlord's
interest in the Demised Premises or in the property upon which the
Demised Premises are situated and all persons, firms and corporations
dealing with Tenant are hereby put on notice that any hen that they may
acquire by virtue of any work performed by, or under Tenant upon or in
same be solely against the interest of Tenant, and not against the
interest of Landlord; and no such person, firm or corporation shall
ever have to be entitled to a mechanics hen or any other lien,
statutory or common law, against Landlord's interest in the Demised
Premises or the property upon which the Demised Premises are situated.
13. INSURANCE AND INDENNMCATION.
(A) TENANT'S INSURANCE:. Unless expressly waived in writing by
Landlord or procured by Landlord and assessed as an Operating Cost,
Tenant shall, at its cost and expense, procure and maintain in force
during the term of this Lease, and any extension or renewal thereof, a
<PAGE>58
policy or policies of insurance written by one or more responsible
insurance carriers approved by Landlord, naming Landlord as an
additional insured (unless specified otherwise), and providing
comprehensive public liability insurance, including bodily injury and
property damage, insuring against all claims, demands or actions caused
by conditions or activities in, on or about the Demised Premises, with
limits of not less than S500,000.00 per person and $1,000,000.00 per
occurrence for injury to persons, including death resulting therefrom
and $1,000,000.00 per occurrence for damage to the property of others,
or in the alternative, a $1,000,000.00 combined single limit bodily
injury and property damage policy, with no more than a $5,000.00
deductible clause. Such required policies of insurance shall not be
cancelable without at least thirty (30) days' prior written notice to
Landlord. Tenant shall provide Landlord with proof of such required
insurance prior to the commencement of this Lease, and during the term
hereof, with the original renewal policy of insurance at least thirty
(30) days prior to the expiration date of such policy. Within fifteen
(15) days after the premium on any policy shall become due and payable,
Tenant shall furnish Landlord with satisfactory evidence of such
payment. If such insurance policies are not kept in force during the
entire term of this Lease or any extension or renewal hereof, Landlord
may procure the necessary insurance and pay the premium therefor, and
such premium shall be repaid to Landlord as additional rent for the
month following the date on which such premiums are paid. All
insurance by Tenant as herein required shall contain an express waver
of subrogation by the insurer against Landlord.
(B) LANDLORD'S INSURANCE: Landlord shall procure and maintain
appropriate fire and extended coverage insurance on the Building for
full insurable value, and public liability insurance covering the
Building and common areas. Landlord will furnish certificate of
insurance to Tenant.
(C) INDEMNIFICATION: During the initial term hereof, and any extensions
or renewals, Tenant shall indemnify and hold Landlord harmless from and
against any and all claims, demands, liability, loss or damage, whether
for injuries to persons or loss of life or damage to property,
occurring in, on or about the Demised Premises or any common areas
allocated to or used by Tenant, and whether such loss, injury, death or
damage shall be the result of any of the following: (i) the use,
occupancy, management or control by Tenant of the Demised Premises and
any area allocated to or used by Tenant or its agents, employees,
invitees, or guests; (ii) any acts omissions, neglect or fault of
Tenant, its agents, servants, employees, licensees or invitees; (iii)
Tenant's failure to comply with any laws statutes, ordinances or
regulations applicable to Tenant's use and occupancy of the Demised
Premises; (iv) any breach, violation or nonperformance of any covenant,
condition or agreement contained herein on the part of Tenant to be
kept and performed; (v) any work or thing whatever done, or any
condition created or permitted to exist in or about the Demised
Premises during the term of this Lease or during the period of time, if
any, prior to the commencement of the term hereof, that Tenant may have
been given access to the Demised Premises; (vi) any other acts of
Tenant, or its agents, employees or representatives. In the event
Landlord shall be made a party to any litigation arising with respect
to the foregoing, then Tenant shall resist and defend any and all
judgments, orders and decrees that may be recovered Landlord in any
such action or proceeding. Tenant, for itself, and for any person,
firm or corporation claiming by, through, under or against Tenant,
hereby expressly waives all claims against Landlord for damages to any
improvements that are now or hereafter placed or built an the Demised
Premises and to the property of Tenant in, on or about the Demised
Premises or the Building, and for injuries to persons or property in on
or about the Premises, or any area allocated to or used by Tenant, from
any cause arising at any time during the term hereof, except such
damage or injury resulting from the negligence of Landlord.
Tenant further agrees to indemnify and hold Landlord harmless against
liability for the payment of all legal costs and charges, inclusive of
attorneys' fees, lawfully and legally incurred or expended by Landlord
in or about the defense of any suit, action or proceeding in
discharging the Demised Premises or any part thereof from any liens,
judgments or encumbrances created by Tenant on or against the same, or
Tenant's leasehold estate, or any such costs and charges incurred on
<PAGE>59
account of the proceedings in obtaining possession of the Demised
Premises after the termination of this Lease by forfeiture or
otherwise.
14. SIGNS. Tenant shall not install, maintain or display any sign,
lettering, or lights or any other materials on the exterior of the
Building or on any interior walls or windows that are visible from the
exterior, unless approved by Landlord in writing. No rights are
granted to Tenant to use or alter the appearance of the exterior wars
or roof of the Building without Landlord's written consent. Tenant
will be allowed signage on the exterior of the Building as approved by
the Landlord and as permitted by the city of Sarasota.
15. ASSIGNMENT PROHIBITED.
(A) This Lease is personal to Tenant and is based in part upon
Landlord's evaluation of Tenant's character, reputation, financial
integrity and intended use of the Demised Premises. Accordingly,
Tenant shall not assign, mortgage or encumber this Lease, nor sublet or
permit all or any part of the Demised Premises to be used by others,
whether voluntarily or by operation of law or otherwise, and Tenant's
failure to comply herewith shall be considered a default hereunder. If
Tenant is a corporation and if any transfer, sale, pledge, or other
disposition of the majority of controlling interest of the outstanding
capital stock be changed, then Tenant shall so notify Landlord and
Landlord shall have the right, at its option, to treat any such
transfer, etc., as an assignment under this paragraph and subject to
all the restrictions herein contained. The transfer of corporate stock
of Tenant, for purposes of this paragraph, shall not include any
transfer of stock between members of the tenant's family who currently
own the capital stock of Tenant. Any change in business entity shall
not be deemed a transfer or assignment for purposes of this paragraph
so long as the said tenant's family retains the majority control of the
new entity. If this Lease be assigned or if the Demised Premises or
any part thereof be underlet or occupied by anybody other than Tenant,
Landlord may collect rent from the assignee, undertenant or occupant
and apply the net amount collected to all rent herein reserved, but no
such assignment, underletting, occupancy or collection shall be deemed
a waiver of this covenant or the acceptance of the assignee,
undertenant or occupant as a tenant, or a release of the performance of
the covenants on Tenant's part herein contained.
(B) In the event that Tenant desires to sell or otherwise convey its
business being conducted in the Demised Premises to a third party
purchaser (hereinafter "purchaser"), the following conditions shall be
satisfied prior to Tenant being relieved of any obligations hereunder.
(i) Tenant shall provide a written request to Landlord, including the
name, address and business of the purchaser, which request shall be
supplemented with such other information and documentation as Landlord
may require in order to evaluate the purchaser. Within sixty (60) days
after Landlord's receipt of all requested information and
documentation, Landlord shall notify Tenant in writing of its decision
as to whether or not the purchaser is acceptable as a tenant, and
Landlord's acceptance of the purchaser as a tenant shall not be
unreasonably withheld.
(ii) In the event that Landlord notifies Tenant that the purchaser is
acceptable as a tenant, then the purchaser shall, within fifteen (15)
days thereafter, execute and deliver an assumption and modification
agreement whereby such purchaser shall assume all obligations and
liabilities of Tenant under this Lease and shall pay increased rent
according to the then "prevailing rent" (as from time to time announced
by Landlord), and such other terms and conditions acceptable to
Landlord;
(iii) Tenant shall reimburse Landlord for reasonable attorney's fees
and such other expenses reasonably incurred by Landlord in connection
with the evaluation of the purchaser, and the processing and
documentation of said assumption and modification agreement, and these
sums shall be immediately due and payable by Tenant as additional rent
regardless of whether or not the Landlord accepts the purchaser as a
tenant; and
(iv) Tenant shall comply with all the terms and conditions hereof and
shall make all payments required hereunder up to the commencement date
of the purchaser's lease term.
<PAGE>60
16. RIGHT OF ENTRY. Landlord shall have the right to enter upon the
Demised Premises at all reasonable hours for the purposes of inspecting
the same, of exhibiting same to prospective Tenants and/or purchasers,
or ranking of repairs, additions or alterations to the Demised Premises
or the Building, or running pipes or conduits through the Demised
Premises as provided in the building plans, or for any other purpose
deemed appropriate by Landlord, and any of the foregoing shall not
constitute an eviction, provided however, that Landlord shall not so
enter the Demised Premises without first providing Tenant with
reasonable notice, except in the event of an emergency. If Tenant
refuses or neglects to perform required maintenance or to make such
repairs with reasonable dispatch, Landlord may, but is not obligated
to, perform such maintenance and make such repairs or cause such
repairs to be made at Tenant's sole expense. If during the List two
months of the term, Tenant shall have removed substantially all of its
from the Demised Premises, Landlord may enter thereon to decorate or
alter same with no abatement of rent or other allowances. The
provisions of this paragraph shall not be construed to impose any
obligation on Landlord not specifically provided for in this Lease.
The right of entry shall likewise exist for the purpose of removing
placards, signs, fixtures, alterations, additions and the which do not
conform to the relevant terms of this Lease.
17. CONDEMNATION. In the event that any portion of the Premises or all
of the Premises is taken under condemnation proceedings, or by sale
under threat of condemnation, Tenant shall have no right to any portion
of the condemnation award. If the portion of the Premises taken is such
that Tenant is not materially affected in the conduct of Tenant's
business, then this Lease shall continue in full force and effect with
no abatement of rentals to be paid hereunder as though such property
was not taken. If, on the other hand, the taking of a portion of the
subject property is such as to materially affect the conduct of Tenants
business, then, in that event, Tenant shall have the right to an
equitable abatement of rentals hereunder. If Landlord and Tenant
cannot agree on an equitable rental reduction, then the matter shall be
referred to a panel of three (3) arbitrators, one of which is appointed
by each party, and the third appointed by the first two arbitrators,
who shall meet within ten (10) days of appointment and then and there,
by majority vote, determine a fair, reduced rental, both parties
covenanting and agreeing to be bound by the arbitration decision. In
the event that the portion or amount of property taken by condemnation
or by sale under threat of condemnation is such as to preclude Tenant
from effectively conducting Tenant's business, then Tenant shall have
the right to cancel and terminate this Lease which said right shall be
exercised, if at all, by Tenant notifying Landlord within fifteen (15)
days after the taking or conveyancece of the property.
18. DESTRUCTION OF PREMISES. In the event of the total destruction of
the Building, or such partial destruction thereof, by fire or otherwise
as will render the Demised Premises untenantable, then Landlord shall
have the right to render same tenantable within a reasonable time
thereafter. For purposes of defining the terms reasonable time under
this paragraph, Landlord shall render the premises tenantable within
(30) days if no permit is required to make the necessary repairs. The
Landlord render the premises tenantable within sixty (60) days if a
permit is required to make the necessary repairs. If the Demised
Premises are not rendered tenantable within a reasonable time, then
either party shall have the right to cancel this Lease by written
notice to the other, and in such event, rent shall be paid only to the
date of such casualty, this Lease shall be terminated and of no further
and effect, and the rights of all parties hereunder shall cease, except
such rights as may have accrued up to immediately, prior to such
destruction.
In the event of a partial destruction of the Building by fire or
otherwise, not rendering the entirety of the Demised Premises unfit for
use, the rent shall be abated proportionately according to the floor
area of the Demised Premises winch is unusable by Tenant, until same is
restored, but if such damage was due to the fault of Tenant, there
shall be no abatement of rent. In event partial destruction elsewhere
in the building results in construction which interferes with Tenant's
use, then rent will be discounted 30%, until such construction work is
complete.
<PAGE>61
19. SUBORDINATION. Tenant agrees that this Lease shall be subject and
subordinate to all mortgages, ground or underlying leases, which may
now or hereafter affect the Demised Premises and to any renewals,
modifications, consolidations, replacements and extensions thereof.
Tenant further agrees that upon the request of Landlord, it will
promptly execute such documents as may be requested in order to
subordinate this Lease to the lien of any present or future mortgage,
irrespective of the time of recording of any such mortgage or
mortgages. Tenant, agrees that if requested by the holder of any such
mortgage, it will be a party to said agreement and will agree in
substance that if the mortgage or any assignee of said mortgage shall
succeed to the interest of Landlord in this Lease, it will recognize
said mortgagee or assignee as its Landlord under the terms of this
Lease. Tenant agrees that it will upon request of Landlord, execute,
acknowledge and deliver any and all instruments necessary or desirable
to give effect to or notice of such subordination. The word "mortgage"
as used herein includes mortgages, deeds of trust, or other similar
instruments and any modification, consolidation, extension, renewal,
replacement or substitution thereof.
20.DEFATJLTS AND REMEDIES.
(A) If (i) Tenant defaults in the payment of any rent or other monies
due hereunder and such default continues for ten (10) days after same
was due to be paid by Tenant to Landlord; or (ii) Tenant defaults in
fulfilling any or all of the covenants or agreements of this Lease on
Tenant's part to be kept or performed, other than the payment of rent
and other monies due hereunder, or (iii) this Lease be transferred to
or devolve upon any person or corporation other than Tenant, except as
shall be specifically permitted by this Lease; or (iv) Tenant shall be
adjudged bankrupt or insolvent by any court, or if a Receiver or
Trustee in Bankruptcy or a Receiver of the Property of Tenant shall be
appointed in a suit, action or proceeding, or if Tenant shall make an
assignment for the benefit of creditors, then m each and every such
event, Landlord or its agents may give Tenant a written notice
specifying a day not less than ten (10) days thereafter upon which the
term shall end, and if such default is not cured prior to the
expiration of such time, then on the day so specified the term of this
Lease shall expire as if that day were the day herein fixed as the on
of the term, and Tenant shall then quit and surrender the Demised
Premises to Landlord and Tenant shall remain liable as hereinafter
provided.
(B) If Tenant shall abandon the Demised Premises or if the term of this
Lease shall expire as hereinabove provided, Landlord may re-enter the
Demised Premises and remove Tenant or its legal representatives or
other occupant by summary proceedings or otherwise, and Tenant hereby
waives the service of notice of intention to re-enter or to institute
legal proceedings to that end.
(C) In case of any such re-entry, on and/or dispossess by summary
proceedings or otherwise, the rent shall become due thereupon and shall
be paid up to the time of such re-entry, disposes and/or on, together
with such expenses as Landlord may incur for legal expenses, fees (at
both trial and all appellate levels), brokerage commissions and the
costs of putting the Demised Premises m good order or for preparing the
same for re-renting, Landlord, will accept monthly payments for the
balance due per the lease, since Tenant m default, shall become liable
for the entire sum. Landlord may relet the Premises or any part or
parts thereof, either in the name of Landlord or otherwise, for a term
or terms which may, at Landlords option, be less than or exceed the
period which may otherwise have constituted the balance of the term of
tins Lease; and Tenant or the legal representatives of Tenant shall
also pay Landlord, as liquidated damages for the failure of Tenant to
observe and perform Tenants covenants herein contained, any deficiency
between all rent hereby reserved and/or covenants to be paid and the
net amount, if any, of the rents collected on account of the lease of
the Demised Premises, for each month of the period which would
otherwise have constituted the balance of the term of this Lease. In
computing such liquidated damages, there shall be added to the said
deficiency such expenses as Landlord may incur in connection with
reletting, such as legal attorneys' fees (at both trial and all
appellate levels), brokerage commissions for keeping the Demised
Premises in good order or preparing the same for reletting. Any such
liquidated damages shall be paid in monthly installments by Tenant on
the rent days specified in this Lease, and any suit brought to collect
the amount of the deficiency for any month shall not prejudice in any
way the rights of Landlord to collect the deficiency for any subsequent
<PAGE>62
month by a similar proceeding, Landlord, a its option, may make such
alterations, repairs, replacements and/or decorations in the Demised
Premises as may be necessary for the purpose of relating the Demised
Premises, and the ranking of such alterations and/or decorations shall
not operate or be co to release Tenant from liability hereunder as
aforesaid Landlord shall not be liable for failure to relet the Demised
Premises. The words "re-enter" and "re-entry", as used in this Lease,
shall not be restricted to their technical legal meanings.
(D) In the event of a breach or threatened breach by Tenant of any of
the covenants or provisions of this Lease, Landlord shall have the
right of injunction and the right to invoke any remedy now or hereafter
allowed at law or in equity, as if re-entry, summary proceedings and
other remedies are not herein provided for. Mention in this Lease of
any particular remedy shall not preclude Landlord from any other remedy
at law or in equity. Tenant hereby expressly waives any and all rights
of redemption granted by or under any present or future laws in the
event of Tenant's being evicted or dispossessed, or in the event of
Landlord's obtaining possession of the Demised Premises by reason of
Tenant's violation of the provisions of this Lease.
(E) If Tenant shall default in the performance of any provision,
covenant or condition on its part to be performed under this Lease,
Landlord may, at its option, perform the same for the account and at
the expense of Tenant. If Landlord at any time shall be compelled or
elect to pay any sum of money or do any act winch requires the payment
of any sum of money by reason of the failure of Tenant to comply with
any provision of this Lease, or if Landlord incurs any expense,
including reasonable attorneys' fees (at both trial and all appellate
levels), in prosecuting or defending any action or proceeding by reason
of any default of Tenant under this Lease, the sums so paid by
Landlord, with interest at the highest legal rate, costs and damages,
shall be due from and be paid by Tenant to Landlord on demand. All
such sums, including all payments required to be made by Tenant of any
kind under this Lease, shall be deemed additional rent, and Landlord
shall have all remedies for the collection thereof that Landlord may
have for non-payment of minimum rent
21. NO WAIVER. No agreement to accept a surrender of the Demised
Premises shall be valid unless in writing signed by Landlord. The
delivery of keys to any employee of Landlord or Landlord's agents shall
not operate as a termination of the Lease or a surrender of the Demised
Premises. The failure of Landlord to seek redress for violation of, or
to insist upon the strict performance of, any covenant or condition of
this Lease or of any rule or regulation shall not prevent a subsequent
act which would have only constituted a violation from having all the
force and effect of an original violation. The receipt by Landlord of
rent with knowledge of the breach of any covenant of this Lease shall
not be deemed a waiver of such breach. No provision of this Lease
shall be deemed to have been waived by Landlord unless such waiver be
in writing signed by Landlord. No payment by Tenant or receipt by
Landlord of a lesser amount than the rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated rent, nor
shall any endorsement or statement on any check nor any letter
accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent or to
pursue any other remedy in this Lease provided.
22. SURRENDER. Tenant agrees that upon the termination of this Lease,
whether by expiration of time or otherwise, possession of the Demised
Premises will be surrendered to Landlord in the same condition as they
were at the inception of this Lease, normal wear and tear excepted.
23. ESTOPPEL CERTIFICATES, SUBORDINATION AND ATTORNMENT. Tenant shall
at any time and from time to time, upon Landlord's reasonable request,
execute, acknowledge and deliver to Landlord a statement in writing
certifying that this Lease is unmodified and in full force and affect
(or if there has been any modification of the Lease that it is in full
force and effect as modified and g the modification or modifications)
and that there are no defaults existing) (or if there is a claimed
default, stating its nature and extent) and stating the dates to which
the rent and other charges have been paid m advance. It is expressly
understood and agreed that any such statement delivered pursuant to
this paragraph may be relied upon by any purchaser of Landlord's
interests, or any tender or prospective assignee of any lender Tenant
shall complete and sign any estoppel letters furnished by Landlord
within five (5) days from the date they are delivered to Tenant. Tenant
<PAGE>63
agrees that this Lease is and shall be subordinate at all times to the
lien of the mortgage, if any, now encumbering the Premises, and to any
renewal or extension of such mortgages. Tenant further agrees that this
Lease shall be subordinate to any future mortgages procured by Landlord
on the Premises. While this provision shall be self operative, Tenant
agrees to confirm this subordination by appropriate instrument provided
by Landlord or Landlord's lender. In the event any Proceedings are
brought for the foreclosure of, or in the event of exercise of the
power of sale under any mortgage or lease made by Landlord encumbering
the Demised Premises, Landlord shall be released from any liability
hereunder and Tenant shall attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as the Landlord under
this Lease.
24 NOTICES Whenever notice shall be required herein, it shall be
delivered by hand or certified mail, return receipt requested (and
shall be deemed delivered when mailed) as follows:
TO LANDLORD TO TENANT
Rodney Dessberg Healthcomp Evaluation Services Corp.
3935 US. Hwy 301 2001 Siesta Drive
Sarasota, Florida 34234 Sarasota, Florida 34239
Attn: Tim Hartnett
with a copy to:
John D. Dumbaugh, Esq.
Syprett Meshad, Resnick
& Lieb, P.A.
P.O. Box 1238
Florida 33578
25. TIME. The parties hereto agree that time is of the essence of this
Lease and applies to all terms and conditions contained herein.
26. CUMULATIVE RIGHTS. The rights of the Landlord under the terms and
conditions of this Lease shall be cumulative, and failure on the part
of Landlord to exercise promptly any rights given hereunder shall not
operate to forfeit any said rights, as well as any other rights or
remedies provided by law.
27. COUNTERPARTS. This Lease may be executed by the parties hereto in
one or more counterparts each of which shall be an ongoing and all of
which constitute one and the same agreement. Copies of this Lease or
any amendment hereto certified by the parties to be true and correct
shall be satisfactory evidence thereof for all purposes.
28. BINDING EFFECT. The terms and conditions of this Lease shall inure
to the benefit of and be binding upon any successor hereunder, as well
as upon the personal representatives, heirs, assigns (where permitted)
and all other successors in interest of the parties.
29. SEVERABILITY. In the event any parts of this Lease are found to be
void, the provisions of this Lease shall nevertheless be binding with
the same effect as though the void parts were deleted.
30. GOVERNING LAW. This Lease shall be governed and construed
according to the laws of the State of Florida.
31. ENTIRE AGREEMENT. This Lease contains the entire understanding
between the parties hereto, and may be amended or modified only by
written agreement by the parties.
32. HANDWRITTEN PROVISIONS. To the that any portions of the
handwritten provisions conflict with the typewritten provisions, then
in all events, the handwritten provisions shall prevail.
33. CAPTIONS. The captions in this Lease are for convenience only, and
the words thereof shall in no way be held to define, limit, modify,
amplify or otherwise aid in the construction, interpretation or meaning
of the provisions of this Lease.
34. TENANT NOT TO RECORD. Tenant shall not record, nor permit to be
recorded, this Lease or any memorandum thereof, without the Landlord's
prior, express and written consent
35. BROKERAGE. Each party represents and warrants that it has not had
any dealings with any broker in connection with the bringing about of
this Lease or in connection with Tenant having been introduced to
Landlord except Sarasota Realty Group Inc and Arvida Realty Inc. which
<PAGE>64
Landlord agrees to compensate in accordance with a separate agreement.
Each party agrees to indemnify and hold the other harmless against any
claim or demand made by any real broker or agent claiming to have dealt
with or consulted with it or its representatives, employees or agents
contrary to the foregoing, representation and warranty.
OENVIROMENTAL LAWS AND HAZARDOUS SUBSTANCES. Tenant will not use the
Premises to generate, manufacture, refine, transport, treat, store,
handle or dispose of any hazardous substances without the prior written
consent of Landlord. Consent of Landlord, if given, may be conditioned
upon Tenant providing reasonable safeguards with respect to any
hazardous substances. Tenant and any Guarantors of this Lease shall be
strictly liable for any damage to the Premises or any loss or damage
incurred by Landlord as a result of any hazardous substances brought
onto or kept on the Premises during the term of this Lease. Tenant
agrees to indemnify and hold Landlord harmless from any and all losses
, causes of action, liability, claims, demands, obligations, damages,
costs and expenses, including without limitation reasonable attorney's
fees, to which Landlord may become subject on account of, arising out
of, or related to any hazardous substances brought onto, kept on, or
removed from the Premises during the term of this Lease or as a result
of any acts or omissions of Tenant or its agents, employees, licensees
or invitees.
As used in this Lease, the phrase "hazardous substances" shall mean and
include all hazardous and toxic substances, wastes or materials and any
pollutants or contaminants as defined in: (a) the Comprehensive
Environmental Response, Compensation and Liability Act as amended (42
US.A 9601), including without limitation asbestos and raw materials
that include hazardous constituents; or (b) other similar local, state
or federal laws, rules or regulations pertaining to environmental
regulation, contamination or cleanup, including without limitations
"CERCLA," "RCRA" or state "super lien," "super fund" or similar clean-
up statutes (all such laws, rules and regulations are collectively
referred to in this paragraph as "environmental laws"). Tenant shall
comply with all environmental laws with respect to the Premises.
37. SPECIAL CLAUSES.
(A) RADON GAS: Radon is a naturally occurring radioactive gas that when
it has accumulated in a balding in sufficient quantities, may present
health risks to persons who are exposed to it over time Levels of radon
that exceed federal and state guidelines have been found in buildings
in Florida. Additional information regarding radon and radon testing
may be obtained from your county public health unit.
38. WAIVER OF JURY TRAIL. Landlord and Tenant each hereby waive fully
their respective rights to a trial by jury in each and every trial or
other proceeding in which one or more causes of action or issues are
raised which result from or arise out of this Lease, or any other
document executed in connection with this Lease.
IN WITNESS WEREOF, the parties have hereunto executed this instrument
for the purpose herein expressed, the day and year first above written.
Signed, sealed and delivered in the presence of: LANDLORD
As to Landlord RODNEY DESSBERG
Aimee Carlson Date: 10-6-99
As to Landlord
Charles J. Palinine TENANT
HEALTH COMP
EVALUATION SERVICES CORP
<PAGE>65
As to Tenant By: Thomas M. Hartmelt
Sheila L. Clark It's Sr. VP and CFO
As to Tenant Date: 10-4-99
M.J. Clegg
GUARANTY OF PERFORMANCE - In consideration of the making of the above
Lease by Landlord with Tenant at the request of the undersigned, and in
reliance on this guaranty, the undersigned hereby guarantees the
payment of the rent to be paid by Tenant and the performance by Tenant
of all the terms, conditions, covenants and agreements of the Lease,
and the undersigned promises to pay all Landlord's costs, expenses and
reasonable attorneys' fees, including those costs, expenses and
reasonable attorneys' fees incurred in any appellate proceedings,
incurred by Landlord in enforcing all obligations of Tenant under the
Lease or incurred by Landlord in enforcing this guaranty.
Witness the hand and seal of the undersigned at the date of the above
Lease.
GUARANTOR.
By.
As to Guarantor
Its:
Date:
As to Guarantor
<PAGE>66
EXHIBIT "A"
SITE PLAN
EXHIBIT "B"
LANDLORD IMPROVEMENTS
1. Landlord will
(A) install new carpet throughout
(B) repaint all walls
(c) build new entry partition to include double doors, moved from west
wall of Tenant area
(D) replace or clean ceiling tile as necessary
(E) remodel existing rest rooms to meet code
(F) repair or replace all door hardware and light fixtures and
electrical switches as needed
(G) adjust a/c system to provide adequate cooling to all areas
(H) drop phone lines, Landlord's cost limit $1,000.00
(I) construct new walls per plan, for offices and conference room
(J) drop computer connections, Landlord's cost limit $1,000.00
(K) install sink and toilet in testing room
EXHIBIT C
RULES AND REGULATIONS
1. Business hours or occupancy purposes are 8AM to 6PM Monday thru
Friday. Tenant will have right of access and use of space at other
times if he has given Landlord reasonable notice except in extreme
emergency. In the event Tenant uses Ins space after hours, Tenant
agrees to reimburse landlord for electric usage at $7.50 per hour.
2. No illegal or immoral activity.
3.No smoking in the building,
4. In the event of problems with electric/plumbing etc. Tenant will not
attempt repair. If problems are in common areas, notify Landlord or
Landlords designee. If problems are in Demised Lease space, contact a
professional in that certain field.
5. It is the intent of the Landlord to designate temporary parking
places for visitors only, not for use by building occupants/employees,
even on a temporary basis.
6. Any vehicles left after hours will be towed (unless Landlord is
notified).
7. Any untagged vehicles left on premises will be towed.
8. Place trash in appropriate containers.
9. Do not leave food waste in inside containers for over 48 hours or
over the weekends.
10. Biological or hazardous waste is to be disposed of properly.
11. Do not stall elevators on any floor using the force/emergency stall
buttons.
12.Do not prop open any emergency exit doors.
13. Do not place any obstructions in or in front of any emergency
exits.
14. If an emergency exit light is out in your Demised Premises, please
notify the Landlord immediately.
15. Absolutely no signs, lit or otherwise, allowed m any windows of
the building.
<PAGE>67
EXHIBIT D
1. OPTION TO RENEW. Provided Tenant is not in default, Tenant shall
have the option to Renew this Lease for five (5) years. Tenant shall
exercise this option by serving notice to Landlord in writing sixty
(60) days prior to the expiration of the initial five (5) year term.
Retention of possession of the property by Tenant at the end of the
Lease term is not a renewal or on in the absence of this notice.
a. If the Option to Renew is not exercised, Landlord may enter the
Leased Premises at reasonable times during the last (60) days of the
term of the Lease to show the Property to prospective buyers and
tenants.
b. All terms and conditions of the lease shall remain in force and
effect and the annual rent increase formula shall be used to compute
the rents during each year of the extended terms of the lease pursuant
to the option to renew.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 55,000
<SECURITIES> 0
<RECEIVABLES> 2,018,000
<ALLOWANCES> 0
<INVENTORY> 143,000
<CURRENT-ASSETS> 3,870,000
<PP&E> 1,253,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,442,000
<CURRENT-LIABILITIES> 4,508,000
<BONDS> 0
<COMMON> 12,000
0
0
<OTHER-SE> 2,326,000
<TOTAL-LIABILITY-AND-EQUITY> 7,442,000
<SALES> 6,971,400
<TOTAL-REVENUES> 6,971,400
<CGS> 3,585,100
<TOTAL-COSTS> 3,585,100
<OTHER-EXPENSES> 3,509,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 376,900
<INCOME-PRETAX> (1,622,100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,622,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,622,100)
<EPS-BASIC> .16
<EPS-DILUTED> .16
</TABLE>
