<PAGE>2
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment 3 to
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.)
2001 Siesta Drive, Suite 302, Sarasota, FL 34239
(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.
In addition, 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 contractors 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.
Products.
The principal products and services offered by the Company (through
Afton, Inc. and its divisions and subsidiaries) are described in the
following paragraphs. These products and services are provided to
corporations, federal and state government agencies and health care
providers (health maintenance organizations, clinics, etc.).
<PAGE>4
Information Services. The Company gathers, maintains, analyzes and
reports data concerning a customer's employee population. These
reporting services summarize the frequency and necessity of testing
services, compliance with federal or state regulations concerning use
or abuse of illegal substances, prescription drugs or alcohol,
exposure to hazardous substances, completion of physical examinations,
employees' fitness to perform their duties (e.g., respiratory fit
testing for fire safety personnel) and overall administration of
customers' health programs.
Employee Substance Abuse Screening. These services include program
administration and specimen collections. Administrative services
programs comprise (a) policy and program development, (b) specimen
collection network management, (c) laboratory services, (d) medical
review services, (e) administrative services, (f) compliance audit
services, (g) supervisor and employee training, (h) return to duty
monitoring, statistical reporting, and (i) record keeping. Collection
services involves obtaining a physical specimen, either in a clinic or
at the customer's worksite, for subsequent testing and administration
of customers' testing programs.
Worksite Health Screening Services. These screening services are
performed for the detection of potential exposure to environmental and
worksite hazards (e.g., auditory, EKG, vision, or asbestos testing)
and for preventive health maintenance programs (e.g., mammography,
prostate specific antigen or osteoporosis testing). These services
are normally delivered at the customer's worksite rather than at a
clinic or other office setting.
Occupational Health and Safety Programs. These services address
federally mandated requirements for health and safety practices in the
workplace and are performed either at customers' locations or a
central testing facility. Federally mandated requirements, as
stipulated by OSHA and other regulatory agencies, required skilled
implementation by an occupational specialist. Services such as
hearing testing to monitor noise exposure, respiratory function
testing, hazardous material screening (e.g., monitoring of employees'
lead or mercury levels) and flu shots to prevent illness and sick time
are just a few of the health services occupational health
professionals provide.
Health Management Programs. Health risk assessment and risk reduction
strategies have been proven to promote a healthier, more productive
work force. The Company administers assessment programs for its
customers involving completion of questionnaires concerning employees'
medical history and lifestyle, blood pressure testing and certain
laboratory analyses.
Physical Examination Processing and Reporting. The federal
government, through DOT, OSHA, NRC and other agencies, currently
mandates physical examinations as a condition for employees'
maintaining their qualifications for specific jobs. Non-mandated
physical exams for private industry are also performed. Examination
data are forwarded to licensed physicians for analysis and
interpretation of results obtained by the Company's clinicians. The
Company has also developed a proprietary software system, the
ExamWriter, to process physical exam data automatically while removing
the reporting error factor. Reporting error factors (missing
information, incomplete test result, postings, results outside
acceptable ranges or possible misrecording of results) are identified
by comparing physical examination results reported by the physician
with required data or ranges of acceptable results as specified by
customers or by regulations promulgated by varous government agencies
such as the Department of Transportation or Department of Energy.
Medical Staffing. These programs involve providing personnel to
managed care organizations' or health service providers' clinics for
the specific purpose of performing both mandated and non-mandated drug
and alcohol testing services for the customer's corporate clients.
Wholesale Programs. The Company remarkets some of its programs,
including substance abuse screening, medical review services and
wellness assessments, through resellers who are allowed access to the
Company's sophisticated operating and processing systems and sell
these programs in smaller markets not served by the Company.
<PAGE>5
The Company's services involve the administration of customer's health
screening programs, collection of physical specimens (urine, blood,
etc.), and collection of data regarding an employee's physical
condition, medical history, or lifestyle that may affect the
employee's health or ability to perform his job rather than diagnostic
services. Data collection services are performed by qualified
technicians and clinicians but do not involve interpretative or other
professional services. Following collection of the specimens or
information, the Company forwards the results to a third party (e.g.,
a laboratory or medical review officer for processing of drug or
alcohol samples or a licensed medical professional for interpretation
of X-rays, physical examination data or health assessment data).
Results are reported to the Company's client and any remedial or
treatment requirements are the responsibility of the employee or
client, as appropriate.
Healthcomp's certified technicians include pulmonary function
technicians, radiological technologists, audiometric technicians and
phlebotomists, eacb of whom is trained and/or certified in their
particular specialty, is trained on the appropriate equipment
(pulmonary units, X-ray machines, etc.) and meets continuing
education requirements. A summary of training requirements is shown
in the following table:
<TABLE>
<CAPTION>
Continuing
Education
Specialty Training
<S> <C> <C>
Pulmonary Function National Institute of Occupational Yes
Safety and health Program (HIOSH)
Equipment proficiency training
Radiological Technologist Graduate, degreed and registered X-ray Yes
Technician Certified by American Association
of Radiological Technologists Equipment
proficiency training
Audiometric Technician Council for Accreditation in Occupational Yes
Hearing Conservation Program (NIOSH approved)
Equipment proficiency training
Phlebotomist Medical Assistant, LPN or RN trained No
in art of blood drawing and collection
Trained in Clinical laboratory standards
Trained in blood borne pathogen standards
established by OSHA
</TABLE>
Screening services involve testing for (a) illegal substances, abuse
of alcohol or prescription drugs, (b) abnormal tissue growth or
antigen levels (mammography or prostate testing), (c) fitness to
perform certain job responsibilities, (d) high levels of hazardous
materials (e.g., lead or asbestos), (e) unhealthy glucose, thyroid or
cholesterol levels, (f) AIDS virus, (g) deterioration of hearing,
vision or other physical capabilities and (h) overall health of a
customer's employee population.
Providers of Services. The Company's services provided through its
subsidiaries and divisions include information services (Afton, Inc.
and Afton-North Dakota, Inc.), substance abuse screening programs and
administration of collection, laboratory and medical review services
(provided by Afton-North Dakota, Inc. and Medical Drug Testing, Inc.),
specimen collection services (AmeriTest, Inc. and Medical Drug
Testing, Inc.), on-site screening services, including occupational
health and safety programs (Afton, Inc.'s wellness division, Health
Evaluation Programs, Inc. and Quality Health Services, Inc.), medical
staffing services (AmeriTest, Inc.), wellness programs (Afton, Inc.),
physical examinations, reporting and analysis (Health Evaluation
Programs, Inc., Quality Health Services, Inc., and Afton, Inc.), and
wholesale programs (Afton-North Dakota, Inc.).
Afton-North Dakota, Inc. provides information services and program
administration for substance abuse screening programs, including
collection scheduling, laboratory results reporting, medical review
officer scheduling and reporting, administration of random testing
pools, client reporting and customer service. AmeriTest, Inc.
provides specimen collection scheduling and gathering services
directly for its own clients and for Afton-North Dakota, Inc.'s
<PAGE>6
clients. These operations also coordinate services with the Company's
wellness division and on-site testing service subsidiaries where drug
or alcohol testing is included in the services delivered at customers'
worksites. Information gathered by these groups are transmitted to
Afton, Inc.'s information services operations for historical reporting
and analysis to the Company's clients.
Medical Drug Testing, Inc. provides substance abuse screening
programs, comprising administration of collection, laboratory and
medical review services, and specimen collection services for its
clients. It also provides these services for clients of other
subsidiaries and divisions of the Company for customers located in the
Pittsburgh area.
Governmental Regulations
The Company's business is not currently subject to federal or state
government regulation. There are, however, certain testing protocols
prescribed by the Department of Transportation, Occupational Health
and Safety Administration and other agencies that the Company follows
in administering drug and alcohol screening tests, reviewing
compliance with physical examination requirements and performing other
services such as X-ray or mammography screening. In addition, the
Company's technicians are required to be (and have) qualified, where
appropriate, to provide the tests in a safe and competent manner.
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 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 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 than its competitors.
Currently, Healthcomp's competitors service only one segment of
customer's needs - administrative services, medical review officer
programs, specimen collection services, laboratory services, on-site
health screening tests or wellness programs - and often only on a
local or regional basis. Healthcomp is not aware of any competing
company or organization capable of providing the complete combination
of services that Healthcomp can offer. By choosing Healthcomp as
its service provider, a customer is able access the full range of
services with one vendor wherever those services may be required
nationwide. As a result of past acquisitions and past investment in
systems and procedures, Healthcomp is positioned to offer these
services no without a need for additional certifications, capital or
personnel.
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
<PAGE>7
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.
Risk Factors. Healthcomp Evaluation Services Corporation cautions
that the factors described below could cause actual results or outcomes
to differ materially from those expressed in any forward-looking
statements of Healthcomp made by or on behalf of Healthcomp.
Need for Cash
As the Company enters into new contracts for its health screening
services and other acquisition candidates are identified, additional
cash will be required in the near term to achieve the Company's
financial and operating objectives. If Healthcomp is unable to raise
sufficient cash to fund its growth, Healthcomp may be unable to achieve
the anticipated financial results. There can be no assurance that
adequate funds will be available to us on terms acceptable to
Healthcomp.
Need for Outside Financing
Healthcomp has entered into a number of new customer contracts that
will require additional outside financing during the start up phase of
operations. If adequate sources of capital cannot e secured or cannot
be secured on terms acceptable to Healthcomp, we may be unable to
achieve the anticipated financial results. Moreover, obtaining
outside financing or issuing additional equity securities, whether to
new shareholders in connection with the raising of fresh capital or
directly to acquisition candidates, may result in dilution to existing
investors.
Losses from Operations.
Healthcomp has incurred substantial losses from operations since
commencing operations, and although Healthcomp expects to become
profitable during 2000, there is no assurance that this will happen as
quickly as forecast.
Goodwill from Acquisitions
Goodwill associated with businesses the Company has purchased in
connection with the expansion of its health screening services
businesses substantially equals the Company's net worth. Write off of
the entire goodwill amount would result in elimination of Healthcomp's
net worth at September 30, 1999. Similarly, write off of a portion of
the goodwill recorded by Healthcomp would result in a corresponding
reduction in Healthcomp's net worth. Goodwill amortization that will
be charged to operations is expected to reduce reported earnings
$275,000 annually.
Management of Growth
The Company's success is dependent upon its ability to (a) manage
effectively the growth resulting from new customer contracts it has
entered into and companies it acquires, (b) retain and motivate key
personnel and (c) obtain adequate working capital to support its
growth. Such growth will place, significant demands on the Company's
management, operating and financial systems, and other operating
resources. To achieve its objectives, the Company has developed
scalable, state-of-the-art computer systems and a corporate
infrastructure designed to respond quickly to and effectively to
customers' needs and to absorb acquirees' administrative functions in
<PAGE>8
order to eliminate redundant resources at the acquired companies. The
Company's capacity to absorb these administrative functions into its
infrastructure quickly and efficiently, its ability to anticipate and
address changing customer demands in a timely manner, and its ability
to identify promptly new systemic, procedural and structural
requirements will determine how rapidly and profitably the Company can
grow.
Availability of Qualified Personnel
The Company believes that its future success will depend, in part, upon
its ability to attract and retain additional highly skilled
professional, managerial, sales and marketing personnel. To date, the
Company has been successful in identifying and adding such personnel
through acquisition or the normal hiring process; however, there can be
no assurance that the Company will continue to be successful in
attracting, training and retaining the personnel that it requires to
support planned growth. The failure to do so could have a material
adverse effect on the Company's business and results of operations.
Government Regulation
The Company's business is not currently subject to federal or state
government regulation. There are, however, certain testing protocols
prescribed by the Department of Transportation, Occupational Health and
Safety Administration and other agencies that the Company follows in
administering drug and alcohol screening tests, reviewing compliance
with physical examination requirements and performing other services
such as X-ray or mammography screening. In addition, the Company's
technicians are required to be (and have) qualified, where appropriate,
to provide the tests in a safe and competent manner. Passage of
additional regulations or laws restricting certain tests or procedures
would require that the Company retrain certain of its personnel or
possibly limit certain services to the extent such regulations or laws
required. The Company believes that the impact of such regulation
would not have a material effect on its business or services offered.
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 may be
adversely affected by competitors.
Capital and Source of Liquidity.
During the period from 1997 through 1999, Healthcomp has invested heavily
in infrastructure to service its customers and in the development of
information systems, data base management software and customer reporting
applications software. As a result, the Company's cash flow from
operations has been negative throughout this period and has required
Healthcomp to raise substantial additional capital in the form of bank
financing (as described below), long-term debt provided by private
investors and equity in order to continue operations. Healthcomp believes
that it will begin realizing benefits, in the form of increased revenues,
during the years 2000 and beyond through acquisition of new clients and
sales of information services to existing customers.
During February 1999, the Company entered into a financing arrangement
with Bank of America to provide working capital to support the Company's
operations and growth. Under the terms of this facility, the Bank
advances 80% of the face value of the invoice upon presentation with the
balance being remitted to the Company upon payment of the amount due by
the Company's customer. Based on the funding available under the Bank
facility and the increasing volume of business with existing cumstores,
the Company believes that it will have the resources to meet its capital
requirements for its current operations. To the extent that Healthcomp
enters into significant new customer contracts, additional cash may be
required during the start up phases of those contracts as described under
"Risk Factors."
<PAGE>9
For the three months ended March 31, 2000, cash flow from operations
generated $484,000 as increases in accounts receivable were more than
offset by increases in other expense accruals, primarily as a result
of extended payment terms negotiated with certain large vendors. In
addition, for the three months ended March 31, 2000, the Company made
repayments of notes payable of $93,000 and received $209,000 from the
issuance of common stock. As a result, the Company had net cash
provided from financing activities of $116,000 for the three months
ended March 31, 2000. Capital expenditures during the first quarter
totaled $158,000, and other assets, principally prepaid insurance and
deposits, increased $331,000, resulting in a use of $489,000 in
investing activities.
For the three months ended March 31, 1999, cash flow from operations
declined $3.2 million as a result of a higher net loss and an increase
in other current assets as a result of (a) the deferred receipt (at
the Company's request) of a portion of capital raised by Afton, Inc.
before its reverse merger with the Company and (b) increases in
prepaid expenses, sundry receivables and other current items resulting
from acquisitions by the Company during 1999. Capital expenditures
during the first quarter of 1999 aggregated $33,000.
For the year ended December 31, 1999, Healthcomp made capital
expenditures of $473,000 and had acquisition costs of $447,000. For
the year ended December 31, 1999, Healthcomp had an increase in other
assets of $335,000. As a result, Healthcomp had net cash used in
investing activities of $$1,300,000 for the year ended December 31,
1999.
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, 1999, Healthcomp made net additions of
notes payable of $623,000. Additionally, for the year ended December
31, 1999, Healthcomp received $2,546,000 from the issuance of common
stock. As a result, Healthcomp had net cash provided by financing
activities of $3,169,000 for the year ended December 31, 1999.
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.
During January 1999, Afton, Inc., prior to its acquisition by
Healthcomp raised $1.5 million through the issuance of 1.5 million
shares of common stock. In addition, the investors received five-year
warrants (expiring during February 2004) to purchase 2.9 million
shares of Healthcomp's common stock at an exercise price of $0.01 per
share. During March 1999, Afton converted $1.3 million of long-term
debt to equity through the issuance of 1.04 million shares of common
stock and five-year warrants (expiring during March 2004) to purchase
520,000 shares of common stock at an exercise price of $0.01 per
share. In addition, 532,500 related warrants to purchase common stock
(comprising 520,000 held by the debtholders and 12,500 held by a
financial advisor) were repriced to $0.01 per share. Accrued
interest totaling $176,072 was forgiven by the debtholders. As a
result of these transactions, stockholders' equity increased by $2.8
million and long-term debt decreased by $1.3 million.
During March 1999, Healthcomp acquired all of the outstanding shares
of Afton, Inc. in a reverse merger transaction accomplished through
the issuance of 5.4 million shares of the Company's $0.001 par value
common stock in exchange for all of Afton's outstanding common stock.
In addition, Healthcomp issued 4.1 million warrants to purchase its
common stock in exchange for all of Afton's outstanding warrants to
purchase common stock. Immediately following this transaction,
Healthcomp had 7.8 million shares of common stock outstanding and 4.1
million warrants to purchase common stock. Of the 4.1 million
warrants, 3.2 million were exercisable at a price of $0.01 per share
at any time during the periods from March 1999 through February 2004
(1.5 million warrants) or February 2009 (1.7 million warrants). The
remaining 0.9 million warrants were exercisable at a price of $1.00
per share at any time during the periods from March 1999 through
October 2002 (0.7 million warrants), July 2003 (0.1 million warrants)
and December 2006 (58,000 warrants).
Results of Operations.
Substance Abuse
Substance Abuse revenues for the three months ended March 31, 2000
totaled $1.8 million compared with $1.3 million for the three months
ended March 31, 1999. The increase ($470,000 or 35%) was primarily
attributable to new customer contracts and increased volume from
acquisition of Medical Drug Testing, Inc. during fourth quarter 1999
and expansion of services within the Company's existing customer base.
Gross profit for the three months ended March 31, 2000 aggregated
$738,000 compared with $528,000 for the three months ended March 31,
1999. This increase was attributable to the higher volume described
above and operating efficiencies from consolidation of operations.
Selling, general and administrative expenses decreased 2.5% from
$479,200 for the three months ended March 31, 1999 to $467,100 during
the same period this year. This decrease was attributable principally
to lower compensation and benefit costs and professional fees.
EBITDA for the three months ended March 31, 2000 totaled $271,000
compared with $103,000 during the same period in 1999 as a result of
higher volumes and cost reductions.
Mobile Screening
Mobile Screening revenues for the three months ended March 31, 2000
totaled $1.4 million compared with $752,000 for the three months ended
March 31, 1999. This increase (86%) was attributable to new contracts
and higher volume associated with businesses acquired during second
and fourth quarters of 1999.
Gross profits increased 52% during the three months ended March 31,
2000, from $625,000 in 2000 compared with $412,000 for the same period
during 1999. This increase resulted from higher sales volumes
described above and operating efficiencies associated with improved
utilization of the Company's mobile vehicle fleet.
Selling, general and administrative expenses for the three months
ended March 31, 2000 totaled $450,000 compared with $405,000 for the
same period in 1999, primarily as a result of operating costs
associated with companies acquired during second and fourth quarters
of 1999.
EBITDA for the period ended March 31, 2000 aggregated $175,000
compared with $7,000 for the same period in 1999. The improvement
($168,000) is attributable to higher sales volumes and improved
operating efficiencies, offset, in part, by the higher selling,
general and administrative expenses.
CORPORATE ITEMS AND NET LOSS
Corporate selling, general and administrative expenses,
including costs associated with the Company's executive offices,
corporate sales and marketing, accounting and information and data
management operations, totaled $359,000 for the period ended March 31,
2000 compared to $145,000 for the same period in 1999. The increase
resulted principally from higher travel costs related to corporate
sales activities, insurance expense and facility costs related to the
Company's new corporate offices.
Interest expenses ($152,000) increased $42,000 during first quarter
2000 compared with the same period last year. The increase was
attributable principally to financing (a) the higher level of
operating activity associated with sales volume growth and (b) prior
period acquisitions.
Net loss decreased $566,000, from $712,000 during the three months
ended March 31, 1999 to $146,000 for the comparable period this year,
primarily as a result of improved operating performance ($204,000) and
lower acquisition-related costs ($412,000) offset partially by higher
interest expense.
Year ended December 31, 1999 vs. December 31, 1998
Net Sales. Net sales increased 8% ($739,000) during 1999 compared
with 1998, primarily as a result of stronger sales of substance abuse
services ($0.6 million) caused by higher sales volume with existing
customers.
<PAGE>11
Gross Profit. Gross profit decreased $0.4 million from $4.9
million during 1998 to $4.5 million during 1999. The decrease was
attributable to higher substance abuse services collection costs and
technician stand-by costs in the medical surveillance area.
Operating Expenses. Operating expenses decreased 5.2% to $5.0
million during 1999 compared with $5.3 million during 1998. The
decrease was attributable to lower professional fees ($0.3 million)
and personnel reductions related to automation benefits and office
consolidations ($0.1 million) offset partially by higher advertising
and public relations costs during 1999 ($$0.1 million).
Interest. Interest expense decreased $122,000 (16%), from
$739,000 in 1998 to $617,000 during 1999. The decrease was
attributable primarily to conversion of $1.3 million of long-term debt
during March 1999 and the impact of a new financing agreement with
Bank of America that the Company negotiated during February 1999
offset, in part, by higher borrowing levels under the new financing
agreement.
Other Expense. Other expense totaled $1,181,000 during 1999
compared with $118,000 during in 1998. The increase resulted from
higher acquisition-related costs associated with a higher activity
level during 1999 than during 1998.
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.
The Company's lease at 7126 Beneva Road, Sarasota, Florida terminated
as of December 31, 1999. As of December 1, 1999, the Company entered
into a five-year lease for executive office space at 2001 Siesta
Drive, Sarasota, Florida. The offices comprise approximately 6,100
square feet for which the Company will pay $109,662 during 2000. The
rent is subject to an annual increase of 3% beginning February 1, 2001
and is renewable at Healthcomp's option for an additional five-year
term upon expiration of the initial term subject to the same terms and
conditions as provided in the current lease.
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 and expiring on December 31, 2000. The
Company's rent escalated 6.25% (to $3,400 per month) on January 1,
1999 and is not subject to escalation during 2000. The lease is
renewable by mutual agreement of Healthcomp and the City of Bismarck
(the landlord) for an additional period ranging from one to five years
as mutually agreed. Rent payable under any lease renewal term is
subject to escalation based on the previous year's rent plus an amount
equal to the current rent times the percentage change in the Consumer
Price Index for all Urban Consumers, all items, Selected Large Cities,
national Index for the twelve month period preceding renewal.
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. The
Company's rent is subject to a 4% increase on September 1, 2000 with no
further escalation until the termination of the lease on August 31,
2002.
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, 3,019,068 of which
are controlled by certain beneficial owners and management. The table
assumes the exercise of warrants held by that shareholder. 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
<PAGE>12
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>
Number & Class(1) Percentage of
Name and Address of Shares Common Shares(3)
<S> <C> <C>
Martin J. Clegg
7303 Midnight Pass Rd 2,332,594(2) 17.45%
Sarasota, FL 34242
John F. Thomas
206 Coconut Avenue 1,070,263(2) 8.65%
Anna Maria, FL 34216
Jeffrey H. Lowrey
750 Bray Station Road 731,248(2) 5.99%
Collierville, TN 38017
Thomas M. Hartnett 278,000 2.32%(3)
9992 Cherry Hills Avenue Circle
Bradenton, FL 34202
Keith M. Fred 278,000 2.32%(3)
4152 Central Sarasota Parkway
#716
Sarasota, FL 34238
Philip D. Kaltenbacher
614 Owl Drive South 1,629,749(2) 12.46%(3)
Sarasota, FL 34236
Directors and Officers
as a group
(5 persons)
4,690,105(2) 33.65%(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)Includes warrants to purchase common shares of Healthcomp
exercisable within sixty days as summarized below:
Name Number of Shares
Martin J. Clegg 1,364,594
John F. Thomas 374,725
Jeffrey H. Lowrey 200,000
Philip D. Kaltenbacher 1,079,749
(3)Assumes exercise of any outstanding warrants held by the beneficial
owners and management individually.
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.
<PAGE>13
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.
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
<PAGE>14
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.
Executive Compensation
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
--------------------------- ---------------------- ----------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Position Year Salary($) Bonus($) Compensatio($) Awards($) Options/SARs(#) Payouts($) Compensation($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John F. Thomas(1) 1999 $ 118,062 ---- ---- ---- 901,000 ---- ----
Chairman & CEO 1998 138,000 ---- ---- ---- ---- ---- ----
1997 108,000 ---- ---- ---- ---- ---- $ 28,000
Martin J. Clegg(2) 1999 $ 48,439 ---- ---- ---- 278,000 ---- ----
President 1998 ---- ---- ---- ---- ---- ---- ----
1997 ---- ---- ---- ---- ---- ---- ----
Keith M. Fred 1999 $ 92,827 ---- ---- ---- 278,000 ---- ----
Senior Vice President 1998 86,250 ---- ---- ---- ---- ---- ----
1997 76,250 ---- ---- ---- ---- ---- ----
Thomas M. Hartnett(3) 1999 $ 127,308 ---- ---- ---- 278,000 ---- ----
Senior Vice
President 1998 31,667 ---- ---- ---- ---- ---- ----
1997 ---- ---- ---- ---- ---- ---- ----
</TABLE>
(1)Mr. Thomas assumed the positions of Chairman and Chief Executive
Officer during March 1997. All other compensation during 1997 represents
consultancy fees paid to Mr. Thomas prior to his becoming an officer of
the Company.
(2)Mr. Clegg assumed his position on April 1, 1999.
(3)Mr. Hartnett assumed his position on August 15, 1998.
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. Mr. Thomas paid $14,000 for the vehicle
onJuly 29, 1999.
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
<PAGE>15
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
The following statements constitute brief summaries of the material
provisions of Healthcomp's Certificate of Incorporation and Bylaws, as
amended.
Common Shares. Healthcomp's articles of incorporation authorize it to
issue up to 50,000,000 Common Shares, $0.001 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. There are no redemption
orsinking fund provisions available to the Common Shares.
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
uponamong 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. There are no cumulativevoting
rights.
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. Furthermore, no shareholder has a preemptive right
toacquire any treasury shares or securities convertible into shares
ofHealthcomp.
Transfer Agent. Alpha Tech Stock Transfer located in Salt Lake
City,Utah acts as Healthcomp's transfer agent.
<PAGE>16
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. On December 15, 1999, the Company's common shares were
de-listed from the NASD Bulletin Board pending clearance of the
Company's Form 10SB filing. Trading in the Company's shares has
continued on the Pink Sheets operated by the National Quotation Bureau
L.L.C. 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
December 31, 1999 $1.50 $0.07
</TABLE>
As of January 18, 2000, the Company's shares closed at $0.63.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 of a material nature
nor is Healthcomp aware of any disputes that may result in legal
proceedings that would have a material adverse effect on the Company's
operating results.
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.
All references below to Healthcomp until March 1999 include Afton,
Inc., prior to its acquisition by Healthcomp.
Since 1997, Healthcomp has issued common shares for cash, services,
acquisitions and debt settlement. 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. Sales were
made to no more than 35 nonaccredited investors.
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
In September 1997, Healthcomp issued 60,000 Warrants to DFG Management,
Inc. for partial payment of financial advisory services
In 1997, Healthcomp issued 654,494 warrants in conjunction with debt
financing received from existing shareholders.
<PAGE>17
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
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
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
In June 1998, Healthcomp issued 12,500 warrants as partial
compensation to Ronald L. Wallace for consulting services.
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
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
<PAGE>18
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
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
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
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
In March 1999, Healthcomp issued 60,000 common shares to Charles N.
Lafasciano and 60,000 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
$100,000.
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
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
<PAGE>19
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,
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.
PART F/S
The following financial statements required by Item 310 of Regulation
S-B are furnished below:
Unaudited Consolidated Balance Sheets as of March 31, 2000
Unaudited Consolidated Statements of Operations for the three months
ended march 31, 2000 and 1999
Unaudited Statements of Cash Flows for the three months ended March 31,
2000 and 1999
Independent Auditor's Report dated May 15, 2000
Consolidated Balance Sheets - December 31, 1999
Consolidated Statement of Operations for the year ended December 31,
1999 and 1998
Consolidated Statement of Changes In Stockholders' Equity for the year
ended December 31, 1999
Consolidated Statement of Cash Flows for the
Year Ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
<PAGE>20
Healthcomp Evaluation Services Corporation
and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) March 31, December 31,
2000 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 170 $ 58
Accounts receivable, net of allowance
for doubtful accounts of 2,043 1,623
$88,000 and $248,000 in 2000 and
1999, respectively
Inventory 105 123
Prepaid expenses and other current assets 281 273
----------- -------------
Total current assets 2,599 2,077
PROPERTY AND EQUIPMENT, net 1,740 1,658
INTANGIBLES, net 2,970 3,023
OTHER ASSETS 665 334
------------ -------------
Total Assets $ 7,974 $ 7,092
============ =============
CURRENT LIABILITIES:
Current portion of long-term debt
and notes payable $ 1,357 $ 1,440
Accounts payable 2,301 1,866
Accrued liabilities 1,122 1,030
Interest payable 21 32
Deferred tax liabilities 103 75
Other 381 12
------------ -----------
Total current liabilities 5,284 4,456
LONG-TERM DEBT, less current portion 963 972
------------ -----------
Total liabilities 6,247 5,428
------------ -----------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $0.001 par value,
50,000,000 shares authorized, 14,277,458 14 14
and 13,846,902 share issued
during 2000 and 1999 respectively
Paid-in capital 9,847 9,639
Treasury stock, 946,000 shares (142) (142)
Accumulated deficit (7,992) (7,847)
----------- ----------
Total shareholders' equity (deficit) 1,727 1,664
------------ ---------
$ 7,974 $ 7,092
============ ===========
</TABLE>
<PAGE>21
Healthcomp Evaluation Services Corporation
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
(In thousands except per share amounts)
Three Months Ended
March 31,
2000 1999
------------ ------------
<S> <C> <C>
NET SALES $ 3,355 $ 2,061
COST OF SALES 1,863 1,067
---------- ---------
Gross Profit 1,492 994
---------- ---------
OPERATING EXPENSES
Selling, general, and administrative expenses 1,324 1,029
Depreciation and amortization expense 129 112
---------- ---------
Total operating expenses 1,453 1,141
---------- ---------
OPERATING INCOME (LOSS) 40 (147)
INTEREST EXPENSE 152 110
OTHER EXPENSE 33 455
---------- ---------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT) (146) (712)
INCOME TAX PROVISION - -
---------- ---------
NET LOSS $ (146) $ (712)
========== =========
BASIC AND DILUTED EARNINGS PER SHARE $ (0.01) $ (0.08)
========== =========
WEIGHTED AVERAGE SHARES OUTSTANDING 14,206 9,359
========== =========
</TABLE>
<PAGE>22
Healthcomp Evaluation Services Corporation
And Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net Income/(Loss) $ (146) $ (712)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 129 112
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable, net (421) (233)
Prepaid expenses and other current assets 10 (2,605)
Accounts payable and accrued expenses 911 205
-------- -------
Net cash used in operating activities 484 (3,233)
-------- -------
Cash flows from investing activities:
Capital expenditures (158) (33)
Acquisitions - (6)
Change in other assets (331) 26
-------- -------
Net cash used in investing activities (489) (13)
-------- -------
Cash flows from financing activities:
Net (repayments) borrowings of notes payable (93) 164
Proceeds from the issuance of common stock 209 3,547
Purchase of treasury stock - -
-------- -------
Net cash provided by financing
activities 116 3,711
-------- -------
Net Change in Cash and Cash Equivalents 112 465
Cash and Cash Equivalents, beginning of year 58 457
======== =======
Cash and Cash Equivalents, end of period $ 170 $ 922
======== =======
</TABLE>
Supplemental non-cash disclosure:
During 1999, the Company converted $1.3 million in long-term
debt to common stock.
<PAGE>23
Healthcomp Evaluation Services Corporation
And Subsidiaries
Notes to Consolidated Financial Statements
Quarter Ended March 31, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB. Therefore, they do
not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, and cash
flows, in conformity with generally accepted accounting principles.
In the opinion of management, all adjustments considered necessary for
a fair presentation of the results of operations and financial
position have been included and all such adjustments are of a normal
recurring nature. Operating results for the quarter ended March 31,
2000 are not necessarily indicative of the results that can be
expected for the entire year.
The Company filed a Form-10SB on December 8, 1999 which became
effective on February 8, 2000, pursuant to which the Company is
subject to the reporting requirements of the Securities Exchange Act
of 1934. These statements should be read in conjunction with
information provided in the Form 10-SB filing and related amendments
thereto.
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.
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. For the Company,
comprehensive income (loss) equals net income (loss).
NOTE 2 - BUSINESS COMBINATION
On March 15, 1999, the Company acquired all of the outstanding shares
of Afton, Inc. ("Afton") in a reverse merger transaction accomplished
through the issuance of 5.4 million shares of the Company's $0.001 par
value common stock in exchange for all of Afton's outstanding common
stock. In addition, the Company issued 4.1 million warrants to
purchase its common stock in exchange for all of Afton's outstanding
warrants to purchase common stock. Until its acquisition of Afton,
the Company had no operating activities; accordingly, all comments
concerning the Company's operating activities prior to March 15, 1999
included in these notes and the related consolidated financial
statements included herein pertain to the operating activities of
Afton.
NOTE 3 - DEBT
During March 1999, notes totaling $1.3 million were converted into
1.04 million shares of common stock, and related accrued interest
totaling $176,072 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,
532,500 warrants related to the converted notes (comprising 520,000
held by the debtholders and 12,500 held by a financial advisor) were
repriced to $0.01 per share, resulting in a charge against second
quarter earnings in 1999 of $173,000.
NOTE 4 - OPERATING SEGMENTS
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires that an enterprise disclose certain information
about operating segments. The Company operates in two segments -
Substance Abuse Screening Services and Mobile Health Screening
Services. In evaluating financial performance, management focuses on
a segment's earnings before interest, taxes, depreciation and
amortization ("EBITDA").
Segment Information
(In thousands)
<PAGE>24
Three Months Ended
March 31,
2000 1999
Segment Revenues
Substance Abuse $ 1,810 $ 1,340
Mobile Screening 1,398 753
Corporate items and eliminations 148 (32)
---------- ----------
Consolidated Revenues $ 3,355 $ 2,061
========== ==========
Segment Earnings (Loss) (EBITDA)
Substance Abuse $ 271 $ 104
Mobile Screening 175 7
Corporate items and eliminations (278) (145)
---------- ----------
Consolidated Earnings (Loss)
(EBITDA) $ 169 $ (35)
=========== ==========
<PAGE>25
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, 1999 and the related consolidated
statements of operations, shareholders' equity (deficit), and cash
flows for the years ended December 31, 1999 and 1998. 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 December 31,
1999 and the results of their operations and their cash flows for the
years ended December 31, 1999 and 1998 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
May 15, 2000
<PAGE>26
Healthcomp Evaluation Services Corporation
And Subsidiaries
Consolidated Balance Sheet
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 58,000 $ 457,000
Accounts receivable, net of allowance
for doubtful acccounts of
$248,000 and $44,000 in 1999 and 1998,
respectively 1,623,000 1,308,000
Inventory 123,000 9,000
Prepaid expenses and other current assets 273,000 83,000
------------ -----------
Total current assets 2,077,000 1,857,000
PROPERTY AND EQUIPMENT, net 1,658,000 719,000
INTANGIBLES, net 3,023,000 2,077,000
OTHER ASSETS 334,000 41,000
------------ -----------
Total Assets $ 7,092,000 $ 4,694,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt and
notes payable $ 1,440,000 $ 1,638,000
Accounts payable 1,866,000 1,499,000
Accrued liabilities 1,031,000 747,000
Interest payable 32,000 278,000
Deferred tax liabilities 75,000 75,000
Other 12,000 54,000
----------- -----------
Total current liabilities 4,456,000 4,291,000
LONG-TERM DEBT, less current portion 972,000 1,813,000
----------- -----------
Total liabilities 5,428,000 6,104,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $0.001 par value, 50,000,000
shares authorized, 13,847,000 and 4,776,000
share issued at year end 1999 and 1998,
respectively 14,000 5,000
Paid-in capital 9,639,000 3,729,000
Treasury stock, 946,000 shares (142,000) (142,000)
Accumulated deficit (7,847,000) (5,002,000)
----------- -----------
Total shareholders' equity (deficit) 1,664,000 (1,410,000)
----------- -----------
$ 7,092,000 $ 4,694,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
<PAGE>27
Healthcomp Evaluation Services Corporation
And Subsidiaries
Consolidated Statement of Operations
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
NET SALES $ 10,198,000 $ 9,459,000
COST OF SALES 5,704,000 4,512,000
------------ -----------
Gross Profit 4,494,000 4,947,000
------------ ----------
OPERATING EXPENSES
Selling, general, and administrative
expenses 5,020,000 5,296,000
Depreciation and amortization expense 515,000 447,000
----------- -----------
Total operating expenses 5,535,000 5,743,000
----------- ----------
OPERATING LOSS (1,041,000) (796,000)
INTEREST EXPENSE 617,000 739,000
OTHER EXPENSE 1,181,000 118,000
---------- -----------
LOSS BEFORE INCOME TAX PROVISION (BENEFI (2,839,000) (1,653,000)
INCOME TAX PROVISION - 116,000
--------- ----------
NET LOSS $(2,839,000) $(1,769,000)
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ (0.29) $ (0.43)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 9,902,000 4,104,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
<PAGE>28
Healthcomp Evaluation Services Corporation
And Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated Treasury
Shares Amount Capital Deficit Stock Total
------- ------ ----------- ------------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
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 - - 750,000
Debt conversion 50,000 - 50,000 - - 50,000
Issuance of stock warrants - - 38,000 - - 38,000
Shares issued in exercise
of warrant 29,000 - 29,000 - - 29,000
Net loss - - - (1,769,000) - (1,769,000)
BALANCE, December 31, 1998 4,776,000 5,000 3,729,000 (5,002,000) (142,000) (1,410,000)
Sale of common stock 3,478,000 4,000 2,427,000 - - 2,431,000
Debt conversion 1,495,000 1,000 1,661,000 - - 1,662,000
Shares issued for mergers
and acquisitions 2,458,000 2,000 1,484,000 (6,000) - 1,480,000
Issuance of stock warrants - - 52,000 - - 52,000
Repricing of stock warrants - - 173,000 - - 173,000
Shares issued in exercise of
warrant 1,540,000 2,000 13,000 - - 15,000
Shares issued in payment of
services 100,000 - 100,000 - - 100,000
Net loss - - - (2,839,000) - (2,839,000)
--------- ----- --------- --------- ------- ---------
BALANCE, December 31, 1999 13,847,000 14,000 9,639,000 (7,847,000) (142,000) 1,664,000
========== ====== ========= ========= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>29
Healthcomp Evaluation Services Corporation
And Subsidiaries
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
1999 1998
------ -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,839,000) $(1,769,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 515,000 447,000
Amortization of debt issuance costs 225,000 117,000
Deferred income tax provision - 116,000
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net (315,000) (336,000)
Prepaid expenses and other current a (304,000) 67,000
Accounts payable and accrued expenses 405,000 1,125,000
--------- ---------
Net cash used in operating activities (2,275,000) (233,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (473,000) (87,000)
Acquisitions (447,000) (19,000)
Change in other assets (335,000) 26,000
--------- --------
Net cash used in investing activities (1,255,000) (80,000)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings of notes payable 623,000 (131,000)
Proceeds from the issuance of common stock 2,546,000 779,000
Purchase of treasury stock - -
--------- --------
Net cash provided by financing activities 3,169,000 648,000
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (361,000) 335,000
CASH AND CASH EQUIVALENTS, beginning of year 457,000 122,000
--------- -------
CASH AND CASH EQUIVALENTS, end of year $ 58,000 $457,000
========= ========
SUPPLEMENTAL DISCLOSURE:
Interest paid $579,000 $446,000
========= ========
NONCASH TRANSACTIONS:
Debt converted to common stock $1,662,000 $ 50,000
========== ========
Warrants issued in connection with debt $ 52,000 $ 38,000
========== ========
Liabilities assumed in acquisition $ 811,000 $ -
========== ========
Notes payable issued in acquisitions $ - $ -
========== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
<PAGE>30
Healthcomp Evaluation Services Corporation
And Subsidiaries
Notes to Consolidated Financial Statements
Healthcomp Evaluation Services Corporation (the "Company") is an
occupational health services company that provides a broad array of
preventive health services, including information and data management
services, 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.
Until its acquisition of Afton, Inc. ("Afton") on March 15, 1999 (see
Note 3), the Company had no operating activities; accordingly, all
comments concerning the Company's operating activities prior to March
15, 1999 included in these notes pertain to the operating activities
of Afton. 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, prior to its acquisition by the Company, Afton merged
with Quality Health Services, Inc. ("QHS"), a Kansas City,
Missouri-based mobile medical surveillance firm through the issuance
of 295,306 shares of common stock in exchange for all of the common
stock of QHS. 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, prior to its acquisition by the Company, Afton
merged with Health Evaluation Programs, Inc. ("HEP"), a Chicago-based
provider of mobile medical surveillance services, through the issuance
of 431,566 shares of common stock in exchange for all of the common
stock of HEP. 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 or substantially
all of the tangible and intangible assets of a number of other
companies as 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.
<PAGE>31
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
Vehicles Seven years
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 $188,000 and $158,000 in 1999 and 1998,
respectively. At December 31, 1999, accumulated amortization of
goodwill was $508,000. 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, 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 two segments, substance abuse and mobile health screening
services (see Note 10).
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
On March 15, 1999, the Company acquired all of the outstanding shares
of Afton, Inc. ("Afton") in a reverse merger transaction accomplished
through the issuance of 5.4 million shares of the Company's $0.001 par
value common stock in exchange for all of Afton's outstanding common
stock. In addition, the Company issued 4.1 million warrants to
purchase its common stock in exchange for all of Afton's outstanding
warrants to purchase common stock.
<PAGE>32
Prior to its acquisition by the Company, Afton merged with Quality
Health Services, Inc. ("QHS") and Health Evaluation Programs, Inc.
("HEP") through exchanges of common stock. These mergers were
accounted for using the pooling-of-interests method of accounting (see
Note 1). QHS and HEP used accounting policies and procedures
consistent with those employed by Afton and the Company. Accordingly,
no accounting adjustments of a material nature were recorded by Afton
or the Company in consolidating the results of operations or the
balance sheets of QHS or HEP. Stockholders' equity related to the
acquisitions and included in the Company's consolidated balance sheet
at December 31, 1998 totaled $272,000. This increase in stockholders'
equity includes a decrease of $318,000 in retained earnings of the
combined companies as a result of the change in the fiscal year of HEP
from May 31 to December 31.
Operating results during the eleven months ended November 30, 1998 and
the year ended December 31, 1998 for QHS and HEP, respectively (the
periods prior to the respective acquisitions), that have been included
in the Company's results of operations for those periods are shown
below. There were no transactions between the Company and either QHS
and HEP during either the eleven months ended November 30, 1998 or the
year ended December 31, 1998 nor were there any transactions between
QHS and HEP during the same periods that required elimination during
consolidation.
(Amounts in thousands)
Eleven
Months
Year 1998 1998
HEP QHS Total
Sales $ 3,574 $ 763 $ 4,337
Cost of goods sold 1,243 370 1,613
---------- --------- -----------
Gross Profit 2,331 393 2,724
Operating expenses 1,873 341 2,214
---------- --------- -----------
Operating Income 458 52 510
Interest expense 36 3 39
Other income (1) - (1)
---------- -------- -----------
Income before income
tax expense 423 49 472
Income taxes - - -
---------- --------- -----------
Net Income $ 423 $ 49 $ 472
=========== =========
===========
A reconciliation of the Company's reported revenues and loss for the
year ended December 31, 1998 prior to the business combination with
the reported revenues and loss following the combination is shown
below.
(Amounts in thousands)
Company revenues - 12/31/98 $ 5,122
HEP revenues 3,574
QHS revenues 763
----------
Consolidated revenues - 12/31/98 $ 9,459
==========
Company loss - 12/31/98 $ (2,241)
HEP earnings 423
QHS earnings 49
----------
Consolidated loss - 12/31/98 $ (1,769)
==========
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.
<PAGE>33
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 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 439,000
Intangibles 250,000
-----------
$ 814,000
===========
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 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 $ 2,000
Property and equipment 6,000
Intangibles 382,000
---------
$ 390,000
=========
As of October 1, 1999, the Company acquired substantially all of the
assets of Mobile Medical Testing Service, Inc., a Hartford-based
mobile health screening services company for a purchase price of
$799,000. The excess of the purchase price over the fair value of the
identifiable assets acquired 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 $ 181,000
Property and equipment 294,000
Intangibles 324,000
-----------
$ 799,000
===========
Pro forma results related to the 1999 acquisitions have not been
presented, as the effects are not material.
<PAGE>34
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31,
1999:
Computer hardware and software $ 678,000
Vehicles 1,485,000
Machinery and equipment 1,895,000
-----------
3,773,000
Less accumulated depreciation (2,115,000)
-----------
Property and equipment, net $ 1,658,000
===========
Depreciation expense totaled $326,000 for the year ended December 31,
1999.
5. LONG-TERM DEBT
During March 1999, notes totaling $1.3 million were converted into
1.04 million shares of common stock, and related accrued interest
totaling $176,072 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,
532,500 warrants related to the converted notes (comprising 520,000
held by the debtholders and 12,500 held by a financial advisor) were
repriced to $0.01 per share, resulting in a charge against earnings in
1999 of $173,000.
At December 31, 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% $ 558,000
Note payable to third party, due October 2001, payable in monthly
installments of $7,000 with a balloon payment of $214,000 due at
maturity, bearing interest at 13% 300,000
Note payable to bank, due July 2006, payable in monthly installments
of $2,556, bearing interest at 8.75% 153,000
Note payable to bank, due April 2006, payable in monthly installments
of $687, 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 finance company, due June 2002, payable in monthly
installments of $559, bearing interest at 11.25% 14,000
Note payable to finance company, due June 2002, payable in monthly
installments of $490, bearing interest at 11.25% 13,000
Note payable to bank, due September 2001, payable in monthly
installments of $448, bearing interest at 8.75% 9,000
Note payable to bank, due May 2000, payable in monthly installments of
$321, bearing interest at 9.25% 1,000
---------
Total long-term debt 1,107,000
Less current portion (135,000)
---------
Total long-term debt, less current portion $ 972,000
=========
Maturities of long-term debt as of December 31, 1999 are as follows:
2000 $ 1,000
2001 309,000
2002 27,000
2003 and beyond 770,000
----------
$1,107,000
===========
<PAGE>35
In connection with debt issued in 1999, 1998 and 1997, warrants were
issued with aggregate estimated values of $52,000, $38,000 and
$263,000, respectively. The value of the warrants was recorded as
deferred loan costs and was amortized as interest expense using the
effective interest method. Accordingly, amortization of the related
deferred loan costs of $78,000 and $131,000 for the years ended
December 31, 1999 and 1998 has been charged to interest expense.
A summary of the status of the Company's outstanding warrants as of
December 31, 1999 and December 31, 1998 and changes during the periods
is presented below:
1999 1998
Shares Exercise Price Shares Exercise Price
(000s) (000s)
100 $1.00 100 $1.00
Warrants:
Outstanding at beginning of year
857 $1.00 827 $1.00
Granted 4,716 0.13 103 1.00
Exercised (120) 0.01 (29) 1.00
Forfeited (2) 2.00 (44) 1.00
Outstanding at end of year
5,451 0.26 857 1.00
6. STOCK-BASED COMPENSATION
At December 31, 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, 1999 and 1998
would have been as follows:
1999 1998
Net loss:
As reported $(2,801,000) $(1,769,000)
Pro forma (3,050,000) (1,893,000)
Basic and diluted earnings per share:
As reported $(0.20) $(0.43)
Pro forma (0.22) (0.46)
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 1999 and 1998, 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, 1999 and December 31, 1998 and changes during the periods
ending on those dates is presented below:
<PAGE>36
1999 1998
Shares Exercise Price Shares Exercise Price
(000s) (000s)
Options: $1.00 $1.00
Outstanding at beginning of year
630 $1.00 656 $1.00
Granted 1,703 0.01 0 -
Exercised (1,419) 0.01 0 -
Forfeited 0 - (26) -
Outstanding at end of year
914 0.01 630 1.00
Options exercisable at end of period
630 457
Weighted average fair value of options granted during year
- - - -
The weighted average remaining contractual life of fixed stock options
outstanding at December 31, 1999 is 1.60 years.
During February 1999, the Company granted approximately 2.2 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. In addition, option grants aggregating 0.6 million
shares were canceled; the net effect of the new grants and canceled
options is shown in the table above. The total estimated compensation
charge related to the new grants (net of cancellations) is $750,000,
which will be recognized over the respective vesting periods.
7. EQUITY OFFERINGS
During January 1999, the Company raised $1.5 million through the
issuance of 1.5 million shares of common stock. In addition, the
investors received 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.
During September 1999, the Company issued 801,000 shares of common
stock to private investors for net cash proceeds of $400,000.
During November 1999, the Company issued 1.17 million shares of common
stock to private investors for net cash proceeds of $528,000. In
addition, the investors received five-year warrants to purchase 1.17
million shares of common stock at an exercise price of $0.45 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 December 31,
1999 were as follows:
2000 $ 369,000
2001 209,000
2002 188,000
2003 and beyond 262,000
----------
$ 1,028,000
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.
<PAGE>37
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 former employees of Health Evaluation
Programs, Inc. and Mobile Medical Testing Service, Inc.
10. OPERATING SEGMENTS
<TABLE>
<CAPTION>
(In thousands)
Years Ending Years Ending
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues Segment Earnings
Substance Abuse $ 5,707 $ 5,020 Substance Abuse $ 283 $ 44
Mobile Screening 4,645 4,586 Mobile Screening 282 589
-------- ------- ------ ------
Subtotal 10,352 9,607 Subtotal 565 634
Eliminations (154) (148) Corporate items
----- ----- and eliminations (1,605) (1,430)
Interest (617) (739)
Consolidated Revenues $ 10,198 $ 9,459 Other expenses and
======== ======= income taxes (1,181) (234)
------ -----
Consolidated
Earnings $(2,839) $(1,769)
======= =======
Property & equipment Depreciation/
Assets additions Amortization
Years Ending Years Ending
December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Substance Abuse $ 3,108 $ 2,461 $ 38 $ 27 $ 191 $ 205
Mobile Screening 3,423 1,373 940 39 149 118
------- ------- ------ ------ ------- -------
Subtotal 6,531 3,833 978 66 340 323
Corporate items
and eliminations 560 860 287 21 175 124
----- ------ ------ ------ ------- -------
Consolidated
Total $ 7,092 $ 4,694 $ 1,266 $ 87 $ 515 $ 447
======= ======= ======= ====== ====== =======
</TABLE>
The Company's operating businesses are organized based on the nature
of products and services provided. Segment accounting policies are
the same as described in Note 1. A description of the operating
segments for the Company and its consolidated affiliates is provided
on the following page.
Substance Abuse. These services involve obtaining a physical
specimen, either in a clinic or at the customer's location, for
subsequent testing; administration of customers' testing programs;
staffing services for managed care organizations' clinics for the
purpose of performing mandated; and non-mandated drug and alcohol
testing and reseller programs to smaller third party administrators.
Administrative programs comprise (a) policy and program development,
(b) specimen collection network management, (c) laboratory services,
(d) medical review services, (e) administrative services, (f)
compliance audit services, (g) supervisor and employee training, (h)
return to duty monitoring, statistical reporting, and (i) record
keeping.
Mobile Screening. Mobile screening services are generally provided by
at customers' plant or office locations using the Company's fleet of
testing vehicles. These services include (a) health screening
mandated by the federal, state or local laws or by regulations
promulgated by organizations such as the Department of Transportation
or the Occupational Safety and Health Administration and (b) non-
mandated programs initiated by corporate customers. Mandated mobile
screening services include the detection of potential exposure to
environmental and worksite hazards (e.g., pulmonary function
testing), tracking the effects of hazardous materials on individual
workers and the medical effects of such exposures on populations of
<PAGE>38
workers, respirator fit testing, physical examinations and audiometric
testing. Non-mandated services include mammography, osteoporosis and
prostate screening programs, physical examinations, wellness
assessments and flu shots.
10. 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 arms-length purchase amount
paid by the Chairman to the vehicle's previous owner.
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.
<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 incorporated by reference to Form
10SB filed December 8, 1999
(3.2) Bylaws incorporated by reference to Form 10SB filed December
8, 1999
(4) Common Stock Certificate incorporated by reference to Form
10SB filed December 8, 1999
(21) Subsidiaries of the registrant incorporated by reference to
Amendment 1 to Form 10SB
(27) Financial Data Schedule incorporated by reference to Form 10SB
filed December 8, 1999
<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: May 17, 2000 /s/ Martin J. Clegg
-------------------------
By: Martin J. Clegg, President
