<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 1999
[ ] Transition Report Pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-5667
Seal Holdings Corporation
(Exact name of registrant as specified in its charter)
Delaware 64-0769296
(State of Incorporation) (IRS Employer ID No.)
5601 N. Dixie Highway, Suite 420, Fort Lauderdale, FL 33334
(Address of principal executive offices) (Zip Code)
(954) 771-5402
(issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes (X) No ( )
Class A common stock, par value $.20 per share, 31,616,894 shares outstanding as
of August 10, 1999
Class B common stock, par value $.20 per share, 25,000 shares outstanding as of
August 10, 1999
Transitional Small Business Disclosure Format (Check one):
Yes ( ) No (X)
<PAGE>
SEAL HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Condensed Consolidated Balance Sheets - June 30, 1999 (unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations - Three months ended June 30, 1999 and 1998;
six months ended June 30, 1999 and 1998 (unaudited) 5
Condensed Consolidated Statement of Shareholders' Equity - Six months ended June 30,
1999 (unaudited) 6
Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 1999
and 1998 (unaudited) 7
Notes to Condensed Consolidated Financial Statements - June 30, 1999 (unaudited)
8
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SEAL HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- ----------------
<S> <C> <C>
ASSETS (Unaudited) (Note 2)
Current assets
Cash and cash equivalents $547,653 $1,238,460
Accounts receivable, net of allowance for uncollectible accounts of $915,000 and
$325,000 June 30, 1999 and December 31, 1998, respectively
1,385,551 607,546
Inventory 182,618 302,317
Prepaid expenses and other current assets 396,210 76,128
Due from affiliates 20,930 20,930
---------- ----------
Total current assets 2,532,962 2,245,381
Deposits 144,785 136,367
Notes receivable from employees 123,689 106,546
Property and equipment, net 12,260,330 10,766,426
Investment in Camber 1,845,245 -
Other assets 210,692 260,425
---------- ----------
Total assets $17,117,703 $13,515,145
========== ===========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
Seal Holdings Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- ---------------
(Unaudited) (Note 2)
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 819,200 $ 1,478,742
Accrued professional fees 617,904 571,997
Accrued compensation and related liabilities 732,183 497,829
Due to affiliates 940,323 321,281
Notes payable to affiliates 4,478,000 -
Short-term note payable 306,972 -
Current portion of capital lease obligations and loans 965,748 231,174
Other liabilities 260,435 184,905
----------- ----------
Total current liabilities 9,120,765 3,285,928
Obligations under capital leases and loans, less current portion 4,196,202 880,568
----------- ----------
Total liabilities 13,316,967 4,166,496
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.001 per share, 25,000,000 shares authorized
and no shares outstanding at June 30, 1999. No shares authorized or
outstanding at December 31, 1998. - -
Common stock, par value $.001 per share, no shares authorized or outstanding
at June 30, 1999, 50,000 shares authorized, 1,000 shares issued and
outstanding at December 31, 1998. - 1
Class A common stock, par value $.20 per share; 99,975,000 shares authorized,
31,701,744 issued, and 31,616,894 outstanding at June 30, 1999. No shares
authorized or outstanding at December 31, 1998. 6,340,349 -
Class B common stock, par value $.20 per share, 25,000 shares authorized issued and
outstanding at June 30, 1999. No shares authorized or outstanding at December 31,
1998. 5,000 -
Additional paid-in capital 18,249,770 20,276,784
Accumulated deficit (20,744,923) (10,928,136)
Treasury stock, at cost, 84,850 and no shares at June 30, 1999 and December 31,
1998, respectively. (49,460) -
----------- ----------
Total shareholders' equity 3,800,736 9,348,649
----------- ----------
Total liabilities and shareholders' equity $17,117,703 $13,515,145
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Seal Holdings Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------------ ------------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Net patient service revenue $2,244,549 $541,337 $3,861,690 $725,876
Premium revenue 308,531 303,727 560,530 406,162
Interest income 8,189 8,792 17,262 11,807
---------- -------- ---------- --------
Total revenues 2,561,269 853,856 4,439,482 1,143,845
Expenses:
Salaries and benefits 3,837,733 1,516,302 7,130,082 1,912,555
Professional fees 980,397 490,176 1,589,429 978,485
Supplies 397,453 66,455 828,134 71,384
Rent 537,212 72,192 998,933 93,708
Other operating expenses 504,621 114,382 835,249 160,176
Depreciation 327,147 5,498 638,195 5,592
Selling, general and administrative 745,683 180,748 1,315,515 218,854
Provision for bad debts 534,619 73,354 646,248 105,069
Interest 175,051 2,156 274,484 2,839
---------- -------- ---------- --------
Total expenses 8,039,916 2,521,263 14,256,269 3,548,662
---------- -------- ---------- --------
Net loss $(5,478,647) $(1,667,407) $(9,816,787) $(2,404,817)
========== ========== ========== ==========
Loss per common share:
Basic $(.37) $(.16) $(.78) $(.23)
========== ========== ========== ==========
Diluted $(.37) $(.16) $(.78) $(.23)
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Seal Holdings Corporation and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Class A and Class B
Common Stock Preferred Stock Additional
Par Par Paid-in Accumulated Treasury
Shares Value Shares Value Capital Deficit Stock Total
------ ----- ------ ----- ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 1,000 $1 - - $20,276,784 ($10,928,136) - $9,348,649
Contributed capital - - - - 2,600,000 - - 2,600,000
Seal Holdings Corporation
transaction:
Acquisition of existing
common shares net of
costs of $115,500 1,408,325 281,665 - - 1,436,669 - (49,460) 1,668,874
Issuance of stock 10,318,419 2,063,684 2,000,000 2,000 20,811,101 - - 22,876,785
Receipt of OH, Inc.
common stock (1,000) (1) - - (22,876,784) - - 22,876,785)
Exchange of preferred
stock for common stock 20,000,000 4,000,000 (2,000,000) (2,000) (3,998,000) - - 0
Net loss (unaudited) - - - - - (9,816,787) - (9,816,787)
---------- --------- --------- ------ ---------- ---------- ------- ----------
Balance at June 30, 1999
(unaudited) 31,726,744 $6,345,349 - $- $18,249,770 $(20,744,923) $(49,460) $3,800,736
========== ========= ========= ====== =========== =========== ======= ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Seal Holdings Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-------------------------------------
1999 1998
<S> <C> <C>
Operating activities:
Net loss $(9,816,787) $(2,404,817)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 638,195 5,592
Provision for bad debts 646,248 105,069
Changes in operating assets and liabilities:
Accounts receivable (1,424,253) (800,424)
Prepaid expenses and other current assets (268,546) (146,608)
Due from affiliates - (21,099)
Deposits (8,418) (1,670)
Other assets (65,767) (241,077)
Inventory 119,699 -
Accounts payable (659,542) (51,606)
Accrued compensation and related liabilities 234,354 169,684
Accrued professional fees 45,907 143,000
Other liabilities 75,530 81,909
Due to affiliates 619,042 108,022
---------- ----------
Net cash used in operating activities (9,864,338) (3,054,025)
Investing activity:
Purchases of property and equipment (2,086,847) (186,724)
---------- ----------
Net cash used in investing activity (2,086,847) (186,724)
Financing activities:
Notes receivable from employees (17,143) (88,000)
Proceeds from loans 4,972,688 174,525
Proceeds from notes payable to affiliates 4,478,000 -
Payments on third party loans (509,492) (77,304)
Capital lease payments (106,016) -
Capital contributions 2,600,000 3,433,416
Cash advanced to Acquiree, net of cash acquired in business
combination (157,659) -
---------- ----------
Cash provided by financing activities 11,260,378 3,442,637
---------- ----------
Net change in cash and cash equivalents (690,807) 201,888
Cash and cash equivalents at beginning of period 1,238,460 -
---------- ----------
Cash and cash equivalents at end of period $ 547,653 $ 201,888
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1999
(Unaudited)
1. The Company
As the result of the completion of the transaction described in the following
paragraph, Seal Holdings Corporation, through its subsidiaries (collectively the
"Company") operates a comprehensive outpatient medical, diagnostic and surgical
facility. The Company also holds a 6% interest in Camber Companies LLC, a
company specializing in multidisciplinary, musculoskeletal care.
On December 21, 1998, Seal Holdings Corporation (which for periods prior to
April 2, 1999 is referred to herein as the "Acquiree") and OH, Inc., a Florida
corporation, entered into an Agreement and Plan of Exchange which became
effective on April 2, 1999, whereby 100% of the outstanding common stock of OH,
Inc. was exchanged for 91% of the outstanding common stock of the Acquiree on a
fully diluted basis (including outstanding options to purchase Acquiree shares).
Accordingly, the acquisition has been treated for financial reporting purposes
as a reverse acquisition, with OH, Inc. (the "Acquirer") as the accounting
acquirer. As a result of the aforementioned transaction, the number of common
shares authorized was increased from 14,975,000 to 99,975,000.
The financial statements contained herein are those of OH, Inc., the accounting
acquirer, even though the Company elected to use the name Seal Holdings
Corporation for periods subsequent to the effective date of the reverse
acquisition. Earnings per share for periods prior to the reverse acquisition
have been restated to reflect the number of equivalent shares received by the
Acquirer.
The net assets received from the Acquiree in the reverse acquisition have been
recorded at their fair value of $1,784,374, less acquisition costs of $115,500,
and include 1,408,325 shares of Acquiree Class A and Class B common stock. The
results of the Acquiree's operations are included in the Company's consolidated
statements of operations from the effective date of the reverse acquisition.
The following unaudited pro-forma summary combines the consolidated results of
operations of the Company and Acquiree as if the reverse acquisition had
occurred on January 1, 1998. The unaudited pro forma summary is not necessarily
indicative of either the results of operations that would have occurred had the
reverse acquisition been completed on January 1, 1998 or of future results of
operations of the consolidated companies.
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1999
(Unaudited)
1. The Company (continued)
Six Months Ended June 30,
--------------------------
1999 1998
---- ----
Pro forma net revenue $4,136,004 $1,157,845
Pro forma net loss (10,241,074) (3,074,817)
Pro forma net loss per share
Basic $ (.79) $ (.27)
Diluted $ (.79) $ (.27)
The Company has experienced significant net losses and deficiencies in cash
flows from its comprehensive outpatient center operations. During 1999, the
Company's primary shareholder and certain affiliates have funded the cash flow
deficiencies. Management of the Company is pursuing various business
alternatives to enable the Company to continue meeting its current and projected
commitments and obligations, or will attempt to reduce the amount of such
liabilities to a manageable level.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six-month periods ended June
30, 1999, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999.
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1999 (continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto of OH, Inc. included in the Seal Holdings Corporation report
on Form 8-K/A, for the year ended December 31, 1998, filed on April 16, 1999, in
connection with the reverse acquisition described in Note 1.
Income Taxes
Prior to the reverse acquisition described in Note 1, OH, Inc., with the consent
of its shareholder, had elected to be treated as an S corporation under the
provisions of the Internal Revenue Code. Consequently, in lieu of corporate
income taxes, the sole shareholder was taxed on the Company's taxable income.
Following the combination, the Company became a C corporation and, accordingly,
has adopted the asset and liability method of accounting for income taxes as
prescribed under SFAS 109 "Accounting for Income Taxes". No provision for income
taxes has been recorded due to losses to date. The Company has recorded a
valuation allowance for any deferred tax assets which have resulted from its
operating losses.
Use of Estimates
Management of the Company has made certain 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. Actual results could differ from those
estimates.
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1999 (continued)
(Unaudited)
3. Earnings Per Share Data
The following table sets forth the computation of basic and diluted earnings per
share for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Basic:
Net loss $(5,478,647) $(1,667,407) $(9,816,787) $(2,404,817)
Average shares outstanding 14,975,283 10,318,419 12,646,852 10,318,419
----------- ----------- ----------- -----------
Basic EPS $(.37) $(.16) $(.78) $(.23)
Diluted:
Net loss $(5,487,647) $(1,667,407) $(9,816,787) $(2,404,817)
Average shares outstanding 14,975,283 10,318,419 12,646,852 10,318,419
Employee stock options - - - -
----------- ----------- ----------- -----------
Totals 14,975,283 10,318,419 12,646,852 10,318,419
Diluted EPS $(.37) $(.16) $(.78) $(.23)
</TABLE>
Options were not included in the computation for the three and six month periods
ended June 30, 1999 and 1998 because their effect would have been anti-dilutive.
4. Stock Options
As a result of the reverse acquisition described in Note 1, the Company has
1,700,000 outstanding stock options at June 30, 1999 with exercise prices
ranging from $1.00 to $1.75 per share. The options are fully vested and have a
remaining weighted average contractual life of approximately 6.2 years. No
options were issued during the six months ended June 30, 1999.
At June 30, 1999, the Company had 1,700,000 shares of common stock reserved for
future issuance under its stock option plans.
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1999 (continued)
(Unaudited)
5. Investment in Camber Companies, LLC
In October of 1998, the Acquiree sold the net assets of its wholly owned
subsidiary, Primary Care Medical Centers of America, Inc. to Camber Companies,
LLC ("Camber") in exchange for a 6% equity investment in Camber with a fair
market value at the date of the transaction of $1,845,000. The Company accounts
for its 6% interest in Camber at cost.
6. Notes Payable to Affiliates
Through June 30, 1999, the Company had borrowed $4,478,000 from its majority
shareholder or his affiliates pursuant to demand notes bearing interest at the
rate of prime plus 3%. Such loans were for the purpose of funding the Company's
negative cash flow from operations. As of August 10, 1999, total short-term
loans from affiliates increased to $7,378,000.
7. Class B Common Stock
As a result of the reverse acquisition described in Note 1, the Company has
25,000 shares of Class B Common Stock outstanding. Such shares are held by an
affiliate of the Company's principle shareholder and enable the holder to elect
a majority of the Board of Directors of the Company.
8. Commitments and Contingencies
As part of its regulatory compliance plan for its healthcare subsidiaries, the
Company initiated an external audit of the Medicare billing practices of its
physician employees. A preliminary review indicates that an overpayment may have
been received from Medicare. The Company has notified the Medicare carrier of
its ongoing audit and intends to remit the amount of overpayment it has
received. The Company has established a reserve on its financial statements
based upon its preliminary estimate of the amount of such overpayment.
<PAGE>
8. Commitments and Contingencies (continued)
Laws and regulations governing the Medicare program are complex and subject to
interpretation. The Company believes that other than the billing matter noted
above, it is in material compliance with all applicable laws and regulations and
is not aware of any pending or threatened investigations involving allegations
of potential wrongdoing. While no such regulatory inquiries have been made,
compliance with such laws and regulations can be subject to future government
review and interpretation as well as significant regulatory action including
fines, penalties, and exclusion from the Medicare program.
Item 2. Management Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
In the discussion below regarding the Company's business, any statement of its
future expectations, including without limitation, future revenues and earnings
(losses), plans and objectives for future operations, future agreements, future
economic performance or expected operational developments and all other
statements regarding the future are "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of
the Securities Exchange Act of 1934, as amended, and as that term is defined in
the Private Securities Litigation Reform Act of 1995. The Company intends that
the forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements are based on the Company's strategic plans.
Although the Company believes that its expectations are based on reasonable
assumptions, it can give no assurance that its expectations will be achieved.
The important factors, risks and uncertainties that could cause actual results
to differ materially from those in the forward-looking statements herein (the
"Cautionary Statements") include, without limitation, the Company's ability to
raise capital, to execute its business strategy in a very competitive
environment, the Company's degree of financial leverage, risks associated with
acquisitions and the integration thereof, regulatory considerations
(particularly in the health care industry), contingent liabilities and the
impact of competitive services and pricing, as well as other risks referenced
from time to time in the Company's filings with the Securities and Exchange
Commission. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements. The Company does not
undertake any obligations to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
<PAGE>
Item 2. Management Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL (continued)
Seal Holdings Corporation is pursuing two business strategies. The first
strategy is the development of comprehensive outpatient care facilities, the
first of which is located in Fort Lauderdale, Florida (the "Oakridge Facility").
During this development stage, the Company continues to evaluate the future
financial viability and the use of corporate resources required for this
strategy. The second strategy is the search for acquisition and investment
opportunities in the healthcare industry, focusing on transactions with
companies which provide services in support of hearth care providers, with
particular interest in information technology companies with internet
applications. The Company anticipates that any additional capital which may be
required to consummate such transactions will be sought from its majority
shareholder and other corporate and institutional investors. In this regard, the
Company has retained Benedetto Gartland & Company, and investment banking firm
based in New York, to assist in the identification, evaluation and financing of
any potential transactions. There can be no assurance that the Company will be
able to attract, finance, or consummate any such transactions.
Additionally, the Company has an investment in Camber Companies, LLC ("Camber"),
whose other shareholders include Monsanto Company and Kohlberg & Company. Camber
provides multi-disciplinary, musculoskeletal care through clinic offices in
Florida and California.
As a result of its Fort Lauderdale clinic operation, the Company is currently
experiencing substantial losses. Management is evaluating the reduction or
discontinuance of certain clinic activities in an effort to reduce expenses and
cash requirements. The Company is also exploring the possibility of one or more
mergers, joint ventures or similar transactions involving the outpatient clinic
operation. The Company is dependent upon capital from one or more affiliates in
order to continue operations in the near term. If the Company is to continue its
outpatient clinic business, substantial debt or equity capital investment will
be required. The Company may raise additional capital through the issuance of
long-term or short-term indebtedness or the issuance of its equity securities in
private or public transactions. Should the Company be unable to find a suitable
method of mitigating its operating losses and cash flow deficiencies, or should
the Company's primary shareholder discontinue funding the losses and cash
deficiencies of the Company's outpatient facility (and the Company is otherwise
unable to obtain alternative financing), the Company may cease operation of its
outpatient clinic business. The outpatient clinic business, which is conducted
through various subsidiaries, at present is the only active business conducted
by the Company.
Any financing activities by the Company could result in substantial dilution of
existing equity positions and increased interest expense. Transaction costs to
the Company in connection with such activities may also be significant.
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 VS. JUNE 30, 1998
Results of Operations
Increases in net patient service revenue for the three and six month periods
ended June 30, 1999 as compared with similar periods in the prior year are due
to the December 1998 opening of the Oakridge Facility in Fort Lauderdale,
Florida. This facility accounted for $1.2 million of the $1.7 million increase
and $2.0 million of the $3.1 million increase in revenue for the three and six
month periods ended June 30, 1999, respectively, versus the comparable 1998
periods, while the remainder of the difference was due to an increase in the
number of physicians employed by the Company.
Operating expenses (i.e., all expenses except interest and professional fees)
increased significantly during the three and six month periods ended June 30,
1999 compared with the corresponding 1998 periods as a result of the opening of
the Oakridge Facility, the increase in physicians employed by the Company and
management's desire to build an infrastructure intended to support revenue
amounts significantly in excess of what the Company's operations have been able
to generate.
In particular, revenues at the Oakridge Facility have been lower than
anticipated due to a lower number of patient referrals than anticipated.
Interest expense and professional fees also increased significantly in 1999
compared with the 1998 periods. Interest expense increased in accordance with
the Company's increased borrowings as compared with the prior year, which were
primarily used to fund operating cash flow deficiencies and purchases of
property and equipment. The increase in professional fees is primarily due to
increased legal fees as compared with the 1998 periods. The increased legal fees
were primarily from the reverse acquisition transaction described earlier and
related regulatory filings, negotiations with various individuals and entities
regarding strategic affiliations and investments, and various other regulatory
matters. In addition, the Company incurred increased amounts of audit and tax
fees as a result of the increased operations and complexity of the Company's
business and the public filings related to the reverse acquisition.
<PAGE>
Liquidity and Capital Resources
During the six months ended June 30, 1999, the Company's net cash used in
operating activities was $9.9 million, and purchases of property and equipment
were $2.1 million. Funding was provided through loan proceeds from third
parties, loans from affiliates, and capital contributions. For the six-month
period ended June 30, 1999, loans from unaffiliated third parties consisted of
$5.0 million in loans collateralized primarily by the Company's medical and
office equipment.
During the first quarter of 1999, capital contributions of $2.6 million were
made by the Company's majority shareholder. During the second quarter of 1999,
the majority shareholder, directly or through his affiliates, advanced the
Company a total of $4.5 million pursuant to demand notes payable bearing
interest at prime plus 3%. In addition, through August 10, 1999, the majority
shareholder or his affiliates loaned the Company an additional $2.9 million.
The Company's current liabilities are greatly in excess of its current assets
and the Company is continuing to lose money from its outpatient clinic business
at a significant rate. Additionally, most of the Company's assets are fully
pledged or subject to liens to secure various Company obligations. For further
discussions of the Company's financing needs, please see the discussion under
"General" of Item 2 above.
IMPACT OF "YEAR 2000" ISSUE
The Company's State of Readiness. Going forward, with the incorporation of the
OH, Inc. business into Seal, the Company is in the process of implementing a
formal program designed to assess the likely impact of the Year 2000 Issue
("Y2K") on the Company and to develop and implement measures designed to
minimize its impact. The Company has acquired all of its major systems and
equipment since March of 1998. Accordingly, most such systems and equipment were
Y2K compliant at the time of acquisition based on vendor representations. The
formal program will cover not only the Company's computer equipment and software
systems, but also other systems containing so-called "embedded" technology, such
as diagnostic and imaging equipment, alarm systems, elevators and other office
and medical equipment.
<PAGE>
RESULTS OF OPERATIONS:
IMPACT OF "YEAR 2000" ISSUE continued:
The Company's Y2K program will focus on the two major components of the
Company's operations - office systems and medical/building systems and will be
carried out in the following phases:
o Assessment, including taking physical inventories of all computer-based
equipment and software, as well as digital and analog control systems;
establishing testing procedures for checking Y2K readiness; and carrying out
those testing procedures. The assessment of all computer-based equipment and
software has been completed as of June 30, 1999 whereas the assessment of
the Medical/building systems are in progress. This phase is expected to be
completed during the third quarter or early fourth quarter of 1999.
o Remediation of all issues identified in the assessment phase. The company
does not expect that significant remediation will be necessary based on
vendor representations. Remediation of computer-based equipment has been
completed and is continually monitored for vendor updates to Year 2000
compliance. Medical/building systems will be remedied once the assessment
has been completed. This phase is expected to be completed during the third
quarter or early fourth quarter of 1999.
o Compliance Certification, including re-testing to assure that remediation
efforts have been successful. Compliance certification is expected to be
completed shortly after the completion of remediation efforts in the 1999
third quarter or early fourth quarter.
o Maintenance, including ongoing testing and remediation. This phase is
expected to commence in the fourth quarter of 1999 and is expected to
continue until early 2000.
The Company expects each of the above phases to be completed or substantially
completed by the times indicated above. However, the Company cannot predict
whether or to what extent the completion of these phases may be delayed for
various reasons. In particular, the Company continues to contract with third
party suppliers. Based on information obtained to date from third party
suppliers, the Company does not anticipate any material obstacles to completing
any remaining office and medical/building remediation activities during the
third and forth quarters of 1999. However, it is not possible to predict whether
or to what extent the information obtained from suppliers may require additional
assessment, remediation and/or other activities. Further, the completion of the
Company's Y2K program could be adversely affected by the unavailability of
replacement components and equipment.
<PAGE>
RESULTS OF OPERATIONS:
IMPACT OF "YEAR 2000" ISSUE continued:
The Costs to Address the Company's Year 2000 Issues. Since inception of its
program through March 31, 1999, the costs related to the Company's Y2K
compliance efforts were not material. The total estimated costs to complete the
Company's Y2K compliance effort are not expected to exceed $50,000. The
estimated costs to complete, which do not include any costs which may be
incurred by the Company if its significant vendors fail to timely address Y2K
compliance, is based on currently known circumstances and various assumptions
regarding future events. However, there can be no assurance that these estimates
will be achieved and actual results could differ materially from those
anticipated.
The Risks of the Company's Year 2000 Issues. The Company's failure to timely
resolve the Y2K risks could result in system failures, the generation of
erroneous information, and other significant disruptions of business activities.
Although the Company believes it will be successful in its Y2K compliance
efforts, there can be no assurance that the Company's systems and products
contain all necessary date code changes. In addition, the Company's operations
may be at risk if its vendors and other third parties fail to adequately address
the Y2K issue or if software conversions result in system incompatibilities with
these third parties. To the extent that either the Company or a third party
vendor or service provider on which the Company relies does not achieve Y2K
compliance, the Company's results of operations could be materially adversely
affected. Furthermore, it has been widely reported that a significant amount of
litigation surrounding business interruption will arise out of Y2K issues. It is
uncertain whether, or to what extent, the Company may be affected by such
litigation.
The Company's Contingency Plan. The Company has not yet developed a
comprehensive contingency plan to address the situation that may result if the
Company or its vendors are unable to achieve Y2K compliance for its critical
operations. During fiscal 1999, based upon the status of the Company's Y2K
compliance efforts and the Company's perceived risks to critical business
operations, the Company plans to evaluate what areas the Company believes
require a contingency plan, and execute such contingency plan if warranted. The
i) inability to timely implement a contingency plan, if deemed necessary, and
ii) the cost to develop and implement such a plan, may have a material adverse
effect on the Company's results of operations.
<PAGE>
PART II. OTHER INFORMATION
Item I. Legal Proceedings
The Company is not a party to any material pending legal proceeding other than
ordinary routine litigation incidental to prior discontinued business activities
of Seal Holdings Corporation subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
On June 24, 1998, the Company held its Annual Meeting of Stockholders pursuant
to the notice of meeting announced in the proxy statement dated June 8, 1998.
The results of the voting on the various proposals is as follows:
Proposal 1: The election of directors of the Corporation.
For Withheld Non-Vote
--- -------- --------
Class A Directors:
------------------
John J. Rydzewski 10,504,074 750 0
Thomas M. Ferguson 10,503,999 825 0
For Withheld Non-Vote
--- -------- --------
Class B Directors:
------------------
M. Lee Pearce, M.D. 25,000 0 0
Robert G. Tancredi, M.D. 25,000 0 0
Proposal 2: Increase the number of authorized shares
For Against Abstain Non-Vote
--- ------- ------- --------
30,521,424 7,725 675 0
Proposal 3: Approval of the 1999 Long-Term Incentive Plan.
For Against Abstain Non-Vote
--- ------- ------- --------
30,521,824 7,050 950 0
Proposal 4: Ratification of Ernst & Young, LLP as independent auditors.
For Against Abstain Non-Vote
--- ------- ------- --------
30,528,749 525 550 0
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed two reports on Form 8-K during the quarter ended June
30, 1999.
(i) 8-K dated April 19, 1999 announcing that, effective April 2, 1999,
Seal Holdings Corporation had acquired all of the outstanding shares of
OH, Inc., a Florida corporation, in exchange for approximately 91% of the
Company's outstanding shares, on a fully diluted basis (taking into
consideration outstanding options to acquire Seal shares), pursuant to an
Agreement and Plan of Exchange between the parties dated December 21,
1998, as amended.
(ii) 8-K/A dated June 16, 1999, presenting the consolidated financial
statements of OH, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SEAL HOLDINGS CORPORATION,
By:/s/ Robert G. Tancredi
-----------------------------
Robert G. Tancredi, M.D.
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Cecilio M. Rodriguez
-----------------------------
Cecilio M. Rodriguez
Treasurer (Principal Accounting
\ Officer)
Dated: August 15, 1999
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