<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 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 411, 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, 11,616,894 shares outstanding as
of May 1, 1999
Class B common stock, par value $.20 per share, 25,000 shares outstanding as of
May 1, 1999
Transitional Small Business Disclosure Format (Check one):
Yes ( ) No (X)
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<PAGE>
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Plan of Operation 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and reports on Form 8-K 13
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SEAL HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------- ---------------
ASSETS (Unaudited) (Note A)
<S> <C> <C>
Current assets
Cash $28 $15
Other receivables (Note B) 100 142
Prepaid expenses 5 11
---------------- ---------------
Total current assets 133 168
---------------- ---------------
Furniture and equipment
Furniture and equipment 91 91
Less accumulated depreciation (44) (41)
---------------- ---------------
Furniture and equipment net 47 50
---------------- ---------------
Investment in Camber Companies, LLC (Note C) 1,845 1,845
---------------- ---------------
Total assets $2,025 $2,063
================ ===============
</TABLE>
See notes to consolidated financial statements
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<PAGE>
SEAL HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------- ----------------
(Unaudited) (Note A)
LIABILITIES AND
SHAREHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Current liabilities
Trade accounts payable and accrued expenses $ - $99
Loan payable to OH, Inc. (Note D) 187 -
Other current liabilities 50 64
---------------- ----------------
Total liabilities 237 163
---------------- ----------------
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $.001 par value; 3,000,000 shares authorized; no shares
issued or outstanding - -
Class A common stock, $.20 par value; 14,975,000 shares authorized;
1,383,385 and 1,303,375 shares issued; and 1,298,475 and
1,218,525 outstanding at March 31, 1999 and December 31,
1998, respectively
276 261
Class B common stock, $.20 par value; 25,000 shares authorized,
issued and outstanding at March 31,1999 and December 31,
1998 respectively 5 5
Additional paid-in capital 4,781 4,686
Accumulated deficit (3,225) (2,883)
Treasury stock, at cost, 84,850 shares at March 31, 1999 and
December 31, 1998, respectively (49) (49)
Note receivable - shareholder - (120)
---------------- ----------------
Total shareholders' equity 1,788 1,900
---------------- ----------------
Total liabilities and shareholders' equity $2,025 $2,063
================ ================
</TABLE>
See notes to consolidated financial statements
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<PAGE>
SEAL HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
--------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Revenue:
Interest and dividend income $ - $9
Expenses:
Salaries and benefits 174 146
General and administrative 48 143
Professional fees 120 105
------------- ------------
Net loss $(342) $(385)
============= ============
Loss attributable to common stockholders $(342) $(385)
Denominator for basic and diluted loss per share -
weighted average shares 1,260,808 1,218,601
Loss per common share:
Basic $(.27) $(.32)
Diluted $(.27) $(.32)
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
SEAL HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
----------------------------------
1999 1998
---------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(342) $(385)
Adjustments to reconcile net loss to net cash required by operating activities
Depreciation and amortization 3 6
Changes in net assets of operations
Decrease in other receivables 42 -
Decrease in prepaid expenses and other assets 6 3
Decrease in accounts payable and accrued expenses (99) (144)
Decrease in other current liabilities (14) -
---------------- --------------
Net cash required by operating activities (404) (520)
---------------- --------------
Cash flows from investing activities:
Purchases of property and equipment - (1)
Increase in other assets - (7)
Exercise of stock options 110
Compensation expense from forgiving of receivable 120 -
---------------- --------------
Net cash provided by (required by) investing activities 230 (8)
---------------- --------------
Cash flows from financing activities:
Proceeds from loan payable to OH, Inc. 187 -
---------------- --------------
Increase (decrease) in cash 13 (528)
Cash at beginning of period 15 1,037
---------------- --------------
Cash at end of period $28 $509
================ ==============
</TABLE>
See notes to consolidated financial statements
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<PAGE>
SEAL HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited 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 month period ended March 31, 1999
are not indicative of the results that may be expected for the year ending
December 31, 1999. All data in the financial statements is in thousands of
dollars except share quantities and per-share amounts.
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 included in the Seal Holdings Corporation and Subsidiaries
("Seal" or the "Company") annual report on Form 10 KSB for the year ended
December 31, 1998.
On April 2, 1999, Seal Holdings Corporation and OH, Inc., a Florida corporation,
announced that they had completed their share exchange agreement, pursuant to
the terms of the previously announced agreement. OH, Inc., through its
subsidiaries, develops and operates sophisticated comprehensive outpatient
medical, diagnostic and surgical facilities. In the exchange, the sole
shareholder of OH, Inc. exchanged all of his OH, Inc. shares for newly issued
shares of common and preferred stock of Seal, reflecting 91% of the outstanding
Seal shares on a fully diluted basis (including outstanding options to acquire
Seal shares held by others). Accordingly, the acquisition has been treated for
financial reporting purposes as a reverse acquisition.
The following unaudited pro forma information for the three months ended March
31, 1999 and 1998 has been prepared assuming the reverse acquisition had been
consummated on January 1, 1998. This unaudited pro forma combined summary
information is not indicative either of results of operations that would have
occurred had the transaction been consummated on January 1, 1998, or of future
results of operation of the consolidated companies.
<TABLE>
<CAPTION>
For the quarter ended March 31,
------------------------------------------------------
1999 1998
--------------------- -----------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues $1,869,000 $296,000
Net loss (4,681,000) (895,000)
Net loss per common share:
Basic (0.40) (0.08)
Diluted (0.40) (0.08)
</TABLE>
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<PAGE>
SEAL HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note B -- Accounts Receivable
Includes $83,000 due from the State of Delaware related to reimbursement of
franchise taxes paid in 1997 and 1998. This amount was received in April of
1999.
Note C -- Investment in Camber Companies, LLC
In October of 1998, the Company 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.
Note D -- Loan payable to OH, Inc.
During the quarter ended March 31, 1999, OH, Inc. advanced $187,000 to the
Company to fund the Company's operations.
Note E -Major Elements of Expense
The major elements of expense reflected in the net loss for the quarter and
year-to-date of $342,000 are as follows:
QTR & YTD
(in thousands)
Salaries and benefits $54
Compensation related to forgiveness of an account receivable 120
Legal, audit, consulting fees 120
Business travel and entertainment 12
Shareholder relations 3
Office rent and supplies 13
Other 20
----------------
Net loss $342
================
Funds to offset cash expenses were received in the form of a loan from OH, Inc.
($187,000) and cash from stock options being exercised by directors and
executives ($110,000).
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<PAGE>
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
In the discussion below regarding the Company's business, any statement of its
future expectations, including without limitation, future revenues and earnings,
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, 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.
On December 21, 1998, Seal and OH, Inc., a Florida corporation which develops
and operates comprehensive outpatient medical, diagnostic and surgical
facilities, entered into an Agreement and Plan of Exchange. On April 2, 1999,
the Company exchanged 10,318,419 shares of its Class A Common Stock and
2,000,000 shares of its newly created Series A Preferred Stock (which are
convertible into an additional 20,000,000 shares of Class A Common Stock) for
all of the issued and outstanding shares of common stock of OH, Inc. The Series
A Preferred Stock will be converted into shares of Class A Common Stock
automatically upon the date that an amendment to the Company's Certificate of
Incorporation is approved by the Seal shareholders and then filed with and
accepted by the Delaware Secretary of State.
The Company satisfied its cash requirements for the quarter ended March 31, 1999
primarily through proceeds from advances from OH, Inc. The Company will require
significant additional capital during the next twelve months. OH, Inc. is
currently operating at a substantial loss as it develops its first comprehensive
outpatient center and builds the necessary management and systems infrastructure
to support anticipated growth.
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<PAGE>
OH, Inc., through its operating subsidiaries, expects to acquire additional
medical equipment in the near term in conjunction with completing medical and
office facilities. Funding for such equipment will be primarily through leases.
The Company's business strategy is to offer a wide range of comprehensive
medical services through the development and operation of comprehensive
outpatient centers, such as the Oakridge Comprehensive Outpatient Facility
currently operated by the Company in Ft. Lauderdale, Florida (the "Oakridge
Facility"). The Company believes that this business strategy will be
advantageous because (i) delivery of health care in an outpatient setting is
expected to be cost effective when compared to traditional hospital models, (ii)
the organization will focus on being physician and patient friendly, and (iii)
the centers are anticipated to offer state-of-the-art equipment and technology.
The Company's business plan calls for the continued development of the business
conducted at its Oakridge Facility and the pursuit of additional comprehensive
outpatient medical facilities, primarily in conjunction and cooperation with
other health care providers. The Company also intends to explore from time to
time, potential merger and other business combination opportunities with third
parties with similar or complementary business operations. Some of these third
parties may be affiliates of the Company.
The Company's business strategy involves growth through internal development,
expansion and potential acquisitions. This type of growth strategy requires: (i)
capital investment; (ii) compliance with present or future laws and regulations
that may differ from those to which the Company presently may be subject; (iii)
further development of the Company's operational, financial and accounting
resources to accommodate and manage growth; and (iv) the ability to attract and
retain physicians, and to train, motivate and manage other employees. Failure to
meet these requirements could limit the Company's growth potential and may have
a material adverse effect on the Company's prospects, financial condition and
results of operations. Although the Company intends to take the necessary steps
to manage rapid growth, there can be no assurance that the Company will be able
to do so efficiently. The Company's operating results could be adversely
affected in the event it cannot control costs associated with operating and
expanding its activities.
In order for the Company to achieve its objectives, substantial debt or equity
capital investment will be required. The Company is currently experiencing
substantial losses and is dependent upon funding from one or more affiliates or
other sources in order to continue operations in the near term. The Company
intends to actively seek financing and capital investment through a variety of
sources. 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. These financing activities 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. There can be no assurance that acceptable financing can be
obtained in either the near or long term or if obtained, that it will be
available on terms and conditions that are favorable to the Company. Moreover, a
lack of sufficient additional funding would require the Company to delay or
eliminate some or all of its plans or may cause a suspension of its activities.
Certain affiliates of the Company may, but are not obligated to, provide a
portion of the Company's financing needs or credit support for any such
additional financing.
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<PAGE>
As a result of its Agreement and Plan of Exchange with OH, Inc., the Company's
subsidiaries have approximately 200 employees.
There can be no assurance that the Company will be successful as a result of its
combination with OH, Inc or its previously announced investment in Camber
Companies, LLC.
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 intends to implement 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.
OH, Inc. and subsidiaries have acquired all of their 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.
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. This phase is expected to be completed during
the third 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. This phase is expected to be completed during the
third 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.
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 quarter 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.
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<PAGE>
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 at that time and the Company's perceived risks to critical
business operations, the Company plans to evaluate what areas the Company
believes a contingency plan may be necessary, 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.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not party to any material pending legal proceeding other than
ordinary routine litigation incidental to the discontinued business.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
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 thereunto duly authorized.
SEAL HOLDINGS CORPORATION (Registrant)
Date: May 17, 1999
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)
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<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
27 Financial Data Schedule
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 28
<SECURITIES> 0
<RECEIVABLES> 100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 133
<PP&E> 91
<DEPRECIATION> (44)
<TOTAL-ASSETS> 2,025
<CURRENT-LIABILITIES> 237
<BONDS> 0
281
0
<COMMON> 0
<OTHER-SE> 1,556
<TOTAL-LIABILITY-AND-EQUITY> 2,025
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (342)
<INCOME-TAX> 0
<INCOME-CONTINUING> (342)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (342)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
