<PAGE>
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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 September 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 65-0769296
(State of Incorporation) (IRS Employer ID No.)
5601 N. Dixie Highway, Suite 411, Fort Lauderdale, FL 33334
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(Address of principal executive offices)
5601 N. Dixie Highway, Suite 420, Fort Lauderdale, FL 33334
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(Former Address of principal executive offices)
(954) 771-1772
(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, 31,916,894 shares outstanding as
of October 31, 1999
Class B common stock, par value $.20 per share, 25,000 shares outstanding as of
October 31, 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 PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1999 (unaudited)
and December 31, 1998.............................................. 3
Condensed Consolidated Statements of Operations - Three months ended
September 30, 1999 and 1998; nine months ended September 30, 1999
and 1998 (unaudited)............................................... 5
Condensed Consolidated Statement of Shareholders' Equity - Nine months
ended September 30, 1999 (unaudited)............................... 6
Condensed Consolidated Statements of Cash Flows - Nine months ended
September 30, 1999 and 1998 (unaudited)............................ 7
Notes to Condensed Consolidated Financial Statements - September 30,
1999 (unaudited)................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition or
Plan of Operation................................................. 14
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.................................. 17
Signatures ............................................................ 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SEAL HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- -------------
(Unaudited) (Note 2)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 172,637 $ 1,238,460
Accounts receivable, net of allowance for uncollectible accounts of
$325,000 at December 31, 1998 -- 607,546
Inventory -- 302,317
Prepaid expenses and other current assets 62,741 76,128
Due from affiliates -- 20,930
---------- -----------
Total current assets 235,378 2,245,381
Deposits -- 136,367
Notes receivable from employees -- 106,546
Property and equipment, net 167,214 10,766,426
Investment in Camber 1,845,245 --
Other assets 627,500 260,425
---------- -----------
Total assets $2,875,337 $13,515,145
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Seal Holdings Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- -------------
(Unaudited) (Note 2)
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 134,287 $ 1,478,742
Accrued professional fees 340,192 571,997
Accrued compensation and related liabilities 160,041 497,829
Due to affiliates -- 321,281
Current portion of capital lease obligations and loans -- 231,174
Other liabilities 118,500 184,905
---------- -----------
Total current liabilities 753,020 3,285,928
Obligations under capital leases and loans, less current portion -- 880,568
---------- -----------
Total liabilities 753,020 4,166,496
---------- -----------
Commitments and contingencies
Shareholders' equity:
Subscribed preferred stock 2,170,000 --
Common stock, par value $.001 per share, no shares authorized or
outstanding at September 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
September 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 September 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 (24,593,342) (10,928,136)
Treasury stock, at cost, 84,850 and no shares at September 30, 1999
and December 31, 1998, respectively. (49,460) --
---------- -----------
Total shareholders' equity 2,122,317 9,348,649
---------- -----------
Total liabilities and shareholders' equity $2,875,337 $13,515,145
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
Seal Holdings Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine months
Ended September 30, Ended September 30,
---------------------------- -----------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Net patient service revenue $ 1,668,901 $ 385,315 $ 5,530,591 $ 1,111,191
Premium revenue 330,433 331,537 890,963 737,699
Interest income 7,196 21,279 24,458 33,086
----------- ----------- ------------ -----------
Total revenues 2,006,530 738,131 6,446,012 1,881,976
----------- ----------- ------------ -----------
Expenses:
Salaries and benefits 3,754,775 1,885,784 10,884,857 3,798,339
Professional fees 689,213 377,747 2,278,642 1,356,232
Supplies 155,447 101,490 983,581 172,874
Rent 568,985 73,013 1,567,918 166,721
Other operating expenses 330,740 346,073 974,207 506,249
Depreciation 330,790 10,851 968,985 16,443
Selling, general and administrative
866,791 307,588 2,374,088 526,442
Provision for bad debts 24,748 18,932 670,996 124,001
Interest 303,575 2,776 578,059 5,615
----------- ----------- ------------ -----------
Total expenses 7,025,064 3,124,254 21,281,333 6,672,916
----------- ----------- ------------ -----------
Gain on disposal of OH, Inc. 1,170,115 -- 1,170,115 --
----------- ----------- ------------ -----------
Net loss $(3,848,419) $(2,386,123) $(13,665,206) $(4,790,940)
=========== =========== ============ ===========
Loss per common share:
Basic and diluted $(0.12) $(0.23) $(0.72) $(0.46)
=========== =========== ============ ===========
Weighted average shares outstanding
31,643,524 10,318,419 19,003,514 10,318,419
=========== =========== ============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<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 Paid-in Accumulated
Shares Value Shares Amount Capital Deficit
------ ----- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1998 1,000 $ 1 -- -- $20,276,784 ($10,928,136)
Contributed capital -- -- -- -- 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 --
Issuance of stock 10,318,419 2,063,684 2,000,000 2,000 20,811,101 --
Receipt of OH, Inc. common
stock (1,000) (1) -- -- (22,876,784) --
Exchange of preferred stock
for common stock 20,000,000 4,000,000 (2,000,000) (2,000) (3,998,000) --
Subscribed preferred stock -- -- 2,170,000 -- --
Net loss (unaudited) -- -- -- -- -- (13,665,206)
---------- ---------- --------- ---------- ----------- ------------
Balance at September 30, 1999
(unaudited) 31,726,744 $6,345,349 -- $2,170,000 $18,249,770 $(24,593,342)
========== ========== ========= ========== =========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Treasury
Stock Total
----- -----
<S> <C> <C>
Balance at
December 31, 1998 -- $ 9,348,649
Contributed capital -- 2,600,000
Seal Holdings Corporation
transaction: Acquisition of
existing common shares
net of costs of $115,500 (49,460) 1,668,874
Issuance of stock -- 22,876,785
Receipt of OH, Inc. common
stock -- (22,876,785)
Exchange of preferred stock
for common stock -- --
Subscribed preferred stock -- 2,170,000
Net loss (unaudited) -- (13,665,206)
-------- ------------
Balance at September 30, 1999
(unaudited) $(49,460) $ 2,122,317
======== ============
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
Seal Holdings Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months
Ended September 30,
-------------------------------
1999 1998
<S> <C> <C>
Operating activities:
Net loss $(13,665,206) $(4,790,940)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 968,985 16,443
Provision for bad debts 670,996 124,001
Gain on OHI Transaction (1,170,115) --
Changes in operating assets and liabilities:
Accounts receivable (664,434) (894,173)
Prepaid expenses and other current assets (147,500) (92,330)
Due from affiliates 1,101,782 (450)
Deposits (6,073) (117,299)
Other assets (635,243) (169,843)
Inventory 65,846 (53,179)
Accounts payable (1,051,102) (66,796)
Accrued compensation and related liabilities 139,718 401,039
Accrued professional fees (113,297) 359,805
Other liabilities 190,677 290,041
------------ -----------
Net cash used in operating activities (14,313,166) (4,993,681)
Investing activity:
Purchases of property and equipment (2,920,355) (1,050,705)
------------ -----------
Net cash used in investing activity (2,920,355) (1,050,705)
Financing activities:
Notes receivable from employees (3,185) (159,119)
Proceeds from loans 4,972,688 174,525
Proceeds from notes payable to affiliates 7,878,000 -
Payments on third party loans (90,313) (137,661)
Capital lease payments (880,568) -
Capital contributions 4,770,000 7,599,284
Net cash used in disposition/acquisition
transactions (478,924) -
------------ -----------
Cash provided by financing activities 16,167,698 7,477,029
------------ -----------
Net change in cash and cash equivalents (1,065,823) 1,432,643
Cash and cash equivalents at beginning of period 1,238,460 --
------------ -----------
Cash and cash equivalents at end of period $ 172,637 $ 1,432,643
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
1. The Company
Seal Holdings Corporation ("Seal" or the "Company") is a holding company focused
on the acquisition of companies providing services in health care and life
sciences (with particular interest in information technology companies with
Internet applications). The Company has not consummated any such acquisition to
date.
The Company holds a 6% interest in Camber Companies LLC, a company specializing
in multidisciplinary, musculoskeletal care.
Oakridge Transaction
Pursuant to an Agreement and Plan of Merger dated as of September 30, 1999, Seal
completed a transaction (the "Oakridge Transaction") pursuant to which its
wholly-owned subsidiary, OH, Inc. (a Florida corporation which, through its
subsidiaries, owns, operates and manages a comprehensive outpatient medical,
diagnostic and surgical facility and physician practice business located in Fort
Lauderdale, Florida (collectively with its subsidiaries, "OHI")), was acquired
by, and became a wholly-owned subsidiary of, Oakridge Outpatient Center, Inc.
("Oakridge"), a corporation beneficially owned by an investor group comprised of
certain members of OHI's management. OHI's business constituted the only active
business operations of the Company. The Company has no ownership interest in
Oakridge.
In the Oakridge Transaction, the Company received nominal cash consideration and
the assumption by the surviving company of all of OHI's liabilities. In
addition, the Company will receive 79% of certain adjusted litigation proceeds,
if any, that may arise in respect to certain claims which may be initiated by or
on behalf of OHI after September 30, 1999. As a result of the Oakridge
Transaction, Seal recorded a gain of $1,170,115, the amount of its negative
investment in OHI.
The following pro forma condensed summary reflects the consolidated results of
operations of the Company and includes adjustments necessary to reflect the
Oakridge Transaction as if the transaction had occurred on January 1, 1998. The
unaudited pro forma condensed summary presented herein is shown for illustrative
purposes only and is not necessarily indicative of the results of operations of
the Company that would have occurred had the transaction been in effect for the
periods presented.
8
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1999 (continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1999 1998
---- ----
<S> <C> <C>
Pro forma total revenue $ -- $ 332,000
Pro forma net loss $(1,883,000) $ (684,000)
Pro forma net loss per common share:
Basic and diluted $ (0.06) $ (0.02)
Pro forma weighted average shares outstanding* 31,616,894 31,616,894
* Earnings per share for the periods presented have been restated to
reflect the number of shares outstanding at September 30, 1999.
</TABLE>
Reverse Acquisition
Effective on April 2, 1999, Seal (which for periods prior to April 2, 1999 is
referred to herein as the "Acquiree") and OHI entered into an Agreement and Plan
of Exchange whereby 100% of the outstanding common stock of OHI 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 OHI (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 historical financial statements contained herein are those of OHI, 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 were
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.
9
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1999 (continued)
(Unaudited)
Company Losses and Cash Flow Deficiencies
Through September 30, 1999, the Company experienced significant net losses and
deficiencies in cash flows from its comprehensive outpatient center operations,
and, to a lesser extent, from its acquisition activities. During 1999, the
Company's primary shareholder and certain affiliates have funded the cash flow
deficiencies. As a result of the Oakridge Transaction, management believes that
the Company's losses will be materially reduced. Nevertheless, the Company
expects to continue to incur significant expenses as it carries out its
acquisition strategy. On September 30, 1999, Dr. M. Lee Pearce, the Company's
principal shareholder, agreed to provide Seal with funding of up to $10 million
which will be used to fund these expenses, operations and future acquisitions as
approved by the Board of Directors. In addition, 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
further 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 nine-month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. 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 OHI for the year ended December 31, 1998 included in the
Seal Holdings Corporation report on Form 8-K filed on April 16, 1999, as amended
on June 16, 1999, in connection with the reverse acquisition described in
Note 1.
10
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1999 (continued)
(Unaudited)
Income Taxes
Prior to the reverse acquisition described in Note 1, OHI, 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.
3. Earnings Per Share Data
Options were not included in the computation for the three and nine-month
periods ended September 30, 1999 and 1998 because their effect would have been
anti-dilutive.
4. Stock Options
The Company has 1,700,000 outstanding stock options at September 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
6.1 years. No options were issued during the nine months ended September 30,
1999.
At September 30, 1999, the Company had 4,700,000 shares of common stock reserved
for future issuance under its stock option plans.
11
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1999 (continued)
(Unaudited)
5. Investment in Camber Companies, LLC
In October 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 September 30, 1999, the Company's majority shareholder or his affiliates
had loaned OHI $7,878,000 in the form of demand notes bearing interest at the
rate of prime plus 3%. As a result of the Oakridge Transaction, the Company no
longer had any obligations with respect to these liabilities after September 30,
1999. Such loans had been for the purpose of funding OHI's negative cash flow
from operations.
7. Preferred Stock
The Certificate of Incorporation of the Company, as amended, authorizes the
issuance of 25,000,000 shares of Preferred Stock, $.001 par value. 2,500 of such
shares have been designated as Series B 10% Cumulative Preferred Stock, $.001
par value, (the "Series B Preferred Stock"). The Series B Preferred Stock is
nonvoting and nonconvertible and bears a dividend rate of 10% per annum on its
stated value of $1,000 per share.
Effective November 15, 1999, the majority shareholder agreed to subscribe for,
and the Company issued, 2,170 shares of the Series B Preferred Stock in exchange
for $2,170,000 of previously contributed funds to the Company.
8. Class B Common Stock
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.
12
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1999 (continued)
(Unaudited)
9. Related Party Transactions
One of the Company's directors is a principal in an investment banking firm
providing services to the Company. In connection with the Company's agreement
with the investment banking firm, the company has paid investment banking fees
of $250,000 and is obligated to issue 150,000 shares of Class A common stock for
the nine months ended September 30, 1999. The Agreement has an initial term
through December 31, 1999, and provides for an investment banking fee of
$150,000 for the fourth quarter of 1999 and the issuance of an additional
150,000 shares of the Company's Class A common stock. Additional placement fees
and share purchase rights may be earned by the investment banking firm upon the
occurrence of certain events, including certain future sales of securities by
the Company.
10. Commitments and Contingencies
As part of the regulatory compliance plan for OHI, an external audit of the
Medicare billing practices of OHI was initiated. A preliminary review indicated
that an overpayment may have been received from Medicare. OHI notified the
Medicare carrier of its ongoing audit and its intention to remit the amount of
any overpayment received. As a result of the Oakridge Transaction, the Company
no longer has any obligation with respect to this matter.
13
<PAGE>
Item 2. Management Discussion and Analysis of Financial Condition and Results of
Operations
GENERAL
In the discussion below (and elsewhere in this report) 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.
Business Strategy
Following the Oakridge Transaction, the Company is focusing its resources on
acquiring companies that provide services in health care and life sciences (with
particular interest in information technology companies with Internet
applications). The Company has established procedures and contacts to identify
and evaluate potential investment opportunities and has received and evaluated
numerous investment opportunities. The Company is currently in the early stages
of exploring several potential investment and acquisition opportunities. The
Company believes that the experience and background of its management team will
allow it to identify suitable investment opportunities. 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 support of its acquisition program, on September
30, 1999, Dr. M. Lee Pearce, the Company's principal shareholder, agreed to
provide Seal with funding of up to $10 million for future acquisitions and
operations as approved by the Board of Directors. The terms upon which Dr.
Pearce or one of his affiliates would provide such funding are subject to
negotiation and agreement by Dr. Pearce and the Company. Dr. Pearce owns
approximately 93% of the outstanding Class A common shares of Seal and 100% of
the outstanding Class B common shares of Seal, which elects a majority of the
Board of Directors.
The Company engaged Benedetto, Gartland & Company, an investment banking firm
based in New York, to assist in the identification, evaluation and financing of
any potential transactions. A director of the Company is a principal of such
firm. There can be no assurance that the Company will be able to identify,
attract, finance, or consummate any such transactions, or that if consummated,
that the Company will be able to successfully manage or profitably operate any
such acquired business.
14
<PAGE>
Any financing activities by the Company, including those with Dr. Pearce or his
affiliates, could result in substantial dilution of common shareholders and
increased interest expense. Transaction costs to the Company in connection with
any such activities may also be significant.
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.
Oakridge Transaction
The Company's strategy for OHI's business was that sophisticated outpatient
medical, diagnostic and surgical facilities would become the preferred delivery
model for a significant portion of healthcare. Although the Company still
believes in this concept, the start-up losses indicated a greater risk than the
Company was prepared to undertake. The start-up losses were significantly
greater than anticipated due to a variety of factors, including third party
actions adverse to OHI. Accordingly, after presentation to the Company of an
offer whereby an investor group comprised of certain members of OHI's management
would invest working capital in the Outpatient Facility business (in addition to
receiving certain supplemental loans directly from an affiliate of the Company's
principal shareholder), OHI was merged into a subsidiary of Oakridge for a
nominal payment and assumption by the surviving company of all liabilities of
OHI and its subsidiaries, together with a contingent interest in certain
potential litigation. For further information relating to the Oakridge
Transaction, including limitations on the Company's ability to participate in
any potential litigation recovery, please refer to the Company's form 8-K dated
September 30, 1999. At the September 30, 1999 date the Oakridge Transaction was
consummated, OHI's liabilities (consisting primarily of notes payable to
affiliates, notes payable to third parties, capital and operating lease
obligations, and accounts payable) exceeded its assets by $1.2 million. In
addition, OHI's net loss for the quarter ended September 30, 1999 was $4.0
million, with continued significant losses expected for the foreseeable future.
OHI's business constituted the only active business operations of the Company.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. SEPTEMBER 30, 1998
Results of Operations
Increases in net patient service revenue for the three and nine month periods
ended September 30, 1999 as compared with similar periods in the prior year are
due to the December 1998 opening of the Outpatient Facility in Fort Lauderdale,
Florida. This Outpatient Facility accounted for $1.1 million of the $1.28
million increase and $3.0 million of the $4.4 million increase in revenue for
the three and nine month periods ended September 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.
15
<PAGE>
Operating expenses (i.e., all expenses except interest and professional fees)
increased significantly during the three and nine month periods ended September
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.
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 relating to its former OHI operations. The increase in
professional fees is primarily due to increased legal and investment banking
fees as compared with the 1998 periods. The increased legal and investment
banking 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, the Oakridge
Transaction, 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 and the Oakridge Merger Transaction.
Liquidity and Capital Resources
During the nine months ended September 30, 1999, the Company's net cash used in
operating activities was $14.3 million, and purchases of
property and equipment were $2.9 million. Funding was provided
through loan proceeds from third parties, loans from affiliates, and capital
contributions. For the nine month period ended September 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 and third quarters
of 1999, the majority shareholder, directly or through his affiliates, advanced
OHI a total of $7.9 million pursuant to demand notes and contributed $2.1
million to Seal for 2,170 shares of the Company's Series B Preferred Stock, as
described in Note 7 to the Condensed Consolidated financial statements.
Following the Oakridge Transaction, the Company has a non-controlling equity
investment in Camber, has significantly reduced its operating expenses, but has
no source of operating revenue. Consequently, the Company is dependent upon
funding from Dr. Pearce or one of his affiliates in order to continue operations
in the near term. On September 30, 1999, the Company's principal shareholder
agreed to provide Seal with funding of up to $10 million for future acquisitions
and operations as approved by the Board of Directors. The Company anticipates
that such funding will be sufficient to meet its reduced operating expenses
following the Oakridge Transaction. For further discussion of the Company's
financing needs, business strategy, and such commitment, please see the
discussion under "General Business Strategy" in Item 2 above.
IMPACT OF "YEAR 2000" ISSUE
The Company has completed its evaluation of the likely impact of the Year 2000
Issue ("Y2K"). Due to the limited nature of the Company's operations following
the Oakridge Transaction, management believes that Y2K will not have a material
adverse effect on the Company's business, results of operations, or financial
condition.
16
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Effective November 15, 1999, the Company issued 2,170 shares of Series B
Preferred Stock in exchange for $2,170,000 of previously contributed funds to
the Company by the majority shareholder in the quarter ended September 30, 1999.
The Series B Preferred Stock is nonvoting and nonconvertible and bears a
dividend rate of 10% per annum on its stated value of $1,000 per share.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
4. Certificate of Designation, Preferences, Rights and Limitations of 10%
Cumulative Non-Voting Series B Preferred Stock of Seal Holding
Corporation.
27. Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K dated September 30, 1999, announcing that on September 30, 1999, Seal
completed a transaction (the "Oakridge Transaction") pursuant to which its
wholly-owned subsidiary, OHI, was acquired by, and became a wholly-owned
subsidiary of Oakridge.
17
<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: November 15, 1999
18
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES, RIGHTS
AND LIMITATIONS OF 10% CUMULATIVE NON-VOTING SERIES B
PREFERRED STOCK
OF
SEAL HOLDINGS CORPORATION
Seal Holdings Corporation, a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify:
That, pursuant to the authority conferred upon the Board of
Directors of the Corporation ("Board of Directors") by the Certificate of
Incorporation of the Corporation, as amended (the "Certificate"), and pursuant
to the provisions of the Delaware General Corporation Law, said Board of
Directors, on November 12, 1999, duly adopted a resolution providing for the
issuance of one series, aggregating up to two thousand five hundred (2,500)
shares, of 10% Cumulative Non-Voting Series B Preferred Stock, par value $.001
per share, which resolution is as follows:
RESOLVED, that the Board of Directors hereby creates, from the
authorized but unissued shares of preferred stock, par value $.001 per share, of
the Corporation (hereinafter the "Preferred Stock"), a series of Preferred Stock
to consist of two thousand five hundred (2,500) shares which shall be offered
for purchase at a price of One Thousand Dollars ($1,000.00) per share, and
hereby fixes the voting powers, designation, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, of the shares of such series, in addition
to those set forth in the Certificate, as follows:
(a) Designation. The designation of the series of stock
created by this resolution shall be "Series B 10% Cumulative Preferred Stock"
(the "Series B Preferred Stock") and the number of shares constituting the
Series B Preferred Stock shall be two thousand five hundred (2,500) shares.
(b) Dividends.
(1) The annual rate of dividends on shares of the
Series B Preferred Stock shall be $100.00 per share (the "Dividend
Rate"), which is 10% of the $1,000.00 stated value ("Stated Value") of
a share of Series B Preferred Stock. Such dividends shall be payable in
cash or in kind (in a form and value acceptable to the holders of the
Series B Preferred Stock) in equal quarterly payments (as nearly as
reasonably may be possible) for each full quarterly dividend period.
Dividends payable on the Series B Preferred Stock for any period more
than or less than a full quarterly dividend period shall be computed on
the basis of a 360-day year consisting of twelve 30-day months.
Dividends shall begin to accrue on shares of the Series B Preferred
Stock commencing on the earlier of the day of issuance of the shares in
question and the date upon which payment for such shares was reflected
on the Corporation's books, and shall be payable, out of funds legally
available for the payment of dividends, when, as and if declared by
<PAGE>
the Board of Directors, on March 31, June 30, September 30 and December
31 of each year (each such date being called a "Dividend Payment Date")
with respect to the period ending on the day immediately preceding the
Dividend Payment Date, commencing on the first such date after the date
dividends begin to accrue. Each such dividend shall be paid to the
holders of record of shares of the Series B Preferred Stock as they
appear in the stock records of the Corporation on the close of business
on the date specified by the Board of Directors of the Corporation at
the time such dividend is declared; provided, however, that such date
shall not be more than 30 nor less than 10 days preceding the payment
date thereof. Accumulated but unpaid dividends for any past quarterly
dividend periods shall be cumulative and shall be added to the stated
value for purposes of subsequent quarterly dividend calculations.
Accumulated but unpaid dividends may be declared and paid at any time,
without reference to any regular Dividend Payment Date, to holders of
record on the close of business on the date specified by the Board of
Directors at the time such dividend is declared; provided, however,
that such date shall not be more than 30 nor less than 10 days
preceding the payment date thereof.
(2) So long as any shares of the Series B Preferred
Stock are outstanding, no dividends or distributions shall, for any
period, be declared, paid or set apart for payment or other
distribution on the Preferred Stock of any class or series ranking, as
to dividends, junior to the Series B Preferred Stock, and no such
Preferred Stock of any such class or series ranking, as to dividends,
junior to the Series B Preferred Stock shall be redeemed, purchased or
otherwise acquired by the Corporation for any consideration (except by
conversion into or exchange for capital stock of the Corporation
ranking junior to the Series B Preferred Stock as to dividends and
liquidation rights or in connection with the "cashless" exercise of any
option to acquire Common Stock) unless either: (i) full cumulative
dividends have been or contemporaneously are declared and paid in cash
or in kind, in a form and value acceptable to the holders of the Series
B Preferred Stock, (or declared and a cash sum or in kind amount, in a
form and value acceptable tot he holders of the Series B Preferred
Stock, sufficient for the payment thereof set apart for such payment),
on the Series B Preferred Stock for dividend payment periods
terminating on or prior to the date of payment of such dividends or
(ii) the holders of at least eighty percent (80%) in number of the then
issued and outstanding shares of Series B Preferred Stock approve such
dividend, distribution, redemption, repurchase or other acquisition.
When dividends are not paid in full upon the shares of the Series B
Preferred Stock, all dividends declared upon shares of the Series B
Preferred Stock shall be declared pro rata so that the amount of
dividends declared per share on the Series B Preferred Stock shall in
all cases bear to each other the same ratio that stated dividends per
share on the shares of the Series B Preferred Stock bear to each other.
Except as provided in the preceding sentence, unless full cumulative
dividends have been paid (or declared and a cash sum or in kind amount,
in a form and value acceptable tot he holders of the Series B Preferred
Stock, sufficient for the payment thereof set apart for such payment)
on the Series B Preferred Stock for all dividend payment periods
terminating on or prior to the date of payment of such dividends, so
long as any shares of Series B Preferred Stock are outstanding, no
dividends or distributions (other than a dividend or distribution in
the form of Common Stock or any other capital stock of the
2
<PAGE>
Corporation ranking junior to the Series B Preferred Stock as to
dividends and liquidation rights) shall be declared or paid or set
apart for payment or other distribution made upon the Common Stock of
the Corporation or any other stock of the Corporation ranking junior to
the Series B Preferred Stock as to dividends or liquidation rights, and
no Common Stock or any other capital stock of the Corporation ranking
junior to the Series B Preferred Stock as to dividends or liquidation
rights shall be redeemed, purchased or otherwise acquired by the
Corporation for any consideration (except by conversion into or
exchange for capital stock of the Corporation ranking junior to the
Series B Preferred Stock as to dividends and liquidation rights or in
connection with the "cashless" exercise of any option to acquire Common
Stock). "Common Stock", as used herein, shall mean shares of any class
of the Corporation's capital stock which is not preferred and limited
as to dividends, including without limitation, the Corporation's Class
A Common Stock, and Class B Common Stock ($.20 par value). The
foregoing restriction on redemption, purchase or acquisition of Common
Stock or any other capital stock of the Corporation ranking junior to
or on a parity with the Series B Preferred Stock shall be inapplicable
to (a) any payments in lieu of issuance of fractional shares thereof
whether upon any merger, conversion, stock dividend or otherwise; (b)
the acquisition of any shares of Common Stock or other capital stock of
the Corporation in connection with the settlement of disputes arising
out of acquisitions by the Corporation pursuant to which such stock was
issued; and (c) the rescission of any acquisition or disposition by the
Corporation pursuant to which such stock was issued. Holders of shares
of the Series B Preferred Stock shall not be entitled to any dividend
in excess of full cumulative dividends, as herein provided, on the
Series B Preferred Stock.
(3) Notwithstanding the foregoing provisions of this
Paragraph (b), dividends on the Series B Preferred Stock may not be
declared, paid or set apart if (i) the Corporation is insolvent or
would be rendered insolvent thereby, or (ii) at such time as the terms
and provisions of any law or agreement of the Corporation, including
any agreement relating to its indebtedness, specifically prohibits such
declaration, payment or setting apart for payment or provides that such
declaration, payment or setting apart for payment would constitute a
violation or breach thereof or a default thereunder; provided, however,
that nothing herein contained shall in any way or under any
circumstance be construed or deemed to require the Board of Directors
to declare or the Corporation to pay or set apart for payment any
dividends on shares of the Series B Preferred Stock at any time except
to the extent expressly required hereunder, whether permitted by any of
such agreements or not.
(c) Voting Rights. The holders of the Series B Preferred Stock
shall have no voting rights with regard to shares of the Series B Preferred
Stock, other than those voting rights otherwise provided herein and voting
rights provided under applicable laws.
3
<PAGE>
(d) Liquidation Rights.
(1) Subject to the rights of creditors, upon the
dissolution, liquidation or winding up of the Corporation, the holders
of shares of the Series B Preferred Stock shall be entitled to receive
and to be paid out of the assets of the Corporation available for
distribution to its stockholders, before any payment or distribution
shall be made on any class or series of Common Stock or any series of
Preferred Stock which ranks junior to the Series B Preferred Stock in
respect of dividend rights or on dissolution, liquidation or winding up
of the Corporation, an amount in cash or in kind, in a form and value
acceptable to the holders of the Series B Preferred Stock, equal to the
Stated Value of the Series B Preferred Stock plus all accrued but
unpaid dividends thereon to the date of final distribution.
(2) None of (A) the sale, transfer or lease of all or
substantially all the property or business of the Corporation, (B) the
merger or consolidation of the Corporation into or with any other
corporation, (C) the merger or consolidation of any other corporation
into or with the Corporation, or (D) any dissolution, liquidation,
winding up or reorganization of the Corporation immediately followed,
in the case of this clause (D), by another corporation succeeding to
the business and obligations of the Corporation, shall in and of itself
be deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this Paragraph (e).
(3) After the payment to the holders of shares of the
Series B Preferred Stock of the full preferential amounts provided for
in this Paragraph (e), the holders of the Series B Preferred Stock as
such shall have no right or claim to any of the remaining assets of the
Corporation.
(4) In the event the assets of the Corporation
available for distribution to the holders of shares of the Series B
Preferred Stock upon any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, shall be insufficient to
pay in full all amounts to which such holders are entitled pursuant to
this Paragraph (e), no such distribution shall be made on account of
any shares of any other class or series of capital stock of the
Corporation ranking on a parity with the shares of the Series B
Preferred Stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of each
share of the Series B Preferred Stock, ratably, in proportion to the
full distributable amounts for which holders of all such parity shares,
including other shares of Series B Preferred Stock, are respectively
entitled upon such dissolution, liquidation or winding up.
(e) Ranking. For purposes of this resolution, any capital
stock of any class or series of the Corporation shall be deemed to rank junior
to shares of the Series B Preferred Stock, both as to dividends and upon
liquidation, unless the express terms of such class or series of capital stock
specify that such stock is on parity with the Series B Preferred Stock or unless
4
<PAGE>
otherwise approved of in writing by eighty percent (80%) in number of the shares
of the Series B Preferred Stock then issued and outstanding, voting separately
as a class.
(f) Consent of Preferred Stockholders Required. So long as any
shares of the Series B Preferred Stock remain outstanding, the Corporation shall
not, without obtaining the prior written consent of the holders of at least
eighty percent (80%) in number of the shares of the Series B Preferred Stock
then issued and outstanding, voting separately as a class, (i) adopt any
amendment or supplement to its Certificate which would alter or change the
powers, preferences or special rights of the Series B Preferred Stock so as to
affect them adversely or (ii) create, authorize or issue any other class or
series of capital stock of the Corporation, the terms of which shall
specifically provide that such class or series shall rank senior to the Series B
Preferred Stock in respect to dividend rights or rights upon dissolution,
liquidation or winding up of the Corporation; provided, however, that, the prior
clause notwithstanding, the Corporation may issue, without the consent of the
holders of the Series B Preferred Stock, other series of Preferred Stock which
rank on a parity with or junior to the Series B Preferred Stock in respect to
dividend rights and on dissolution, liquidation or winding up of the
Corporation.
(g) Payments Due on Saturday, Sunday or Legal Holidays. In
case a Dividend Payment Date for the Series B Preferred Stock shall be a
Saturday or Sunday, the payment of any dividend on the Series B Preferred Stock
need not be made on such date, but may be made on the next succeeding business
day not a Saturday or Sunday, with the same force and effect as if made on such
Dividend Payment Date.
(h) No other Rights. The shares of the Series B Preferred
Stock shall not have any relative, participating, optional or other special
rights and powers other than as set forth above in this Certificate of
Designation or in the Certificate of this Corporation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
IN WITNESS WHEREOF, SEAL HOLDINGS CORPORATION, has caused its
corporate seal to be hereunto affixed and this Certificate of Designation to be
signed by its Secretary and Treasurer this 15th day of November, 1999.
SEAL HOLDINGS CORPORATION
By: /s/ Cecilio M. Rodriguez
---------------------------------------------
Cecilio M. Rodriguez, Secretary and Treasurer
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