UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------
FORM 10-QSB
[x] Quarterly Report Under to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 2000
[] Transition Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
-------------------------
Commission file number 0-5667
SEAL HOLDINGS CORPORATION
(Exact name of small business issuer 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
(Address of principal executive offices)
(954) 771-1772
(Registrant'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 past 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 $0.20 per share, 32,838,347 shares
outstanding as of April 30, 2000
Class B Common Stock, par value $0.20 per share, 25,000 shares
outstanding as of April 30, 2000
Transitional Small Business Disclosure Format (check one): Yes ( ) No (X)
<PAGE>
2
SEAL HOLDINGS CORPORATION AND SUBSIDIARIES
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page Number
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<S> <C>
PART I. FINANCIAL INFORMATION...........................................................................3
Item 1. Financial Statements............................................................................3
Consolidated Balance Sheets - March 31, 2000 (unaudited) and December 31, 1999..................3
Consolidated Statements of Operations - Three Months Ended March 31, 2000 and 1999
(unaudited)..................................................................................5
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999
(unaudited)..................................................................................6
Notes to Consolidated Financial Statements......................................................7
Item 2. Management's Discussion and Analysis or Plan of Operation......................................14
PART II. OTHER INFORMATION..............................................................................20
Item 2. Changes in Securities..........................................................................20
Item 6. Exhibits and Reports on Form 8-K...............................................................21
SIGNATURE........................................................................................................22
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2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
<TABLE>
<CAPTION>
Seal Holdings Corporation and Subsidiaries
Consolidated Balance Sheets - March 31, 2000 (unaudited) and December 31, 1999
March 31, December 31,
2000 1999
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash $ 23,594 $ 462,802
Prepaid expenses and other current assets 106,691 47,878
---------- ----------
Total current assets 130,285 510,680
Property and equipment, net 160,817 169,198
Investment in Camber Companies, LLC 1,845,245 1,845,245
Investment in Healthology, Inc. 3,516,870 --
Other assets 3,716 8,852
---------- ----------
Total assets $5,656,933 $2,533,975
========== ==========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
Seal Holdings Corporation and Subsidiaries
Consolidated Balance Sheets
(continued)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' equity:
Current liabilities:
Accounts payable $ 77,535 $ 111,222
Accrued professional fees 334,233 162,225
Accrued compensation and related liabilities 372,210 290,794
Note payable 48,436 --
Other liabilities 52,602 15,000
------------ ------------
Total current liabilities 885,016 579,241
Commitments and contingencies
Shareholders' equity:
Subscribed Class A common stock 4,050,000 550,000
Preferred stock, $0.001 par value per share. Authorized 25,000,000
shares. Issued and outstanding 2,170 shares at March 31, 2000 and
December 31, 1999. 2,170,000 2,170,000
Class A common stock, $0.20 par value per share. Authorized
99,975,000 shares. Issued 32.151.769 amd 32.001,769 shares, and
outstanding 32,066,919 and 31,916,919 shares, at March 31, 2000
and December 31, 1999, respectively. 6,430,354 6,400,354
Class B common stock, $0.20 par value per share. Authorized, issued
and outstanding 25,000 shares at March 31, 2000 and December 31,
1999. 5,000 5,000
Additional paid-in capital 18,249,770 18,249,770
Accumulated deficit (26,083,747) (25,370,930)
Treasury stock, at cost, 84,850 shares at March 31, 2000 and
December 31, 1999 (49,460) (49,460)
------------ ------------
Total shareholders' equity 4,771,917 1,954,734
------------ ------------
Total liabilities and shareholders' equity $ 5,656,933 $ 2,533,975
============ ============
</TABLE>
4
<PAGE>
Seal Holdings Corporation and Subsidiaries
Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999 (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
2000 1999
<S> <C> <C>
Revenue
Interest Income $ 1,194 $ -
-------------------------------------
1,194 -
-------------------------------------
Expenses:
Salaries and benefits 349,494 -
Professional fees 264,458 -
General and administrative 100,059 -
-------------------------------------
Total expenses 714,011 -
-------------------------------------
Loss from continuing operations (712,817) -
Loss from discontinued operations - (4,338,140)
-------------------------------------
Net loss $ (712,817) $ (4,338,140)
=====================================
Net loss attributable to common stockholders $ (767,067) $ (4,338,140)
=====================================
Basic and diluted loss per share:
Loss from continuing operations $ (0.02) $ -
Loss from discontinued operations - (3.44)
-------------------------------------
Net loss $ (0.02) $ (3.44)
=====================================
Basic and diluted shares outstanding $ 32,066,919 1,260,808
=====================================
</TABLE>
5
<PAGE>
Seal Holdings Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 (unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------------------------
2000 1999
<S> <C> <C>
Operating activities
Net loss $ (712,817) $(4,338,140)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 8,381 -
Issuance of stock for services 30,000 -
Net loss from discontinued operations - 4,338,140
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (58,813) -
Other assets 5,136 -
Accounts payable (33,687) -
Accrued compensation and related liabilities 81,416 -
Accrued professional fees 172,008 -
Other liabilities 37,602 -
---------------------------------------
Net cash used in operating activities (470,774) -
Investing activity
Investment in Healthology, Inc. (3,516,870) -
---------------------------------------
Net cash used in investing activity (3,516,870) -
Financing activities
Proceeds from short-term note 48,436 -
Subscribed Class A common stock 3,500,000 -
---------------------------------------
Net cash provided by financing activities 3,548,436 -
Discontinued operations:
Operating activities - (5,678,895)
Investing activities - (1,242,767)
Financing activities - 6,921,662
---------------------------------------
Net cash used by discontinued operations - -
Net change in cash (439,208) -
Cash at beginning of period 462,802 -
---------------------------------------
Cash at end of period $ 23,594 $ -
=======================================
</TABLE>
6
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2000
(Unaudited)
1. The Company
Seal Holdings Corporation ("Seal" or the "Company") is a holding company whose
operating strategy is to acquire or make strategic investments in companies
(referred to herein as "Partner Companies") that provide services in healthcare
and life sciences, with particular interest in information technology companies
with Internet applications.
On February 28, 2000, the Company's Board of Directors approved, and will
recommend at the next Annual Meeting of Shareholders, that Seal Holdings
Corporation change its name to Le@P Technology, Inc.
During March 2000, the Company purchased an approximate 21% interest in
Healthology, Inc. ("Healthology"), a privately-held, online media company. See
Note 3, "Healthology Acquisition."
The Company also has an approximate 6% interest in Camber Companies, LLC
("Camber"), a company specializing in multidisciplinary, musculoskeletal care.
Discontinued Operations
On September 30, 1999, the Company's wholly-owned subsidiary, OH, Inc. ("OHI")
was acquired by a third party. The activities of OHI constituted the only active
business of the Company during 1999. The activities of OHI prior to October 1,
1999 are shown as discontinued operations in the accompanying consolidated
financial statements. Revenue from discontinued operations was $1,878,000 for
the three-month period ended March 31, 1999 and is included as part of the loss
from discontinued operations in the accompanying consolidated statement of
operations.
Operating Losses and Cash Flow Deficiencies
The Company has incurred losses and will continue to require additional funding
as it carries out its acquisition strategy. Until such time as the Company's
operations generate positive cash flow, or another source of funding is
established, the Company will remain dependent upon external sources of capital.
7
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2000
(Unaudited)
On September 30, 1999, the Company's Chairman and majority stockholder agreed to
provide Seal, directly or through his affiliates (collectively, the "Majority
Stockholder"), funding of up to $10,000,000 to be used to fund working capital
requirements and future acquisitions, as approved by the Company's Board of
Directors (the "Funding Commitment"). See Note 4, "Funding Commitment." Through
March 31, 2000, the Company had received $4,050,000 of the Funding Commitment.
Management is considering alternatives to enable the Company to continue meeting
its current and projected cash requirements, or will attempt to further reduce
those requirements to a manageable level.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying 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 Item 310(b) 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, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
The balance sheet at December 31, 1999 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 annual report on
Form 10-KSB for the year ended December 31, 1999.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been
reclassified in accordance with generally accepted accounting principles to
conform to the current year presentation.
8
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2000
(Unaudited)
Consolidation
The accompanying financial statements include the accounts of Seal Holdings
Corporation and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation. Investments in
Partner Companies in which Seal owns 50% or less of the outstanding voting
securities, and in which significant influence is exercised, are accounted for
under the equity method. Significant influence is presumed at a 20% ownership
level; however, in the future, Seal may apply the equity method for certain
investments in which it acquires less than 20% of the voting interest if it then
exerts significant influence through representation on a Partner Company's Board
of Directors and other means. All other investments for which the Company does
not have the ability to exercise significant influence are accounted for on the
cost method. Such investments are stated at the lower of cost or net realizable
value. The Company accounts for its investment in Healthology under the equity
method and its investment in Camber under the cost method.
Partner Company Investments
Under the equity method, the Company's proportionate share of Partner Company
net income or loss is included in the Company's Consolidated Statements of
Operations. The amount by which the Company's carrying value exceeds its share
of the underlying net assets of a Partner Company accounted for under the equity
method is amortized on a straight-line basis over five years as an adjustment to
the Company's share of the Partner Company's net income or loss.
The Company periodically evaluates investments in Partner Companies for
indications of impairment based on one or more factors, such as the market value
of each investment relative to cost, financial condition, near-term prospects of
the investment, and other relevant factors. The fair value of the Company's
ownership interests in privately held Partner Companies, if available, is
generally determined based on the value at which independent third parties have
or have committed to invest in its Partner Companies.
Pursuant to SEC Staff Accounting Bulletin No. 84, at the time a Partner Company
accounted for under the equity method of accounting sells its common stock at a
price different from the Partner Company's book value per share, the Company's
share of the Partner Company's net equity changes. If, at that time, the Partner
Company is not a newly-formed, non-operating entity, nor a research and
development, start-up or development stage company, nor is there question as to
its ability to continue in existence, the Company will record the change in its
share of the Partner Company's net equity as a gain or loss in its Consolidated
Statement of Operations.
9
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2000
(Unaudited)
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 that have
resulted from its operating losses.
3. Healthology Acquisition
On March 27, 2000, the Company completed the purchase of an approximate 21%
interest in the issued shares of Healthology, and an interest of approximately
19% on a fully diluted basis (such interests have been computed on an
as-converted basis). Healthology is a privately-held, online health media
company based in New York, NY that produces and distributes original content
generated by health professionals.
The Company purchased a total of approximately 3.2 million shares of Healthology
Series A Convertible Voting Preferred Stock ("Healthology Preferred Shares") for
cash of approximately $3.2 million. Of the shares purchased, 5% were transferred
to the Company's investment banking firm as partial consideration for investment
banking services provided in connection with the Healthology acquisition. The
Company retained voting control over all such transferred shares. See discussion
below regarding the "Investment Banking Firm". The total cost of the Healthology
Preferred Shares retained was approximately $3.5 million, including capitalized
transaction costs. The Company obtained the funds for the Healthology
acquisition through a capital contribution from its majority stockholder
pursuant to the Funding Commitment as described in Note 4 herein.
Following the Healthology acquisition, Healthology's Board of Directors includes
two representatives selected by the Company. The Preferred Shares are
convertible at any time, at the option of the Company, into shares of common
stock of Healthology, initially on a one for one basis, subject to adjustment
under certain circumstances. The Preferred Shares are automatically convertible
into common stock of Healthology upon the consummation by Healthology of a
public offering of its common stock.
10
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2000
(Unaudited)
Presented below is unaudited selected pro forma financial information for the
three-month periods ended March 31, 2000 and 1999 as if the acquisition of
Healthology had occurred at the beginning of each period. The unaudited pro
forma financial information is provided for informational purposes only and
should not be construed to be indicative of the Company's consolidated results
of operations had the acquisitions been consummated on the dates assumed and do
not project the Company's results of operations for any future period:
<TABLE>
<CAPTION>
Three-Month Period Ended March 31,
------------------------------------
Pro-Forma: 2000 1999
<S> <C> <C>
Net revenues $ - $ -
------------------------------------
Loss from continuing operations $ (968,918) $ (171,852)
------------------------------------
Net loss $ (968,918) $ (4,509,992)
------------------------------------
Basic and diluted loss per share $ (0.03) $ (3.58)
------------------------------------
Presented below is unaudited selected financial information for Healthology for
the three-month periods ended March 31, 2000 and 1999.
Three-Month Period Ended March 31,
------------------------------------
Healthology, Inc.: 2000 1999
Net revenues $ 194,346 $ 49,781
------------------------------------
Gross profit (loss) $ (115,702) $ 448
------------------------------------
Net loss $ (529,398) $ (132,747)
------------------------------------
</TABLE>
11
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2000
(Unaudited)
At March 31, 2000, the carrying value of the Company's investment in Healthology
exceeded the Company's equity in the underlying net assets of Healthology by
approximately $2.9 million. Pursuant to the equity method of accounting,
beginning in the second quarter of 2000, the Company's consolidated results of
operations will include its proportionate share of Healthology's net income or
loss and amortization of the Company's net excess investment over its equity in
Healthology.
A Company director is a principal in an investment-banking firm that has
provided services to the Company (the "Investment Banking Firm"), including
services relating to the Healthology acquisition. During the three-month period
ended March 31, 2000, the Company paid fees of $150,000 and issued 150,000
shares of the Company's Class A Common Stock to the Investment Banking Firm. The
majority of these costs, as well as the cost of the Healthology Preferred Shares
transferred to the Investment Banking Firm described above, were capitalized as
part of the cost basis of the investment in Healthology. The agreement with the
Investment Banking Firm expired by its terms on March 31, 2000. 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 and when the Company makes investments which are
facilitated by or require the assistance of the Investment Banking Firm.
4. Funding Commitment
In connection with the Funding Commitment, through March 31, 2000, the Majority
Stockholder contributed $4,050,000 to the Company. Of this amount, approximately
$3,500,000 was to fund the investment in Healthology and related transaction
expenses, and $550,000 was to fund operating expenses. In consideration of this
contribution, the Company and the Majority Stockholder agreed that the Company
would issue 771,428 shares of the Company's Class A Common Stock at a purchase
price of $5.25 per share. This capital contribution is reflected on the
Company's Consolidated Balance Sheet under the caption "Subscribed Class A
common stock." The shares were issued to the Majority Stockholder during April
2000.
12
<PAGE>
Seal Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2000
(Unaudited)
As of March 31, 2000, an additional $5,950,000 (the "Additional Funds") was
available to the Company pursuant to the Funding Commitment. The Board of
Directors of the Company and the Majority Stockholder further agreed on March
30, 2000 that such Additional Funds will represent a subscription for additional
shares of the Company's Class A Common Stock at $5.25 per share (an aggregate of
1,133,333 shares when $5,950,000 is contributed). Accordingly, the Company
intends to issue to the Majority Stockholder a warrant/subscription agreement to
purchase up to an additional 1,133,333 shares of Class A Common Stock at a
purchase price of $5.25 per share.
Subsequent to March 31, 2000, through April 30, 2000, $450,000 of the Additional
Funds was received by the Company to fund operating expenses.
5. Contingencies
The Company is involved in litigation relating to the offshore supply business
conducted prior to August 14, 1996 by certain inactive subsidiaries of Seal. The
cases are maritime asbestos claims against the Company's subsidiaries. On May 1,
1996, the asbestos claims were administratively dismissed subject to
reinstatement on motion of plaintiff's counsel. It is expected that all of these
cases will be reinstated in the future. The Company is presently unable to
determine what, if any, impact these cases could have upon the Company.
6. Loss Per Share
During the three-month period ended March 31, 2000, the Company granted 1.2
million options to employees pursuant to its 1999 Long-Term Incentive Plan.
Options were not included in the computation of loss per share for the
three-month periods ended March 31, 2000 and 1999 because their effect would
have been anti-dilutive.
The net loss attributable to common stockholders from continuing operations and
from discontinued operations for the three-month period ended March 31, 2000
includes undeclared dividends on cumulative preferred stock of $54,250. There
were no such dividends for the three-month period ended March 31, 1999.
As described in Note 4 herein, during April 2000, an additional 771,428 shares
of Class A common stock were issued pertaining to a subscription for such shares
as of March 31, 2000.
13
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Business Strategy
Seal Holdings Corporation ("Seal" or the "Company") seeks to expand its
participation in Internet, business-to-business ("B2B") e-commerce, while
maintaining a focus on the healthcare industry. Seal's operating strategy is to
acquire or make strategic investments in companies that provide services in
healthcare and life sciences, with particular interest in information technology
companies with Internet applications. The Company intends to utilize the
substantial healthcare skills, experience and industry contacts of its
management and Board of Directors in the development of a network of investment
and acquisition candidates (referred to herein as "Partner Companies"). Seal
further intends to foster innovation and growth among its Partner Companies by
providing the opportunity for the exchange of ideas among those companies and
encouraging collaborative ventures among them.
Although the Company's focus is on Internet and B2B e-commerce companies, the
Company may also consider acquisitions of, or investments in, non-Internet
companies, primarily in healthcare related fields.
Partner Company Strategy
The Company is aggressively pursuing acquisitions and investments in Internet
and B2B e-commerce companies, with a focus on the healthcare industry.
Typically, the Company receives business plans from early stage companies
seeking equity financing. Information received is evaluated to determine if the
potential Partner Company's business is within Seal's investment parameters. The
Company will generally consider investment in Partner Companies with a clearly
defined product or service, experienced and financially committed management,
and some operational history.
The Company uses an informal network of business contacts, media coverage, and
attendance at industry and venture conferences to identify suitable Partner
Company prospects. Seal believes that the healthcare industry knowledge of its
management and Board provide a competitive advantage in the evaluation of
investment targets. The Company also believes that potential Partner Companies
will look favorably on Seal's healthcare experience when deciding among
investors.
14
<PAGE>
Healthology Acquisition
Seal's first Internet, B2B investment was completed in March 2000, with the
purchase of a 21% interest in Healthology, Inc. ("Healthology"), a privately
held, on-line health media company. Seal purchased approximately 3.2 million
shares of the Series A Convertible Voting Preferred Stock ("Healthology
Preferred Stock") of Healthology (the "Healthology Transaction") for $3.2
million in cash, representing an approximate 21% interest in the issued shares
of Healthology, and an interest of approximately 19% on a fully diluted basis.
Healthology produces and distributes original Internet content generated by
health professionals. Healthology's content is in-depth, topic-focused and
event-driven and is delivered in various formats, including text articles and
live audio/video webcast programs (streaming media). Healthology delivers its
proprietary content to consumers on the Internet via the web sites of various
distribution partners and portal customers, as well as websites it has
developed.
Pursuant to the terms of the Healthology Transaction, Healthology's Board of
Directors currently includes two representatives selected by Seal, and the
shares of Healthology Preferred Stock have certain super-majority voting rights
for the election of directors. The Company is entitled to voting rights equal to
the number of shares of Healthology common stock as will guarantee that the
Company, solely for the purposes of electing directors, has no less than 26% of
the voting power of the outstanding capital stock of Healthology and will be the
single largest such voting stockholder, unless certain events occur (the
"Super-Voting Right").
Additionally, in connection with the Healthology Transaction, the Company has
been granted certain anti-dilution rights, registration rights, tag-along rights
and preemptive rights, and is subject to certain drag-along rights.
For further discussion of the Healthology Transaction, please refer to Note 3 of
the Company's March 31, 2000 financial statements included in Part I, Item 1 of
this Form 10-QSB and to the Company's Form 8-K dated March 1, 2000.
Company Liquidity and Cash Requirements
Due to the nature of the Company's Partner Company investments, no positive
operating cash flows are expected to be realized in the foreseeable future.
Generally, successful Internet start-ups have employed a strategy of rapidly
building infrastructure and introducing products and services in advance of firm
commitments for sales. This strategy is being widely followed as new and
existing firms strive to establish market penetration in anticipation of
significant opportunities for future revenue growth.
15
<PAGE>
It is expected that Partner Companies, including Seal's first such Partner
Company, Healthology, will require one or more rounds of additional equity
capital before they can be expected to generate positive cash flow. The
Company's investment evaluations anticipate such additional rounds of future
financing, at successively higher valuations, such that while the Company's
ownership interest may decline, the value of its interest may increase based on
the amount paid by later stage investors. The Company believes that it could
realize such higher value through the sale of the Partner Company to a larger
competitor, through the sale of some or all of its interest after an initial
public offering by a Partner Company, or by selling some or all of its interest
to venture capital or other firms. There can be no assurance, however, that the
Partner Companies will successfully execute their business plans, or that, if
successful, a suitable buyer for Seal's interest will be found. In addition,
there can be no assurance that any Partner Company would be able to raise
additional financing or that any such financing would be at a valuation higher
than that paid by the Company. The Company's investments and acquisitions are
illiquid in nature and cannot be readily sold.
Since the fourth quarter of 1999, the Company has funded its operations and the
Healthology acquisition through proceeds from the Funding Commitment described
in Note 4 of the Company's March 31, 2000 financial statements included in Part
I, Item 1 and in Part II Item 2 of this Form 10-QSB.
The Company anticipates that, at the current level, its operating expenses for
the twelve-month period ending March 31, 2001 will be between $1.7 and $2.2
million. As previously indicated, the Company presently anticipates that
Healthology will seek to raise additional equity financing during 2000. Under
certain conditions, the Company has the right to participate in any such
additional financing in order to maintain its current ownership interest and its
Super-Voting Right. The Company estimates that its resulting additional
investment in Healthology would be between $1.0 and $1.5 million. The Company
believes that the balance of the funds available to it pursuant to the Funding
Commitment will allow it to meet these anticipated cash requirements and to make
additional Partner Company investments.
Nevertheless, because the Company does not anticipate receiving cash flow from
its Partner Companies, funding for operations and future Partner Company
investments once the Funding Commitment is exhausted will require that the
Company raise additional cash. Any such cash raised would likely be dependent on
the Company's ability to demonstrate a record of successfully identifying and
consummating investments or acquisitions in Partner Companies and the continued
expectation by investors that Internet-based e-commerce has the potential for
dramatic growth. The Company anticipates that it will begin to actively seek
additional funding in the second half of 2000 from third parties and from its
majority stockholder. There can be no assurance that the Company will be
successful in such efforts, however. 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 any such
activities may also be significant.
16
<PAGE>
Management believes that the current level of operating expenses can support
additional Partner Company investments. Nevertheless, should the Company be
unable to attract additional funding, operations beyond the first quarter of
2001 would be materially curtailed.
Investment in Camber
The Company's investment in Camber had a carrying value of $1.8 million at March
31, 2000, representing Seal's historical cost basis. Camber, which began
operations in 1998, has incurred significant losses while developing its
business strategy. Camber operates 13 clinics in Florida and California
specializing in multidisciplinary, musculoskeletal care. Camber management
anticipates that they will reach cash flow break-even during 2000, and that its
current business plan will provide for significant profitability through the
acquisition of, and affiliation with, a significant number of additional
clinics. At this time, the Company is unable to determine whether any such
acquisitions can be made without dilution of the Company's interest. Should such
acquisitions be made and funded with additional equity financing by Camber, the
Company's interest may be diluted. Significant dilution of the Company's
interest could indicate impairment in the value of the Camber investment and a
write-down of some or all of said investment could result.
Changes in Financial Condition and Results of Operations
The discussion below relates to material changes in financial condition during
the three-month period ended March 31, 2000 and to material changes in results
of operations when comparing the first quarter of 2000 to the fourth quarter of
1999. The Company does not believe that it is meaningful to compare changes from
the corresponding interim period in the preceding year due to the significant
change in the Company's operations when the Company's only operating subsidiary,
OH, Inc. ("OHI") was acquired by a third party on September 30, 1999. Please
refer to the Company's Annual Report on Form 10-KSB for the year ended December
31, 1999 for information on the disposal of OHI. The operations of OHI are shown
as discontinued operations in the financial statements included in Part I, Item
1 of this Form 10-QSB. All amounts in the discussion below are approximate.
Total assets increased during the three-months ended March 31, 2000 by $3.1
million to $5.7 million. This net increase primarily resulted from the Company's
investment in Healthology of $3.5 million, less a reduction in cash of $439,000.
The reduction in cash resulted principally from the payment of cash expenses for
operations.
17
<PAGE>
Operating expenses for the three-month period ended March 31, 2000 were $714,000
and decreased by $62,000 from the three-month period ended December 31, 1999.
Salaries and benefits for the three-month period ended March 31, 2000 of
$349,000 were comparable to the previous quarter. Professional fees of $264,000
for the three-month period ended March 31, 2000 were $38,000 less than the
previous quarter. The net decrease in professional fees resulted primarily from
a decrease in investment banking fees of $83,000 and an increase in legal fees
of $61,000. General and administrative expenses of $100,000 for the three-month
period ended March 31, 2000 were generally comparable to the preceding quarter.
Results of operations in future periods are expected to be materially impacted
as a result of the Company's investment in Healthology. Please refer to the
discussion of the accounting for Partner Company investments in Note 2 and to
the discussion of the Healthology Acquisition in Note 3 of the Company's March
31, 2000 financial statements included in Part I, Item 1 of this Form 10-QSB. As
noted therein, beginning in the second quarter of 2000, the Company will record
its share of Healthology's income or loss. Due to the nature of Healthology's
operations as described above, the Company expects that such charge will
increase its net loss for the foreseeable future. In addition, beginning in the
second quarter of 2000, the Company will record a charge for amortization of the
excess of its investment in Healthology over the Company's share of the
underlying net assets of Healthology. Such charge is expected to be
approximately $144,000 per quarter over the amortization period of five years,
and will increase the Company's net loss.
Forward Looking Information
In the discussion above (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 and involve risks and uncertainties that may
cause actual results to differ materially from the forward-looking statements.
Factors, risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements herein include (the
"Cautionary Statements"), without limitation:
18
<PAGE>
o The Company's ability to raise capital,
o The Company's ability to execute its business strategy in a very
competitive environment,
o The Company's degree of financial leverage,
o Risks associated with the capital markets and investment climate for
Internet and Healthcare businesses,
o Risks associated with acquisitions and the integration thereof,
o Risks associated with start-up and early-stage enterprises,
o Risks associated with providing services over the Internet,
o Healthcare regulatory considerations,
o Regulatory considerations under the Investment Company Act of 1940,
o Contingent liabilities,
o The impact of competitive services and pricing, and
o 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.
19
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 5 of the Company's March 31, 2000 financial statements included in Part
I, Item 1 of this Form 10-QSB.
Item 2. Changes in Securities
Pursuant to that certain letter dated September 30, 1999, the Company's majority
stockholder agreed to make available to the Company up to Ten Million Dollars
($10,000,000) in funding (the "Funding Commitment") for working capital purposes
and to enable the Company to enter into acquisitions and other transactions, as
approved by the Board of Directors.
In connection with the Funding Commitment, through March 31, 2000, the Company's
majority stockholder and certain of his affiliates (collectively, the "Majority
Stockholder") have contributed $4,050,000 (the "Funds") to the Company.
Approximately $3,500,000 of the Funds was used by the Company to fund its
investment in Healthology and related transaction expenses and $550,000 was used
by the Company for operating expenses.
In consideration of the contribution by the Majority Stockholder of the Funds,
the Board of Directors of the Company and the Majority Stockholder agreed on
March 30, 2000 that the Company would issue to the Majority Stockholder 771,428
shares of the Company's Class A Common Stock ("Class A Common Stock") at a
purchase price of $5.25 per share. Such shares were issued on April 17, 2000.
As of March 31, 2000, an additional $5,950,000 (the "Additional Funds") was
available to the Company pursuant to the Funding Commitment. The Board of
Directors of the Company and the Majority Stockholder further agreed on March
30, 2000 that such Additional Funds will represent a subscription for additional
shares of the Company's Class A Common Stock at $5.25 per share (an aggregate of
1,133,333 shares when $5,950,000 is contributed). Accordingly, the Company
intends to issue to the Majority Stockholder a warrant/subscription agreement to
purchase up to an additional 1,133,333 shares of Class A Common Stock at a
purchase price of $5.25 per share.
Each of the foregoing issuances of securities to the Majority Stockholder was
exempt from registration pursuant to Section 4(2) of the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.3 Investors' Rights Agreement between Healthology, Inc. and Seal
Holdings Corporation dated March 1, 2000. (1)
4.4 Stockholders' Agreement between Healthology, Inc., Seal
Holdings Corporation and certain existing stockholders of
Healthology, Inc. dated March 1, 2000. (1)
4.5 Certificate of Designation of Series A Convertible Voting
Preferred Stock of Healthology, Inc. filed February 29, 2000.
(1)
27 Financial Data Schedule.
(1) Incorporated by reference from an exhibit to the
Company's Current Report on Form 8-K dated March 1,
2000 (File No. 000-05667), as filed March 16, 2000.
(b) Reports on Form 8-K
(i) Current Report on Form 8-K dated March 1, 2000 (File No.
000-05667) filed on March 16, 2000 announcing that on March 1,
2000 the Company had entered into an agreement related to its
investment in Healthology, Inc.
21
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SEAL HOLDINGS CORPORATION,
Dated: May 12, 2000 By: /s/ Cecilio M. Rodriguez
---------------------------
Cecilio M. Rodriguez
Chief Financial Officer and Treasurer
(Principal Financial Officer and Duly
Authorized Officer)
22
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 12 THROUGH 14 OF THE COMPANY'S FORM 10-QSB FOR THE QUARTER AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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