SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) MARCH 31, 2000
LIGHTTOUCH VEIN & LASER, INC.
(Exact name of registrant as specified in its charter)
NEVADA 0-29301 87-0575118
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
10663 MONTGOMERY ROAD, CINCINNATI, OHIO 45242
(Address of principal executive offices) (Zip Code)
(513) 891-8346
Registrant's telephone number, including area code
NOT APPLICABLE
(Former name or former address, if changed since last report)
Exhibit index on consecutive page 2
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Not Applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 31, 2000, the registrant consummated the acquisition of assets
pursuant to the terms of an Asset Purchase Agreement with Harley F.
Freiberger, M.D., dba the Charleston Dermatology and Cosmetic Surgery
Center. The registrant proposes to use the purchased assets and the
services of Dr. Freiberger in its center located in Charleston, South
Carolina, known as LightTouch Vein & Laser of South Carolina, Inc.
(LightTouch-South Carolina).
The purchase price of the assets was $700,000 in the form of a
promissory note and the assumption of approximately $90,000 in
liabilities. The note and the assumed liabilities are expected to be
paid from cash flow generated by the operations of LightTouch-South
Carolina.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not Applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not Applicable.
ITEM 5. OTHER EVENTS
Not Applicable.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS
Not Applicable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired: Filed herewith
(b) Pro forma financial information: Filed herewith
(c) Exhibits:
<TABLE>
<CAPTION>
REGULATION CONSECUTIVE
S-K NUMBER DOCUMENT PAGE NUMBER
<S> <C> <C>
2.1 Asset Purchase Agreement dated March 29, 2000 N/A
(1) <F1>
10.1 Promissory Note dated March 29, 2000 (1)<F1> N/A
10.2 National Medical Director Agreement with Harley N/A
F. Freiberger, M.D. dated March 29, 2000 (1) <F1>
2
<PAGE>
10.3 South Carolina Medical Director And Administra N/A
tive Services Agreement dated March 29, 2000 (1) <F1>
------------------
<FN>
(1)<F1> Filed as exhibits to Amendment No. 1 to this Form 8-K.
</FN>
</TABLE>
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
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.
LIGHTTOUCH VEIN & LASER, INC.
May 31, 2000 By: /S/ GREGORY F. MARTINI
------------------------------------
Gregory F. Martini, President
3
<PAGE>
CHARLESTON DERMATOLOGY AND COSMETIC
SURGERY CENTER
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
WITH INDEPENDENT AUDITORS' REPORT
4
<PAGE>
CHARLESTON DERMATOLOGY AND COSMETIC
SURGERY CENTER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report 6
Financial Statements:
Balance Sheets 7 - 8
Statements of Operations and Proprietor's Capital (Deficit) 9
Statements of Cash Flows 10
Notes to Financial Statements 11-14
</TABLE>
5
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholder
Charleston Dermatology and Cosmetic Surgery Center:
We have audited the accompanying balance sheets of Charleston Dermatology and
Cosmetic Surgery Center (a Proprietorship) as of December 31, 1999 and 1998, and
the related statements of operations, and proprietor's capital (deficit) and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Charleston Dermatology and
Cosmetic Surgery Center as of December 31, 1999 and 1998, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
/S/ CLARK, SCHAEFER, HACKETT & CO.
Cincinnati, Ohio
May 15, 2000
6
<PAGE>
CHARLESTON DERMATOLOGY AND COSMETIC
SURGERY CENTER
Balance Sheets
December 31, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash $ - 7,077
Accounts receivable - trade, less
allowance for doubtful accounts of $10,000 75,342 110,580
--------- ---------
75,342 117,657
--------- ---------
Property and equipment:
Leasehold improvements 49,572 34,197
Office furniture and equipment 260,541 154,098
--------- ---------
310,113 188,295
Less accumulated depreciation 209,092 165,913
--------- ---------
101,021 22,382
--------- ---------
Other assets:
Deposits 3,516 2,600
--------- ---------
3,516 2,600
--------- ---------
$179,879 142,639
========= =========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
LIABILITIES AND PROPRIETOR'S CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current liabilities:
Current portion of capital lease obligation $ 2,600 -
Accounts payable - trade 77,845 71,040
Bank overdraft 688 -
Accrued expenses 1,035 -
Bankruptcy obligations and accrued interest 126,752 149,479
--------- ---------
208,920 220,519
--------- ---------
Capital lease obligation, less current portion 17,400 -
--------- ---------
Commitments and contingencies
Proprietor's capital (deficit) (46,441) (77,880)
--------- ---------
$179,879 142,639
========= =========
</TABLE>
8
<PAGE>
CHARLESTON DERMATOLOGY AND COSMETIC
SURGERY CENTER
Statements of Operations and Proprietor's Capital (Deficit)
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales:
Cosmetic laser services $ 1,269,673 886,078
Cost of sales 243,852 187,030
General and administrative 685,437 683,235
------------ ---------
Income from operations 340,384 15,813
Other income (expense):
Interest expense (17,949) (13,717)
Other income 5,814 -
------------ ---------
(12,135) (13,717)
------------ ---------
Net income 328,249 2,096
Proprietor's capital (deficit) - beginning of year (77,880) 68,749
Distributions to owner (296,810) (148,725)
------------ ---------
Proprietor's capital (deficit) - end of year $ (46,441) (77,880)
============ =========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
CHARLESTON DERMATOLOGY AND COSMETIC
SURGERY CENTER
Statements of Cash Flows
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 328,249 2,096
Depreciation 43,179 23,668
Amortization - 2,170
Effect of change in operating assets and liabilities:
Accounts receivable 35,238 (31,053)
Other assets (916) (600)
Accounts payable and accrued expenses (14,887) 169,161
---------- ----------
Net cash provided by operating activities 390,863 165,442
Cash flows from investing activities:
Capital expenditures (101,818) (22,267)
---------- ----------
Net cash used by investing activities (101,818) (22,267)
---------- ----------
Cash flows from financing activities:
Bank overdraft 688 -
Distributions to proprietor (296,810) (148,725)
---------- ----------
Net cash used by financing activities (296,122) (148,725)
---------- ----------
Net decrease in cash (7,077) (5,550)
Cash - beginning of period 7,077 12,627
---------- ----------
Cash - end of period $ - 7,077
========== ==========
Supplemental disclosure of non-cash activities:
Cash paid during the period for:
Interest $ 17,949 13,717
========== ==========
Assets acquired under capital lease $ 20,000 -
========== ==========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
CHARLESTON DERMATOLOGY AND COSMETIC
SURGERY CENTER
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following principles and practices of the Company are set forth to
facilitate the understanding of data presented in the financial
statements.
DESCRIPTION OF BUSINESS
The Company is a sole proprietorship whose principal business is
the performance of aesthetic cosmetic laser services in the
Greater Charleston, South Carolina area.
ACCOUNTS RECEIVABLE
The Company routinely assesses the financial strength of its
customers and, as a consequence, believes that its trade accounts
receivable credit risk exposure is limited. An allowance for
doubtful accounts has been established at December 31, 1999 and
1998.
PROPERTY AND DEPRECIATION
Property and equipment is recorded at cost. Depreciation is
provided in amounts sufficient to allocate the cost of depreciable
assets to operations over their estimated service lives, primarily
5-7 years, using accelerated methods.
REVENUES
Revenues for cosmetic surgery procedures are recognized when the
services are performed.
INCOME TAXES
The Company is a proprietorship for income tax purposes. Income
and losses from the proprietorship are reported in the
proprietor's personal income tax returns. Accordingly, no income
taxes have been recorded in these financial statements.
11
<PAGE>
USE OF ESTIMATES
The presentation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. RETIREMENT PLAN:
The Company maintains a profit sharing plan covering substantially all
employees who meet certain age and eligibility requirements. Company
contributions are discretionary. There were no contributions made in 1999
or 1998.
3. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases certain equipment and its office facility under
noncancelable operating leases. Estimated future minimum lease
payments as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 93,990
2001 89,788
2002 85,659
2003 88,229
2004 90,875
Thereafter 93,602
--------
$542,143
========
</TABLE>
In the regular course of business, the Company enters into
agreements whereby it leases equipment under month-to-month leases
or of similar short duration.
Approximately 96% of the commitment as of December 31, 1999 is for
the lease of real property.
The lease agreements are secured by the personal guarantee of the
sole proprietor of the Company.
Lease expense charged against operations was approximately
$119,000 in 1999 and $121,000 in 1998.
12
<PAGE>
CAPITAL LEASE OBLIGATION
The Company leases certain equipment under an agreement accounted
for as a capital lease. At December 31, 1999, property and
equipment included capital lease equipment with a cost of $20,000
and accumulated depreciation of $4,000. Future minimum lease
payments due after one year are as follows at December 31, 1999:
<TABLE>
<S> <C>
2000 $ 5,498
2001 5,498
2002 5,498
2003 5,498
2004 5,500
-------
27,492
Less amounts representing interest 7,492
-------
$20,000
Current portion 2,600
-------
Long-term portion $17,400
=======
</TABLE>
LEGAL PROCEEDINGS
From time to time, the company becomes involved in various claims
and lawsuits that are incidental to its business. In the opinion
of the Company's management, there are no material legal
proceedings pending against the Company at December 31, 1999 or
1998.
PROFIT SHARING PLAN
The Company has been deficient in the timely filing of annual tax
returns with respect to its profit sharing plan for the years 1996
- 1998. In May 2000, the Company filed all past due returns. It is
reasonably possible that the Company could be liable for penalties
for failure to file timely tax returns in their fiduciary role as
sponsor. The amount, if any, of the penalties cannot be determined
at this time.
4. SALE OF BUSINESS
In March 2000, the sole proprietor of the Company agreed to sell
substantially all of the assets of the proprietorship to LightTouch Vein
& Laser in exchange for a note receivable and the assumption of certain
liabilities.
13
<PAGE>
5. SIGNIFICANT ESTIMATE
In December 1997, the sole proprietor of the Company declared Chapter 11
bankruptcy. The Company, as a proprietorship, was included as part of the
filing. The Bankruptcy Court certified various federal and state income
tax deficiencies that included both personal and Company related tax
liabilities. An estimate of the proprietorship portion of the liability,
representing payroll tax withholdings, was accrued at December 31, 1997.
The balance accrued as of December 31, 1999 and 1998 reflect these
initial estimates, less payments made subsequent to the bankruptcy
filing, plus estimated penalties and interest accrued through 1999 and
1998, respectively. Interest will continue to accrue until the obligation
is settled. It is reasonably possible that this estimate will change in
the near term.
14
<PAGE>
LIGHTTOUCH VEIN & LASER, INC. AND SUBSIDIARY
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000 AND DECEMBER 31, 1999
WITH
ACCOUNTANTS' COMPILATION REPORT
15
<PAGE>
LIGHTTOUCH VEIN & LASER, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PAGE
Accountants' Compilation Report 17
Pro Forma Combined Condensed Financial Statements:
Balance Sheet 19
Statements of Operations 20-21
Summary of Significant Assumptions 22-25
16
<PAGE>
Board of Directors and Shareholders
LightTouch Vein & Laser, Inc. and Subsidiary:
We have compiled the accompanying pro forma combined balance sheet of LightTouch
Vein & Laser, Inc. and Subsidiary as of March 31, 2000, and the related combined
statements of operations for the three months ended March 31, 2000 and the year
ended December 31, 1999.
In March 2000 LightTouch Vein & Laser, Inc. purchased substantially all of the
assets of Charleston Dermatology and Cosmetic Surgery Center (a proprietorship)
for $700,000, financed by the Seller with a note. The Company also entered into
a National Medical Director Agreement with the Seller.
The accompanying pro forma combined balance sheet as of March 31, 2000 and the
pro forma statements of operations of the Company for the year ended December
31, 1999 and three-month period ended March 31, 2000 have been prepared to
illustrate the estimated effect of the Charleston transaction. The pro forma
financial statements do not reflect any anticipated cost savings from the
Charleston transaction, or any synergies that are anticipated to result from the
Charleston transaction, and there can be no assurance that any such cost savings
or synergies will occur.
The pro forma balance sheet gives pro forma effect to the Charleston transaction
as if it had occurred on March 31, 2000. The pro forma statement of operations
gives effect to the Charleston transaction as it had occurred on January 1,
1999. The pro forma financial statements do not purport to be indicative of the
results of operations or financial position of the Company that would have
actually been obtained had such transactions been completed as of the assumed
dates and for the period presented, or which may be obtained in the future. The
pro forma adjustments are described in the accompanying notes and are based upon
available information and certain assumptions that the Company believes are
reasonable. The pro forma financial statements should be read in conjunction
with the separate historical financial statements of LightTouch Vein & Laser and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere.
The preliminary allocation of the purchase price has been made to major
categories of assets and liabilities in the accompanying pro forma financial
statements based on available information. The actual allocation of the purchase
price and the resulting effect on income may differ significantly from the pro
forma amounts included herein. These pro forma adjustments represent the
Company's preliminary determination of purchase accounting adjustments and are
based upon available information and certain assumptions that the Company
believes to be reasonable. Consequently, the amounts reflected in the pro forma
financial statements are subject to change, and the final amounts may differ
substantially.
17
<PAGE>
A compilation is limited to presenting in the form of pro forma financial
statements information that is the representation of management and does not
include evaluation of the support for the assumptions underlying the pro forma
transactions. We have not examined or reviewed the accompanying pro forma
financial statements and, accordingly, do not express an opinion or any other
form of assurance on them.
Management has elected to omit substantially all disclosures and the statement
of cash flows required by generally accepted accounting principles. If the
omitted disclosures were included in the financial statements, they might
influence the user's conclusions about the Company's financial position, results
of operations, and cash flows. Accordingly, these financial statements are not
designed for those who are not informed about such matters.
/S/ CLARK, SCHAEFER, HACKETT & CO.
Cincinnati, Ohio
May 31, 2000
18
<PAGE>
LIGHTTOUCH VEIN & LASER, INC.
Unaudited Pro Forma Combined Balance Sheets
March 31, 2000
ASSETS
<TABLE>
<CAPTION>
LightTouch Vein
LightTouch Vein & Laser of South Pro Forma Pro Forma
& Laser, Inc. Carolina, Inc. Adjustments Combined
--------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash $ 66,630 16,559 (16,559)(a) 66,630
Accounts receivable - trade 29,845 69,125 - 98,970
Prepaid expenses 6,748 - - 6,748
------------ ------------ ------------ ------------
Total current assets 103,223 85,684 (16,559) 172,348
Property and equipment - net 190,520 123,492 278,037 (a) 592,049
Other assets:
Intangible assets - net 18,750 - 227,222 (a) 245,972
Deposits and other 3,148 3,516 - 6,664
------------ ------------ ------------ ------------
21,898 3,516 227,222 252,636
------------ ------------ ------------ ------------
$ 315,641 212,692 488,700 1,017,033
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 103,476 92,102 - 195,578
Other current liabilities 115,357 8,981 (8,981) 115,357
Capital lease obligation - current portion 30,888 2,000 - 32,888
------------ ------------ ------------ ------------
Total current liabilities 249,721 103,083 (8,981) 343,823
------------ ------------ ------------ ------------
Long-term liabilities:
Long-term debt - - 590,747 (b) 590,747
Capital lease obligation, less current portion 66,209 16,543 - 82,752
Tax obligation and accrued interest - 111,803 (111,803)(a) -
------------ ------------ ------------ ------------
Total long-term liabilities 66,209 128,346 478,944 673,499
------------ ------------ ------------ ------------
Shareholders' equity (deficit):
Common stock, $.001 par value,
100,000,000, share authorized;
7,500,000 shares issued and outstanding 7,500 - - 7,500
Preferred stock, $.001 par value,
25,000,000 shares authorized;
no shares issued or outstanding - - - -
Additional paid-in capital 904,500 - - 904,500
Note receivable exchanged for
common stock (96,238) - - (96,238)
Accumulated deficit (816,051) (18,737) 18,737 (c) (816,051)
------------ ------------ ------------ ------------
(289) (18,737) 18,737 (289)
------------ ------------ ------------ ------------
$ 315,641 212,692 488,700 1,017,033
============ ============ ============ ============
</TABLE>
See summary of significant assumptions.
19
<PAGE>
LIGHTTOUCH VEIN & LASER, INC.
Unaudited Pro Forma Combined Statements of Operations
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
LightTouch Vein
LightTouch Vein & Laser of South Pro Forma Pro Forma
& Laser, Inc. Carolina, Inc. Adjustments Combined
--------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales:
Cosmetic laser services $ 550,766 315,772 - 866,538
Laser sales and service 87,642 - - 87,642
------------ ------------ ------------ ------------
638,408 315,772 - 954,180
Cost of sales 324,831 85,450 - 410,281
General and administrative 330,427 180,778 25,896 (a) 537,101
------------ ------------ ------------ ------------
Income (loss) from operations (16,850) 49,544 (25,896) 6,798
Other income (expense) - net 34,122 - - 34,122
Interest expense (1,877) - (11,849)(b) (13,726)
------------ ------------ ------------ ------------
Income (loss) before provision
for income tax 15,395 49,544 (37,745) 27,194
Provision for income tax - - - -
------------ ------------ ------------ ------------
Net income (loss) $ 15,395 49,544 (37,745) 27,194
============ ============ ============
Pro forma adjustment to compensation expense:
Officer/doctor salary (43,750)
Related income taxes -
------------
Pro forma net loss after increase in salary $ (16,556)
============
Earnings per common share - net income:
Basic $ 0.00
============
Diluted $ 0.00
============
Earnings per common share - after pro forma adjustment:
Basic $ (0.00)
============
Diluted $ (0.00)
============
</TABLE>
See summary of significant assumptions.
20
<PAGE>
LIGHTTOUCH VEIN & LASER, INC.
Unaudited Pro Forma Combined Statements of Operations
Year Ended December 31, 1999
<TABLE>
<CAPTION>
LightTouch Vein
LightTouch Vein & Laser of South Pro Forma Pro Forma
& Laser, Inc. Carolina, Inc. Adjustments Combined
--------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales:
Cosmetic laser services $ 1,982,113 1,269,673 - 3,251,786
Laser sales and service 407,847 - - 407,847
------------ ------------ ------------ ------------
2,389,960 1,269,673 - 3,659,633
Cost of sales 1,644,122 243,852 - 1,887,974
General and administrative 1,023,599 685,437 60,406 (a) 1,769,442
------------ ------------ ------------ ------------
Income (loss) from operations (277,761) 340,384 (60,406) 2,217
Other income (expense) - net 8,080 5,814 - 13,894
Interest expense (81,596) (17,949) (61,859)(b) (161,404)
------------ ------------ ------------ ------------
Income (loss) before provision
for income tax (351,277) 328,249 (122,265) (145,293)
Provision for income tax - - - -
------------ ------------ ------------ ------------
Net income (loss) $ (351,277) 328,249 (122,265) (145,293)
============ ============ ============
Pro forma adjustment to compensation expense:
Officer/doctor salary (175,000)
Related income taxes -
------------
Pro forma net loss after increase in salary $ (320,293)
============
Earnings per common share - net loss:
Basic $ (0.02)
============
Diluted $ (0.02)
============
Earnings (loss) per common share - after pro forma adjustment:
Basic $ (0.05)
============
Diluted $ (0.05)
============
See summary of significant assumptions.
</TABLE>
21
<PAGE>
LIGHTTOUCH VEIN & LASER, INC.
Summary of Significant Assumptions
1. DESCRIPTION OF TRANSACTION
On March 29, 2000, LightTouch Vein & Laser, Inc. (the Company), through
its wholly-owned subsidiary LightTouch Vein & Laser of South Carolina,
Inc. (LTVLSC), acquired substantially all of the assets, and assumed
certain liabilities, of a cosmetic surgery center known as Charleston
Dermatology and Cosmetic Surgery Center.
The aggregate purchase price of the assets is $700,000, which consists
of a promissory note payable to the seller in the sum of $700,000,
secured by said assets. The note is payable in two (2) installments of
principal, without interest. If the business maintains a cash flow of
not less than $400,000 for the period beginning April 1, 2000 and
ending March 31, 2001, the Company shall pay the seller principal as
follows: (i) the first installment of principal in the amount of
$200,000 on or before twelve (12) months from the closing date; and
(ii) the second installment of principal in the amount of $500,000 on
or before the date which is twenty-four (24) months from the closing
date. If the cash flow for the above stated period is less than
$400,000, then the principal repayment dates under the note shall
automatically be extended for successive twelve (12) and twenty-four
(24) month periods, without interest, until the required cash flow is
attained with a fiscal year.
LTVLSC entered into an employment contract with Harley F. Freiberger,
M.D. (Seller), as Medical Director on March 29, 2000. Seller shall earn
and is entitled to receive all of the first $40,000 of the cash flow
received by LTVLSC each and every month for the first twenty-four (24)
months, or for such longer period if the promissory note as not been
paid in full. All of the cash flow received by LTVLSC above $40,000 per
month up to $55,000 per month during such period shall be retained by
LTVLSC. LTVLSC and the Seller on a 50/50 basis shall share cash flow in
excess of $55,000 per month. After the initial twenty-four (24) month
period, or such longer period as noted above, the Seller shall be paid
a guaranteed minimum annual salary of $175,000, plus 50% of all of the
cash flow of LTVLSC for a term and with additional benefits to be
determined by LTVLSC and the Seller.
The Pro Forma financial statements only reflect the guaranteed minimum
salary of $175,000 and do not reflect payments of any contingent cash
flow. If the operations of LTVLSC achieve certain levels of cash flow,
it is possible that compensation in excess of $175,000 per year would
be paid under the employment agreement.
22
<PAGE>
Simultaneously, the Company entered into a National Medical Director
Agreement with the Seller to serve as the National Medical Director on
behalf of the Company and all of its Centers. As compensation for the
performance as Medical Director, the Company transferred 447,205 shares
of its common stock having a value of $1,800,000 based upon the average
closing price of the Company's common shares for the five trading days
immediately prior to March 29, 2000. In addition, the Company
transferred 124,224 shares of its common stock to the Seller, having a
value of $500,000, as a bonus for entering into this agreement and
agreeing to perform the duties of National Medical Director. Both
awards of stock vest over the year ended April 1, 2001.
The National Medical Agreement shall continue for a period of twelve
(12) months ending on April 1, 2001 unless sooner terminated.
Thereafter, the agreement automatically continues in effect for
additional terms of five (5) years each, unless either party notifies
the other, not less than six (6) months or more than twelve (12)
months, of its intent to terminate the agreement.
The Pro Forma financial statements do not reflect the expense
associated with the approximately $2,300,000 of compensation noted
above for the performance of duties as a National Medical Director.
These duties do not directly relate to activities of historical
operations, but instead relate to future development activities of the
Company.
Immediately upon consummation of the transaction, Charleston
Dermatology and Cosmetic Surgery Center will do business as LightTouch
Vein & Laser of South Carolina, Inc.
2. BASIS OF PRESENTATION
The accompanying pro forma combined statements of operations are
presented for the year ended December 31, 1999 and the interim quarter
ended March 31, 2000. It is based upon historical results of the
combining entities, LightTouch Vein & Laser, Inc. and Charleston
Dermatology and Cosmetic Surgery Center for the twelve months ending
December 31, 1999 and the three months ending March 31, 2000. It has
been computed assuming the transaction was consummated at the beginning
of each period presented, and includes all adjustments which give
effect to events that are directly attributable to the transaction, are
factually supportable, and are expected to have a continuing impact on
the Company.
The pro forma combined balance sheet is presented as of March 31, 2000.
It is based upon the historical financial position of the combining
entities at the respective dates. It has been computed assuming the
transaction was consummated on March 31, 2000 and includes adjustments
that give effect to events that are directly attributable to the
transaction and are factually supportable.
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<PAGE>
3. BALANCE SHEET ADJUSTMENTS
(a) The estimated purchase price and preliminary adjustments to
historical book value of LightTouch Vein & Laser of South
Carolina, Inc. as a result of the Charleston Dermatology and
Cosmetic Surgery Center transactions is as follows:
<TABLE>
<CAPTION>
Purchase price:
<S> <C>
Estimated value of note payable issued $ 590,747
Book value of assets acquired (85,488)
----------
Purchase price in excess of net assets acquired $ 505,259
==========
Preliminary allocation of purchase price in excess of net assets acquired:
Increase in property and equipment to
estimated fair value $ 278,037
Estimated goodwill 27,222
Estimated value of patient lists 200,000
----------
Purchase price in excess of net assets acquired $ 505,259
==========
(b) Reflects the source of funds for the Charleston transaction as follows:
Note payable to Seller, without interest $ 700,000
Discount to present value @ 10% (109,253)
----------
$ 590,747
==========
(c) The adjustment to retained earnings as a result of the Charleston
transaction is as follows:
Retained earnings:
Elimination of Charleston pre-business
accumulated deficit $ 18,737
==========
</TABLE>
4. STATEMENT OF OPERATIONS ADJUSTMENTS
(a) The acquisition of Charleston was accounted for by the purchase
method of accounting. Under purchase accounting, the total
purchase price was allocated to the tangible and intangible assets
and liabilities of Charleston based upon their respective fair
values as of the closing date based upon valuations and other
studies that are not yet finalized. The actual allocation of the
purchase price and the resulting effect on income from operations
may differ significantly from the pro forma amounts included
herein. The following presents the effect of the purchase
adjustments and adjustments to reflect adoption of the Company's
accounting policies on the Pro Forma Statement of Operations:
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<PAGE>
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
----------------- ------------------
G & A G & A
<S> <C> <C>
Depreciation $18,591 $15,442
Amortization of intangibles
and goodwill 41,815 10,454
------- -------
$60,406 $25,896
======= =======
</TABLE>
The adjustments for estimated pro forma depreciation and
amortization of intangible assets and goodwill are based on their
estimated fair values. Property, plant and equipment are being
depreciated over estimated useful lives, primarily 5-7 years.
Patient lists are being amortized over their estimated useful
lives, not to exceed 5 years. Goodwill is being amortized over 15
years.
(b) Reflects interest expense on acquisition debt using an imputed
rate of 10% per annum.
5. SUPPLEMENTAL PRO FORMA ADJUSTMENT
A supplemental pro forma adjustment has been made to reflect the
minimum guaranteed salary to be paid to the Seller, as a result of the
employment agreement outlined in Note 1. Historically, no compensation
was recognized for similar services provided by the Seller since the
acquired entity was a proprietorship. The duties and responsibilities
of the seller, as an employee, will not be diminished or cause other
costs to be incurred relating to LTVLSC.
25
<PAGE>
